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Algeria could borrow money to finance its 2020 budget deficit

Monday, 14 October 2019 14:19
Algeria could borrow money to finance its 2020 budget deficit

(Ecofin Agency) - In the final communiqué issued following a Council of Ministers held on October 13, the Algerian government says it could borrow money from development financial institutions to finance its budget deficit in 2020.

“The 2020 draft Finance Act proposes the possibility of selectively using external financing from global development financial institutions to finance structural and profitable economic projects with amounts and timeframes related to the performance of these projects and their solvency,” the document states without giving more details on the targeted institutions.

It should be recalled that the draft 2020 Finance Act, adopted by the Algerian government, forecasts a deficit of 1,555 billion Algerian dinars (about $12.5 billion), despite a significant reduction of public spending. This situation is linked to an envisaged 6.6% decline in the country's revenues. The decision to go into debt does not seem to be unanimously accepted, even if the country's level of external debt is quite low, 1.9% of GDP.

Although former President Abdelaziz Bouteflika was ousted in Q2 2019, Algeria still faces major economic problems, resulting from the five-year drop in oil prices, the main export product. And fiscal and external deficits remain high despite a considerable consolidation of public finances in 2017.

Analysts deplore the fact that past governments have not made better use of oil wealth resources to implement the diversification investments planned today. Also, they criticize the current Finance Minister, Mohamed Loukal, as he now questions the current effects of the massive monetary issuance policy, which was practiced during his tenure as Managing Director of the Bank of Algeria (central bank).

The law on currency and credit was amended in October 2017 to allow the Bank of Algeria to finance directly the budget deficit, the purchase of public sector receivables and the National Investment Fund, among others. The Central Bank gradually stepped up its interventions to address, in particular, the risk of a decrease in foreign exchange reserves caused by new liquidity injections into the country's economy.

Idriss Linge

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