Algeria's inflation challenges: the government's strategy to stabilise the economy
With historically high inflation, a slowing global economy and persistent geopolitical challenges, Algeria faces a complex economic situation in 2023. Inflation, at an all-time high for several decades, and the steadily rising cost of living have tested the country's economic resilience.
This context of international crisis, aggravated by the lasting effects of the HIV/AIDS pandemic and the Russo-Ukrainian war, has led many governments to take emergency measures to stabilise their economies. Algeria is no exception.
In this article we look at the challenges of inflation in the Algerian country and the measures being taken by the Algerian government to mitigate the economic impact and ensure the country's stability.
Algeria's consumer price index continues to rise
Like the rest of the Arab countries, Algeria is currently facing economic challenges, hence "the need for greater efforts, actions and the adoption of policies capable of meeting the requirements of economic growth", explained the managing director and chairman of the board of directors of the Arab Monetary Fund (AMF), Abdul Rahman bin Abdullah al-Humaidi, quoted by APS.
Since 2020, Algeria has been experiencing shortages and rising prices. According to the Trading Economics 2023 report, Algeria ranks 33rd in the world in terms of inflation.
According to the latest report by the Office National des Statistiques (ONS), the change in consumer prices in July 2023 was +9.4 %. The annual inflation rate (August 2022 to July 2023 / August 2021 to July 2022) is +9.3%. In addition, food prices will increase by +13.2 %. Prices of fresh agricultural products rose by 22.4 %, and fruit prices by 62.5 %. However, industrial food prices rose by 4.6 %, with coffee, tea and infusions up by 22.2 %.
According to Al-Arab News, amid volatile energy prices, the costs of essential raw materials, particularly cereals, have experienced a series of successive increases. The combined prices of meat, cereals, oils, sugar and dairy products rose by around 20 % at the beginning of the year.
Despite appearances, Algérie 360 news agency reports that Algeria is one of the African countries that have maintained a semblance of balance between significant inflation and stability. However, Algiers still faces a number of challenges.
"The global economy is on the road to recovery, but not yet out of the doldrums"
The situation in Algeria seems to reflect the general trend in the world economy. Pierre-Olivier Gourinchas, Economic Counsellor and Director of Research at the International Monetary Fund (IMF), argues that while the global economy is on the road to recovery, it is "not out of the woods yet".
While the COVID-19 health crisis seems to have come to an end, with supply chains re-established, economic activity picking up in the first quarter and energy and food prices falling after peaking with the war in Ukraine, challenges remain and cloud the economic horizon.
On the domestic front, we have already seen in a previous article that the Algerian market is experiencing a steady rise in the price of dried pulses on local markets, despite a seasonal drop in consumption, as well as a shortage of food products and outlets.
The IMF forecasts inflation growth to decelerate from 3.5 % last year to 3 % this year and next, an improvement of 0.2 percentage points by 2023 compared to the April projections. Global inflation is expected to fall from 8.7 % last year to 6.8 % this year, a downward revision of 0.2 percentage points, and to 5.2 % in 2024.
According to Al-Arab News, the IMF warned Algeria last February that it will not pursue loose monetary policy in view of worrying consumer price indicators, despite its improving public finances thanks to oil and gas revenues. Following the conclusion of the Article 4 consultations, the IMF mission stated: "There is a need to tighten monetary policy without delay to avoid volatility in the country's high inflation expectations".
In this context, the Central Bank halved the interest rate at the beginning of the last quarter of last year to 10 %, despite the fact that inflation remained high in the aftermath of the war in Ukraine.
Algerian government initiatives
To address this situation, Algerian Finance Minister Abdel Aziz Fayed presented the draft amending finance law 2023 (PLFR) to the National People's Assembly (ANP) on Tuesday.
According to the Algerie Eco blog, this bill includes "provisions aimed at covering the additional recurrent expenses caused by the measures taken by the public authorities to preserve the purchasing power of families, strengthen food security and support the public investment programme in certain wilayas".
The report indicates that the PLFR 2023 foresees an increase in state budget revenues of almost 13%, to nearly 9,000 trillion dinars (bn), and an increase in expenditure of more than 14,700 bn dinars (+6.7%). As for economic growth, it is expected to reach 5.3% in 2023, compared to the 4.1% projected in the initial Finance Law for 2023, driven mainly by the hydrocarbon sector (+6.1%). GDP growth without hydrocarbons stands at 4.9% in the PLFR 2023.
According to Algérie Presse Service (APS), members of the National Assembly welcomed the initiative. The deputies praised the policy of increasing salaries, which "preserves the dignity of the citizen", and the latest decisions of the President of the Republic to support farmers.
Reducing the cost of imports, a key measure by Algerian Minister Fayed
At the same meeting, Finance Minister Aziz Fayed confirmed that the measures taken by the authorities to ensure the availability of basic materials and to control and sustain their prices will further reduce the inflation rate. Among these measures, the one that will be encouraged most will be the reduction of the cost of sourcing goods and raw materials from abroad.
In order to increase the supply capacity of agricultural and food products, and to control and sustain the prices of basic consumer goods, the Algerian government wants to revise downwards the rates of customs duties. The authorities will also monitor prices and combat speculation on commodity prices, which should reduce inflation in the remaining months of this year.
According to the minister, and quoted by Al-Arab News, the authorities are working on the issue of rationalising imports, which they managed to reduce from around $60 billion in 2014 to less than $39 billion last year.
In a context of global economic uncertainty, Algeria continues its efforts to address current challenges. Although inflation and geopolitical upheavals persist, the Algerian government has put in place important measures to protect the national economy.
Actions taken, such as reducing procurement costs, revising customs duties and supporting investment, reflect a determination to maintain stability while stimulating growth. Although high inflation rates represent a major challenge for the government, Aziz Fayed expects these measures to bear fruit by the end of this year, when the inflation rate will be around 7.5%.