- Algeria’s reform program has supported diversification and robust growth, although large fiscal deficits have depleted fiscal buffers and external buffers have eroded.
- Higher hydrocarbon revenue improves the near-term outlook and provides an opportunity to rebuild buffers, but reducing vulnerabilities requires fiscal consolidation, monetary policy focused on price stability, and greater exchange rate flexibility.
- Algeria’s diversification efforts and removal from the FATF list of jurisdictions under increased monitoring are welcome and should be complemented by deeper reforms to support stronger, more resilient, private sector-led growth.
Washington, DC: The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation for Algeria on September 11, 2026.[1]
Robust growth in 2025 was accompanied by higher inflation and large fiscal and current account deficits. Real GDP growth is estimated at 3.9 percent in 2025 (from 3.7 percent in 2024) supported by strong investment. Headline inflation rose from -2.0 percent in September 2025 to 5.2 percent in April 2026, as food-price deflation ended and jewelry prices increased sharply with higher gold prices. Although the fiscal deficit narrowed in 2025, supported by large one-off dividend payments from SOEs and the Bank of Algeria, it remained very large. And with fiscal buffers depleted, continued large financing needs increased public debt and reliance on central-bank financing. The current account deficit widened sharply as imports surged, and hydrocarbon exports declined, leading to large reserve losses. Monetary conditions eased alongside increased central bank financing of the government and the parallel exchange rate premium widened further.
Near-term prospects remain broadly positive, although the erosion of fiscal and external buffers weighs on the outlook. 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 fiscal deficit is projected to remain high, with continued monetary financing, while the current account deficit is projected to narrow on the back of higher hydrocarbon prices and lower imports. Over the medium term, growth is expected to moderate, while continued large fiscal deficits would raise public debt and persistent current-account deficits would further reduce reserves.
Key downside risks include a sharp decline in hydrocarbon prices, continued large fiscal deficits that could jeopardize debt sustainability and intensify the sovereign-bank linkages, and continued reliance on monetary financing, which could undermine price stability and policy credibility. On the upside, stronger fiscal consolidation, faster diversification, and continued structural reforms could improve the business climate, attract private investment, and strengthen medium-term growth and resilience.
Executive Board Assessment[2]
In concluding the Article IV consultation with Algeria, Executive Directors endorsed staff’s appraisal as follows:
Executive Directors agreed with the thrust of the staff appraisal. They welcomed Algeria’s continued robust growth and diversification efforts, supported by its public investment led strategy. While near term prospects remain broadly positive, Directors noted that large fiscal deficits have eroded fiscal and external buffers and increased financing pressures. They emphasized the need for a gradual rebalancing of macroeconomic policies and sustained structural reforms to rebuild buffers, strengthen resilience, support diversification, and promote private sector led growth. Strong engagement through Fund capacity development and technical assistance remains important.
Directors called for credible and gradual fiscal consolidation, noting that large fiscal deficits pose significant fiscal sustainability risks. They highlighted that the current hydrocarbon windfall provides an opportunity to rebuild fiscal buffers. Directors emphasized the need for stronger nonhydrocarbon revenue mobilization, more efficient public investment, and expenditure rationalization, including through gradual energy subsidy reform accompanied by targeted support for vulnerable households. They highlighted that continued progress on improving public financial management and fiscal risk management, anchored in a rules-based framework, would support fiscal adjustment.
Directors emphasized that monetary policy should be tightened if broader inflationary pressures intensify. They recommended enhancing the monetary policy framework by establishing low inflation as a clear nominal anchor, improving monetary policy transmission, reinforcing the Bank of Algeria’s operational independence, and limiting monetary financing to exceptional circumstances. Directors underscored that greater exchange rate flexibility would strengthen external shock absorption, also helping to reduce the parallel market exchange rate premium.
Directors welcomed Algeria’s efforts to strengthen financial stability and inclusion. While noting that banks remain liquid, profitable, and well capitalized, they called for continued reforms to contain risks from high NPLs and linkages between the sovereign, state owned enterprises (SOEs), and state-owned banks. Measures to strengthen supervision, crisis and liquidity management, and enhance public bank governance are important. Directors commended the authorities for Algeria’s swift removal from the FATF list of jurisdictions under increased monitoring. They encouraged continued effective implementation of the strengthened AML/CFT framework and steps to address outstanding FSAP recommendations.
Directors welcomed the authorities’ diversification efforts, while noting that deeper 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 regulatory barriers and informality, and strengthening governance and transparency. Directors also highlighted the importance of building climate resilience and deepening trade and energy linkages with Europe and Africa. They called for improved data coverage, timeliness, and quality to better inform policymaking.
READ MORE: https://www.imf.org/en/news/articles/2026/09/21/pr26290-algeria-imf-concludes-2026-aiv-consultation
