An IMF mission led by Charalambos Tsangarides visited Algiers from June 16 to June 30 to assess economic conditions and discuss policy priorities with authorities.
The IMF noted that inflation rose during 2025, driven largely by a sharp increase in jewellery prices and moderate food price inflation. While economic growth remained robust, the country continued to face significant fiscal and external challenges.
The fiscal deficit narrowed to 10.5% of gross domestic product (GDP) in 2025, supported by strong non-hydrocarbon revenues and one-off dividend payments from state-owned enterprises and the Bank of Algeria.
Despite the improvement, the deficit remained substantial, contributing to increased public borrowing and pushing public debt to 52.1% of GDP. At the same time, the current account deficit widened significantly as imports surged due to large public investment projects, while hydrocarbon exports declined. The resulting pressure contributed to a notable reduction in international reserves.
Looking ahead, the IMF expects growth to remain strong at 3.8% in 2026, supported by higher hydrocarbon prices that are expected to boost export earnings and government revenues. However, inflation is projected to rise temporarily, while fiscal deficits are expected to remain elevated.
Over the medium term, the Fund warned that continued large deficits could lead to rising public debt and further erosion of external buffers unless reforms are accelerated.
The IMF identified several key risks, including volatility in hydrocarbon prices, persistent fiscal imbalances and close financial links between the government, state-owned enterprises and public banks.
To strengthen economic resilience, the Fund recommended a significant fiscal consolidation programme focused on increasing non-hydrocarbon revenues and improving spending efficiency.
Suggested measures include broadening the tax base, reducing tax exemptions, strengthening tax administration and increasing digitalisation to improve compliance and reduce informality.
The IMF also called for reforms to subsidies and social benefits, arguing that better targeting of support could help create fiscal space for priority spending while protecting vulnerable households.
On monetary policy, the Fund recommended avoiding further monetary financing of government spending and maintaining a tighter policy stance if inflationary pressures persist. It also encouraged the Bank of Algeria to improve liquidity management and strengthen the effectiveness of monetary policy transmission.
The mission further advocated for greater exchange rate flexibility, saying this would improve the economy’s ability to absorb external shocks and support confidence in the formal foreign exchange market.
Structural reforms were identified as essential to promoting private sector-led growth. The IMF urged Algeria to improve the business environment, reduce regulatory barriers, enhance competition between state-owned enterprises and private firms, and increase labour market flexibility.
The Fund also highlighted Algeria’s strategic geographic position and energy resources as important strengths that could be leveraged to expand its role in regional and international energy markets, particularly with Europe and Africa.
The IMF welcomed Algeria’s ongoing efforts to diversify its economy, including initiatives in mining and agriculture, and praised the country’s recent removal from the Financial Action Task Force grey list as evidence of sustained reform efforts.
The mission concluded by encouraging authorities to maintain reform momentum to strengthen fiscal sustainability, diversify the economy and support long-term, private sector-driven growth.
–IMF/ChannelAfrica–
