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Algeria plans to raise its budget expenditure by 6 percent this year to capitalize on the higher oil prices ahead of presidential elections next year, but economists warn that boosting spending would mean that the North African OPEC member would need even higher oil prices to balance its budget.
According to a draft amendment of Algeria’s 2018 budget that Bloomberg has seen, the country plans to lift total spending by 6 percent and investment by 12 percent. The current budget is based on assumptions that oil prices would be around $50, while the Brent Crude price has not dropped below $60 a barrel since the start of this year and has averaged around $68.
Oil and gas together account for 95 percent of Algeria’s export revenues and contribute 60 percent to its annual budget. The 2014 oil price crash has hit the economy, and the government has had to take austerity measures to offset the lower oil revenues.
According to analysts who spoke to Bloomberg, the proposed increase in spending would most likely come from funding by the Algerian central bank and is timed to coincide with an upcoming election in which long-time President Abdelaziz Bouteflika is expected to seek a fifth term in office.
The increased spending could stretch the finances, but it could also quell public dissent over the austerity measures ahead of elections, according to economists and analysts.
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The fiscal breakeven oil price of Algeria for 2018 is ominous at $105.70 a barrel, compared to $86.70 for 2017, according to the latest estimates by the International Monetary Fund (IMF).
“Algeria continues to face important challenges posed by the fall in oil prices four years ago. Despite a sizeable fiscal consolidation in 2017, the fiscal and current account deficits remain large,” the IMF said in March this year.
“Irrespective of the policy mix pursued by the authorities, a critical mass of structural reforms is needed to promote the emergence of a private-sector led, diversified economy and reduce the dependence on oil and gas,” said the IMF.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.