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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. 

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Oil Price Crash Forces Algeria To Cut State Budget By 50%

OPEC member Algeria has decided it would slash its budget for this year by 50 percent, due to the drastically lower income from oil after the price crash.

Algeria – which was already feeling a squeeze on foreign exchange reserves even before oil prices collapsed in early May due to the Saudi-Russian oil price war and the global demand crash in the pandemic – is now taking a drastic action to protect its finances this year.

The budget will be slashed by “50 percent” in 2020, the office of Algerian President Abdelmadjid Tebboune office said in a statement carried by AFP.

Algeria currently pumps around 1 million barrels per day (bpd) of crude oil. According to OPEC, the oil and gas industry is the backbone of the Algerian economy. Oil and gas represents 20 percent of the country’s gross domestic product (GDP) and accounts for 85 percent of all exports.

With oil prices so low, however, Algeria is suffering from lower budgetary income, like all major oil-producing countries. Algerian President Tebboune ruled out last week the possibility that the country could turn to the International Monetary Fund (IMF), noting that “accumulating debt harms national sovereignty,” as per AFP.

The budget reduction is the second since oil prices crashed in early March. During that month, Algeria had announced it would cut public spending by 30 percent.

The new shock to Algeria’s finances comes after years of protests, and it threatens to plunge the country into turmoil again, according to analysts and observers who spoke to Reuters last month.

Last week, the price of Algeria’s crude, Saharan Blend, slumped below the costs for its production, the North Africa Post reported. Officially, the production cost for Saharan Blend is estimated at around $14 a barrel, but an analyst told local media that the true cost of production is $20 per barrel, so a price for Saharan Blend below $20 would mean the country is selling its oil at a loss.

By Tsvetana Paraskova for Oilprice.com

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