Algeria Secures IMF 2025 Outlook Upgrade

Algeria’s marginal upgrade to 2025 growth—about 3.4%—signals cautious stabilization rather than structural lift. The improvement rests on hydrocarbons, with gas volumes to Europe normalizing and Brent in the low-$80s (BZ=F) bolstering export receipts. After an estimated 3.0–3.2% expansion in 2024, tighter monetary conditions and softer food prices have pushed headline CPI lower, from roughly 9% in 2023 to around 5% in 2024, with a glide path toward 4% in 2025 if supply-side pressures remain contained. Foreign-exchange reserves have rebuilt to approximately $65–70 billion—about a year of import cover—reducing near-term balance-of-payments risk, while the dinar (DZD=X) has held broadly stable on a trade-weighted basis. These are foundations for a respite, not yet a regime shift.

Mechanically, the growth impulse is concentrated in state spending and energy output. The 2024 fiscal impulse supported domestic demand into 2025 but widened the overall deficit, heightening dependence on hydrocarbon receipts that still represent well over half of budget revenue and more than 90% of goods exports. As energy prices normalized from the 2022–23 windfall, the current account moved from surplus back toward a modest deficit in 2024, with a risk of widening in early 2025 before narrowing if consolidation proceeds. Monetary policy has contained second-round effects, but the interest-rate channel is muted by shallow financial intermediation and a banking system skewed to the public sector.

Transmission to the non-hydrocarbon economy remains weak. Bank credit to the private sector is below a quarter of GDP—well under the emerging-market median—constraining investment and productivity. Real non-hydrocarbon growth lingers near 2–2.5%, pointing to a dual-speed structure in which energy masks underperformance in manufacturing, tradables, and higher-value services. Unemployment sits around 10–12%, with youth joblessness materially higher, capping consumption elasticity to policy stimulus. Unless reforms deepen credit markets, streamline permitting, and harden budget constraints for state-owned enterprises, crowding-out from public demand will persist even as headline growth improves.

Markets are reading the signal as steadiness with caveats. Reserve rebuilding and disinflation have eased FX-liquidity risk and compressed near-term currency volatility, stabilizing the curve for local-currency funding and narrowing perceived tail risks. Yet investors remain focused on fiscal arithmetic: general government debt hovers in the high-40s percent of GDP, gross financing needs are elevated, and absent subsidy rationalization and tax-base broadening, deficits are likely to remain wide through 2025–26. The credibility test is whether consolidation can advance without undercutting already slack private investment. Externally, the current account remains price-sensitive; a sustained Brent move below the mid-$70s would quickly reopen the financing gap unless offset by volume gains, downstream petrochemicals, or non-oil exports.

Global and regional context sharpen the policy signal. Compared with energy-importing peers facing tighter external funding, Algeria benefits from terms-of-trade support and manageable external liabilities. But the EU’s decarbonization path and intensifying North African competition in gas and downstream products compress medium-term margins. To anchor trend growth above 4% by 2027, three levers must engage in parallel: fiscal consolidation that preserves public investment while dialing back generalized subsidies; financial deepening that lifts private-sector credit growth above nominal GDP growth and trims non-performing loan ratios; and a regulatory reset that raises non-hydrocarbon FDI from roughly 1% toward 2–3% of GDP by 2027 with clearer repatriation rules and predictable licensing.

The forward inference is measurable and time-bound. By end-2026, confirmation would come from CPI holding at or below 4%, reserves sustained in the $65–70 billion range, a primary deficit narrowed by at least 1 percentage point of GDP versus 2024, non-hydrocarbon real growth rising toward 3%, and private-credit-to-GDP advancing past 22%. Quarterly current-account prints should demonstrate reduced oil-price elasticity, while budget execution needs visible subsidy retargeting and SOE capex discipline. If these indicators inflect as outlined, the upgrade will read as the start of credibility-anchored expansion; if not, it will remain a cyclical improvement priced off hydrocarbons rather than a structural re-rating.