The International Monetary Fund has raised Algeria’s overall sovereign risk assessment to “high” and urged the authorities to undertake urgent fiscal consolidation, warning that widening budget deficits and depleted financial buffers pose mounting risks to macroeconomic stability.
In its 2025 Article IV Consultation, concluded in September, the IMF Executive Board said Algeria’s near-term economic outlook remains broadly positive but is increasingly clouded by fiscal vulnerabilities. The economy grew by 3.6 percent in 2024, down from 4.1 percent in 2023, as OPEC+ production cuts led to a 1.4 percent contraction in the hydrocarbon sector, while non-hydrocarbon activity remained robust at 4.2 percent, supported by strong public investment and private consumption. Growth is projected at 3.4 percent in 2025 before gradually slowing toward 2.5 percent by 2030 as fiscal constraints tighten and hydrocarbon output moderates.
Inflation eased significantly in 2024, falling from an average of 9.3 percent in 2023 to 4 percent, largely due to lower food prices. It is expected to remain moderate at around 3.9 percent in 2025 and gradually decline to 3.3 percent over the medium term. Despite this improvement in price stability, the Fund stressed that fiscal imbalances have deepened sharply.
The overall budget deficit widened to 13.9 percent of GDP in 2024, an increase of 8.4 percentage points compared to the previous year. The deterioration was driven by a 35.7 percent year-on-year drop in hydrocarbon revenues, alongside rising current spending, including a 12.8 percent increase in the wage bill and a 31.8 percent surge in capital expenditure. As a result, the Revenue Regulation Fund was fully depleted in 2024, leaving the government with diminished fiscal buffers.
The IMF projects the deficit to remain elevated at 11.5 percent of GDP in 2025 and 12.4 percent in 2026, before gradually narrowing. With no remaining savings in the stabilization fund and limited alternative financing sources, the Fund warned that large gross financing needs could strain the domestic banking system, crowd out private sector credit and increase the risk of a return to unconventional monetary financing.
Public debt, which stood at 48.5 percent of GDP at end-2024, is projected under the baseline scenario to rise steadily, reaching nearly 82 percent of GDP by 2030. The sharp fiscal deterioration and erosion of buffers prompted the IMF to raise Algeria’s overall risk of sovereign stress to “high,” compared with a “moderate” assessment in 2023.
To stabilize the debt trajectory by 2028, IMF staff estimate that additional fiscal consolidation measures equivalent to 5 percent of GDP over the period 2025–2028 would be required relative to the baseline. The proposed adjustment would combine measures to boost non-hydrocarbon revenues and rationalize spending. On the revenue side, the Fund pointed to a non-hydrocarbon tax gap estimated at between 2 and 4 percent of GDP, suggesting scope for base broadening, particularly in value-added tax, streamlining exemptions and strengthening tax administration. On the expenditure side, it recommended gradual energy subsidy reform, better-targeted social transfers, restraint in public investment to reflect absorption capacity, and improved oversight of state-owned enterprises.
The Fund also emphasized the importance of adopting a rules-based fiscal framework anchored in medium-term debt sustainability to enhance resilience to oil price volatility. Hydrocarbon revenues accounted for a significant share of total government income between 2020 and 2024, leaving public finances highly exposed to global commodity price swings.
Externally, Algeria’s current account returned to deficit in 2024, recording a shortfall of 1.1 percent of GDP after two years of surplus, as energy export revenues declined and imports increased. The deficit is expected to widen to 3.7 percent of GDP in 2025 and 4.1 percent in 2026 before narrowing gradually. Gross international reserves fell slightly to $67.8 billion at end-2024 and are projected to decline steadily under the baseline, reaching $18.6 billion by 2030, equivalent to just over three months of imports of goods and services.
The IMF assessed Algeria’s external position in 2024 as moderately weaker than implied by fundamentals and desirable policies, with a real effective exchange rate overvaluation estimated at 6.3 percent. It recommended greater exchange rate flexibility to help absorb external shocks and support diversification.
Although the banking sector remains liquid and solvent, the Fund noted that non-performing loans remain high at 20.7 percent of total loans at end-2024, with higher levels in public banks. It warned that close interlinkages between the government, state-owned enterprises and state-owned banks heighten macro-financial risks, particularly in the context of large fiscal deficits and rising public borrowing.
While acknowledging recent reforms aimed at improving tax collection, strengthening public financial management and modernizing monetary policy operations, the IMF stressed that decisive and timely action will be necessary to restore fiscal sustainability, rebuild buffers and reduce vulnerabilities. Without credible adjustment and structural reform, it cautioned, large financing needs, rising debt and declining reserves could weigh heavily on Algeria’s economic stability over the medium term.
