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Algeria Set To Cut Gas, Electricity Subsidies

OPEC member Algeria plans to reduce subsidies for electricity and domestic gas next year in order to cut government spending and strengthen its economy.

The OPEC producer, which pumps just below 1 million barrels per day (bpd) of crude and is a major exporter of natural gas to Europe, is looking to cut its spending on subsidies, estimated at $17 billion in 2020, Bloomberg reports.

Algeria’s authorities plan to cut subsidies for electricity, cooking oil, domestic gas, and flour as part of a draft 2022 budget, according to Bloomberg.

Some new taxes are also planned for next year in a bid to increase state revenues. Direct payments will replace the subsidy cuts to protect the most vulnerable households.

Algeria’s budget draft for next year comes a week after the International Monetary Fund (IMF) said that the country had “urgent need for a recalibration of economic policies.”

The pandemic and the oil price crash hit the Algerian economy hard in 2020, with the real gross domestic product (GDP) sharply down by 4.9 percent, the IMF at the end of a consultation mission in Algeria last week. The country’s fiscal and external deficits continued to widen in 2020, while international reserves, albeit still adequate, fell to $48.2 billion at the end of 2020 from $62.8 billion in 2019, the fund said.

Algeria’s economy is set to grow by 3 percent this year, thanks to higher oil and gas prices and production, the IMF noted.

“Indeed, despite the rebound in economic activity and the significant improvement in the external balance in 2021, it remains urgent to restore macroeconomic stability and policy space, while protecting the most vulnerable and supporting the recovery,” the fund’s economists said.

“The mission recommends a comprehensive and coherent package of fiscal, monetary, and exchange rate policies to reduce Algeria’s vulnerabilities,” the IMF said.

By Charles Kennedy for Oilprice.com

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