The structure of Algeria's economy is still dominated by the oil and gas sector, which accounted for about 19% of GDP, 93% of exports and 38% of budget revenues in 2016-2021. The "hydrocarbon boom" of recent decades has allowed Algeria to achieve success in economic development. Back in 2008, the country almost completely repaid its debt to the World Bank and the IMF, invested in infrastructure projects and achieved significant success in the fight against poverty.
However, it should be noted that in recent years there has been a reduction in investment in the oil and gas sector — as a result, production has stagnated, and the growth of domestic consumption has led to a decrease in exports. At the same time , from 2020 The Government is taking steps to stimulate investment, both foreign and domestic, through the partial lifting of restrictions on the participation of foreign capital in state-owned companies and the adoption of a new investment law.
The jump in hydrocarbon prices caused by the recovery of the world economy and geopolitical instability led to a significant increase in exports, which had a positive impact on the Algerian economy. After a decline of 5.1% in 2020, the country's GDP grew by 3.5% in the reporting year, which was facilitated by the active recovery of oil and gas production and increased supplies to foreign markets. As a result, the trade deficit decreased from 14.1% to 2.9% of GDP, and the overall budget deficit decreased from 12.0% to 7.2% of GDP. According to the forecast, in 2022 Algeria's GDP will increase to 187.2 billion US dollars (+4.7%), and by 2027 it will reach $224 billion with slowing growth rates.
Since mid-2021, inflation has reached a fairly high level, mainly due to the acceleration of food inflation, which exceeded 10% in July 2021 and 17% in June 2022. Low-income Algerians suffer the most from this. The least affluent 40% of the country's population spends about half of their monthly income on food.
Thus, food prices have become the main factor of inflationary pressure in 2021-2022. Algeria is a net importer of agricultural products and the price rally on the world market ultimately had a negative impact on consumers.
The weakening of purchasing power reduces consumer demand, which limits the real growth of the economy. In the medium term, the inflation rate in Algeria will continue to remain at a high level: from 8.5 to 10.5% per year.
The forecast of political stability in Algeria improved after 2019-2020, which were marked by nationwide weekly anti-government protests demanding fundamental changes in the political system.
Against the background of skepticism of the population in relation to the activities of the government, the presidential administration initiated a number of measures that are gaining popularity. Thus, since September 2022, the authorities have launched a large-scale campaign to combat market manipulation: many wholesale and retail enterprises deliberately create excess stocks of subsidized goods, which leads to an artificial increase in inflation and periodic shortages. The draft budget law for 2023 has further increased already high social spending, including subsidies, thereby reducing the risk of civil unrest.
