Algeria’s 2025 State Budget, recently approved by Parliament and signed by President Abdelmadjid Tebboune, paints a complex picture of the country’s financial future. With soaring expenditures and a heavy reliance on oil revenues, the budget raises questions about fiscal sustainability, economic diversification, and the role of foreign investment in shaping Algeria’s economic trajectory.
A Widening Budget Deficit
The 2025 Finance Act projects total expenditures of 16,794 billion dinars against revenues of 8,523 billion dinars, resulting in a budget deficit of 8,271.55 billion dinars—or 21.8% of GDP. Capital spending, which stands at 3,128.32 billion dinars, pales in comparison to personnel costs, which amount to 4,445.78 billion dinars. Transfers, including subsidies and public service funding, account for 37.1% of the budget, making them the largest expenditure category.
This reliance on oil revenues—accounting for 45% of budget revenues and 90% of foreign currency earnings—leaves Algeria vulnerable to fluctuations in global oil prices. Professor Brahim Guendouzi of Mouloud Mammeri University warns that an oil price below $80 per barrel could exacerbate inflation and force the government to freeze public investments, slowing economic growth.
Structural Weaknesses and Policy Priorities
Guendouzi highlights the disproportionate weight of public sector wages (34.18% of the budget) and urges reforms to rationalize expenditures, particularly subsidies. He advocates for a more targeted subsidy system to reduce waste while maintaining social protections.
Public investments, which constitute 18.6% of the budget, focus on critical sectors such as mining, rail transport, desalination, renewable energy, and housing. However, delayed project completions and a lack of oversight often hinder their impact.
To address long-term vulnerabilities, authorities plan to establish a National Agency for Budget Balance and Forecasting. This agency aims to optimize public resource allocation and strengthen Algeria’s resilience to external shocks, particularly its heavy dependence on hydrocarbon revenues.
Dual Exchange Rates and the Informal Economy
The World Bank has repeatedly urged Algeria to abolish its dual exchange rate system, citing inefficiencies in foreign exchange allocation. While the official exchange rate governs trade and current transactions, a thriving black market for foreign currency, tolerated by monetary authorities, complicates Algeria’s financial landscape.
Guendouzi points out that informal exchange practices at markets like Algiers’ “Square” reflect restrictions on household access to foreign currencies. This disparity underscores the need for exchange rate reforms to enhance transparency and bolster investor confidence.
Challenges in Attracting Foreign Investment
Despite new laws promoting transparency and incentives for investors, Algeria continues to struggle with attracting significant foreign direct investment (FDI). Bureaucratic hurdles, a complex regulatory environment, and limited opportunities beyond energy and construction deter many international firms.
Chinese companies, for instance, have secured large infrastructure contracts but have shown little interest in broader investments. Guendouzi suggests that improving the business climate, reducing red tape, and fostering private-sector growth could make Algeria more competitive on the global stage.
Non-Hydrocarbon Exports: Ambitious Goals Amid Constraints
Algeria aims to boost non-hydrocarbon exports to $29 billion by 2030—a goal that hinges on overcoming significant obstacles, including inadequate exportable goods, logistical challenges, and restrictive foreign exchange regulations. Developing diversified production capacities and modernizing export infrastructure will be essential to achieving this target.
Addressing the Informal Sector
The informal sector continues to dominate many aspects of Algeria’s economy, from undeclared labor to cash transactions. While the 2025 budget includes measures to encourage electronic payments and reduce cash reliance, deeper reforms are needed. Digitalization, financial inclusion, and stricter enforcement of regulations could help formalize this shadow economy.
The Cost of Living: Inflation and Consumer Behavior
Household spending patterns have shifted over the past decade, with food expenditures dropping from 41% in 2011 to 34% in 2022, while housing costs have risen significantly. Inflation, which surged in 2021, has eroded purchasing power, leaving many families struggling to make ends meet despite wage increases.
A Ministry of Finance report notes that household incomes grew by 13% between 2021 and 2023, outpacing the inflation rate of 9%. However, structural reforms are needed to stabilize prices and improve living standards in the long term.
Conclusion
Algeria’s 2025 budget reflects the government’s commitment to ambitious public investments and social support programs, but it also underscores the pressing need for economic diversification and fiscal discipline. Reducing dependence on hydrocarbons, improving the business environment, and tackling informal economic practices are key to ensuring sustainable growth. Without meaningful reforms, the country risks financial instability in the face of volatile oil markets and mounting public deficits.
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