Economic Analysis - Unorthodox Financing Plan Will Raise Political Risk - 02 OCT 2017

BMI View: The reappointment of Ahmed Ouyahia as prime minister of Algeria , and the launch of a new economic plan, signal that that the government will strive harder to cut spending in a bid to narrow its costly budget deficit. Plans to borrow directly from the central bank will help keep debt levels manageable, but is not a long-term solution, and carries with it other risks in terms of political discontentment.

Despite having published a new economic plan, we do not expect that the government of Algerian Prime Minister Ahmed Ouyahia will successfully balance its budget by 2022, as it has set out to do. The reappointment of Ouyahia will give greater momentum to efforts to curb spending, but political considerations will hamper progress. Meanwhile, lower-for-longer oil prices will weigh on revenues. Debt levels will continue to tick up, although the pace of debt accumulation will be slowed by plans announced in the new growth strategy to borrow directly from the central bank. This will bring with it its own particular issues, however, with more rapid depreciation of the local currency, higher inflation, and greater political risk, some likely outcomes.

Greater Commitment To Austerity

Budget Deficit Will Require Financing
Algeria - Budget Balance
f = BMI forecast. Source: IMF, BMI

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