The Maghreb’s Simmering Pot Straddle
In North Africa as Morocco and Tunisia attempt Islamic-party led nonviolent economic comebacks, attention has also focused on Algeria where the powers in control for decades have fought an ingrained insurgency often compared with the current battle in Syria. There the international community has withdrawn energy, tourism and banking ties as an Arab League mission seeks a phased Assad regime transition as in Yemen’s case in order to avoid full-scale bloodshed as erupted in Libya. The exchange rate was officially devalued as the central bank spent billions of dollars in initial defense. Non-essential import curbs have been introduced, and personal currency access restrictions remain in place. Private banks dominated by Lebanese-owned units are now authorized to offer pound transfer, but speculative trading is outlawed. Prominent business executives allied with the government have been subject to asset and travel freezes abroad as the stock exchange lies dormant and GDP may be shrinking at a double-digit pace. Monetary officials claim to be prepared for a “long crisis” and “painful sanctions,” but will not disclose their reserve position despite previous reporting.
Algeria’s holdings in contrast have ballooned to $175 billion or 3 years of import coverage on a 30 percent oil and gas revenue windfall in 2011. However setbacks in the public investment program dragged GDP growth to 2.5 percent on 5 percent food-driven inflation. Banking system liquidity also contributed, on “very expansionary” fiscal policy, according to the IMF’s annual review. Post Arab-Spring spending was up 50 percent on civil service wage awards, small enterprise assistance and capital outlays which lag the original infrastructure blueprint. The budget deficit was 4 percent of GDP, but hydrocarbon stabilization fund savings will keep public debt low. The dinar depreciated slightly but broadly reflects fundamentals, the analysis asserts. The central bank continues to absorb excess liquidity through two facilities, but should as well consider hiking benchmark rates to buttress the managed float currency regime, it suggests. Medium term official finances could worsen on commodity correction as deficits would be met exclusively through government borrowing as the current account balance turns negative. Better tax administration and targeting of social transfers can aid the budget, and after this year’s minimum salary increase labor policy should focus on redressing 20 percent youth unemployment. Subsidies and debt rescheduling for designated small and midsize enterprises should not be permanent budget features, the Fund recommends. State-owned banks still account for 90 percent of the sector which lacks a central credit registry. Only a half-dozen stocks are listed on the tiny exchange, which may benefit from connections under discussion with Francophone West Africa’s regional counterpart. A distressed asset management company in formation to take long non-performing loans may also help with modernization as the main post-independence party otherwise clings to old methods.
