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The African Development Bank (AfDB) and Algeria have signed an agreement for a €900-million loan to support the country’s industrial and energy competitiveness. This budget support loan provides the Government with the resources needed to offset the drop in its revenue due to the sharp fall in oil prices.
“The decline in the price of oil has created a lot of difficulties for many oil exporting countries, and has had an impact on their balances of payment and budgets,” says AfDB Acting Vice-President for Agriculture, Water, Human Development, Governance and Natural Resources Kapil Kapoor (audio).
Although the country’s trade balance shows a structural surplus, it recorded a deficit of about US $13 billion for the first time in 20 years owing to a substantial drop in oil export earnings, which slumped by almost 43% between 2013 and 2014. The overall balance of payments – which replenishes official foreign exchange reserves – that has remained positive for many years, also recorded its first deficit in 2014. Although official foreign exchange reserves are still at a comfortable level (more than two years of imports), they (excluding gold reserves) declined by 24.3% between December 2014 (US $179 billion) and December 2015 (US $144 billion).
Algeria’s Ambassador to Côte d’Ivoire, Mohamed Abdelaziz Bouguetaïa, commended the Bank for quickly designing, approving and signing the programme. “The visit by AfDB President to Algiers in April 2016 was instrumental in promoting dialogue. During this visit, the meetings held with Algerian officials helped to identify the most pressing needs in terms of reforms and to define the focus areas of this budget support operation,” he said. (audio).
This general budget support will foster inclusive, resilient and sustainable growth through a series of initiatives. These include strengthening fiscal consolidation through increased revenue collection, redefinition of expenditure priorities and streamlining of expenditure. The programme will improve the business environment and promote investments through the enactment of laws governing investment and access to financing, promotion of industrial parks, as well as boosting external trade. It will also improve the energy sector governance and promote renewable energy by diversifying electric power generation sub-sectors.
Among other outcomes, the programme will improve domestic resource mobilization, with an increase in non-oil tax revenue from 17.1% of GDP in 2015 to 17.7% of GDP in 2017. It will also help control current expenditure which will decline from 34.6% of GDP to 30.6% of GDP in 2017. It will help establish an improved business climate that is conducive to SME development and promotion of entrepreneurship. The greater energy sector contribution to the country’s real economy should lead to job creation and private sector development by capitalizing on the energy sector supply chain.
The programme will particularly benefit Algerian SMEs through the removal of many constraints on the development of their activities, especially the provision of collaterals for public procurement and additional incentives for the recruitment of skilled labour. Investors with major projects will have a more transparent and more investment incentives and negotiation framework. Other economic actors, mostly women, will also benefit from the new incentives for sole proprietor status.
This budget support is among the biggest loans that the Bank has provided to its Regional Member Countries, and the first to Algeria in 12 years.