- The near-term outlook remains broadly positive, as higher hydrocarbon prices are boosting export and fiscal revenues, but fiscal buffers have eroded.
- Strengthening resilience requires a more consistent macroeconomic policy mix, including fiscal consolidation, monetary policy focused on price stability, and greater exchange rate flexibility.
- Algeria’s diversification efforts and removal from the AML/CFT grey list are welcome and should be complemented by deeper reforms to support stronger, more resilient, private sector-led growth.
Algiers, Algeria: An International Monetary Fund (IMF) mission led by Mr. Charalambos Tsangarides visited Algiers during June 16–30, to conduct the 2026 Article IV consultation with Algeria.
At the end of the mission, Mr. Tsangarides issued the following statement:
“Growth remained robust in 2025, and is estimated to have reached 3.9 percent, supported by important investment, while the growth in hydrocarbon sector remained subdued. Headline inflation increased in September 2025, due to a significant increase in jewelry prices and a moderate increase in food prices.
The fiscal deficit narrowed in 2025, to 10.5 percent of GDP, supported by large one-off dividends from state-owned enterprises (SOEs) and the Bank of Algeria (BA), as well as stronger nonhydrocarbon revenues, but it remained very large. Nonetheless, large financing needs pushed public debt to 52.1 percent of GDP. Monetary conditions eased, alongside increased central bank financing of the government.
The current account balance deteriorated significantly in 2025, as imports surged, boosted by large public investments, and hydrocarbon exports declined. The size of the current account deficit led to a large decline in international reserves. The parallel exchange rate premium also remained elevated, despite measures introduced by the BA.
The near-term outlook remains broadly positive, as higher hydrocarbon prices are expected to boost export and fiscal revenues. GDP growth is projected to remain robust at 3.8 percent in 2026. Inflation is projected to increase temporarily. The current account deficit is projected to narrow due to higher hydrocarbon prices and lower imports. The fiscal deficit is projected to remain high. Over the medium term, the mission expects that growth will moderate, while continued high deficits would continue to increase public debt and gradually reduce reserves. The outlook depends on reforms to strengthen fiscal sustainability, diversify the economy, and boost private investment.
Risks to Algeria’s economic prospects primarily stem from hydrocarbon-price volatility, persistently large fiscal deficits, and deep financial linkages between the government, SOEs and public banks (SOBs). In addition, continued reliance on monetary financing could undermine price stability and policy credibility.
Strengthening economic resilience has become more urgent due to eroded fiscal and external buffers. In the near term, the mission recommends a sizable fiscal consolidation, particularly considering the widening current account deficit, partly due to public investment. Monetary financing should be avoided while monetary policy should be tightened if the inflation acceleration continues. Improved liquidity management would help align the interbank rate more closely with the policy rate and strengthen monetary policy transmission. More exchange rate flexibility would enhance the economy’s ability to absorb external shocks. Continued efforts to improve the functioning of the formal FX market, supported by a more consistent macroeconomic policy mix, would help strengthen confidence and support private-sector activity. Medium-term priorities include strengthening the fiscal and monetary frameworks, reducing the sovereign–SOE–SOB nexus, and continuing to implement structural reforms to support a gradual shift toward sustainable, private-sector-led growth.
The fiscal consolidation strategy should focus on mobilizing further nonhydrocarbon revenue and streamlining spending. Revenue mobilization measures should include broadening the tax base, reducing tax expenditures, and strengthening tax administration efforts to improve compliance and reduce informality through digitalization and stronger controls. Reforming subsidies and social benefits, and limiting transfers to SOEs, would help the consolidation effort and create space for priority expenditures, including targeted support for vulnerable households. Enhancing public investment efficiency would support the authorities’ economic diversification goals. The consolidation effort would be supported by stronger public financial management and fiscal risk management and anchored within a rule-based framework. The mission welcomes initial steps to diversify financing sources, including the first sovereign Sukuk issuance and expected financing from a regional development bank.
The mission recommends further strengthening the monetary policy framework, including establishing low inflation as the primary objective and nominal anchor. The mission urges the authorities to strengthen the regulatory safeguards for any exceptional monetary financing of the government to protect the central bank’s operational independence. The BA should improve its liquidity management operations and keep the interbank and policy rates closer. Improving financial sector oversight is crucial to mitigate risks arising from strong financial linkages between the central government, SOEs, and SOBs.
Continued reforms are needed to support stronger, more resilient, private sector-led growth. Priorities include improving the business climate, leveling the playing field between SOEs and the private sector, reducing trade restrictions and regulatory barriers, enhancing goods and labor markets flexibility, and reducing informality through digitalization and tax-regime reform. Algeria’s geographical position and wealth of energy resources could be leveraged to further strengthen its role in the energy market, especially with Europe and Africa. The mission welcomes Algeria’s diversification efforts, including in mining and agriculture, and encourages continued reforms to strengthen competitiveness and private investment.
The mission welcomes Algeria’s removal from the AML/CFT grey list as an important achievement reflecting strong commitment and sustained reform efforts. The mission encourages the authorities to sustain the reform effort.”
“The mission expresses its gratitude and appreciation to the authorities and all interlocutors for their warm hospitality and the open and constructive discussions.”
READ MORE: https://www.imf.org/en/news/articles/2026/07/06/pr26236-algeria-imf-staff-completes-2026-article-iv-mission
