The IMF has issued a stark warning about the prospects for the economy of Opec member Algeria, saying "the collapse in oil prices has exposed longstanding vulnerabilities in a state-led economy that is overly dependent on hydrocarbons".
The report, issued at the end of the annual consultation with the government of Algeria, concluded that "Algeria's economy is facing a severe and likely long-lasting external shock, calling for a vigorous policy response built on fiscal consolidation and structural reforms".
But it said foreign exchange reserves that declined by $35bn in 2015 to $143bn and low external debt provide a window for structural adjustment. The impact of the collapse in oil prices since mid-2014 has been limited so far, the IMF said, but the economic outlook has deteriorated in the last year.
The IMF called for controls on spending, further subsidy cuts, greater labour market flexibility, more appropriate education, and better mobilisation of the non-hydrocarbon economy. It said Algeria will have to borrow more to finance future deficits as reserves run down and calls for "transparent" opening up of the state-owned sector to private capital.
The banking sector is well-capitalised and profitable but is vulnerable to its links to the hydrocarbon economy and other parts of the public sector, the report said. In a nod to the political dangers of structural adjustment in Algeria, the IMF said "communication to build a consensus around the needed reforms will be important to ensure their timely implementation".
