Algeria faces IMF call for fiscal consolidation as growth stays robust

Traders Union
All News
Financial Institutions
Algeria faces IMF call for fiscal consolidation

Highlights

IMF estimates Algeria's real GDP growth rising to 3.9 percent in 2025 from 3.7 percent in 2024, fueled by strong investment despite persistent large fiscal deficits.
Inflation forecast shifts from negative 2.0 percent in September 2025 to 5.2 percent by April 2026 due to food-price stabilization and surging jewelry prices linked to higher gold prices.
IMF urges credible fiscal consolidation, gradual energy subsidy reform, and stronger non-hydrocarbon revenue as Algeria faces depleted reserves, high deficits, and heightened macroeconomic vulnerabilities.

IMF review outlines policy priorities

As reported by the International Monetary Fund, its Executive Board concluded the 2026 Article IV consultation with Algeria on September 11, saying the country’s reform program is supporting diversification and robust growth but that large fiscal deficits are weakening fiscal and external buffers.

The IMF says real GDP growth is estimated at 3.9 percent in 2025, up from 3.7 percent in 2024, supported by strong investment. It says inflation rises from negative 2.0 percent in September 2025 to 5.2 percent in April 2026 as food-price deflation ends and jewelry prices climb sharply with higher gold prices.

Although the fiscal deficit narrows in 2025 with support from one-off dividend payments from state-owned enterprises and the Bank of Algeria, the fund says it remains very large. It adds that depleted fiscal buffers, heavy financing needs, a wider current account deficit, reserve losses and greater reliance on central bank financing are increasing macroeconomic vulnerabilities.

Directors call for credible and gradual fiscal consolidation, stronger non-hydrocarbon revenue mobilization, more efficient public investment and expenditure rationalization, including gradual energy subsidy reform with targeted support for vulnerable households. They also say monetary policy should focus on price stability, with tightening if broader inflationary pressures intensify, and that greater exchange rate flexibility would help absorb external shocks and reduce the parallel market premium.

Growth outlook remains positive amid rising risks

Near-term prospects remain broadly positive, with higher hydrocarbon prices expected to support export and fiscal revenue and GDP growth projected at 3.8 percent in 2026. But the IMF says the fiscal deficit is likely to remain high, monetary financing is set to continue and medium-term growth is expected to moderate as persistent deficits raise public debt and further reduce reserves.

The fund identifies downside risks including a sharp fall in hydrocarbon prices, continued large fiscal deficits that could threaten debt sustainability and stronger sovereign-bank linkages, and prolonged monetary financing that could undermine price stability and policy credibility. On the upside, it says stronger fiscal consolidation, faster diversification and continued structural reforms could improve the business climate, attract private investment and strengthen resilience.

Directors also welcome Algeria’s progress on financial stability, inclusion and its removal from the FATF list of jurisdictions under increased monitoring. They say deeper reforms are still needed to improve the business climate, reduce regulatory barriers and informality, strengthen governance and transparency, and deepen trade and energy linkages with Europe and Africa.

Our earlier coverage of the World Bank’s update to the joint IMF–World Bank debt sustainability framework explained how debt-risk assessments for low-income countries are being expanded as financing conditions grow more complex. The revised approach places greater weight on domestic debt vulnerabilities and longer-term pressures such as climate-related shocks, aiming to better capture the fiscal and resilience risks that can build up alongside persistent deficits and tighter buffers.

This material may contain third-party opinions, none of the data and information on this webpage constitutes investment advice according to our Disclaimer. While we adhere to strict Editorial Integrity, this post may contain references to products from our partners.