ALGIERS: Currency depreciation, inflation, negative growth, businesses closed: Algeria's economy has been battered by the one-two punch of the coronavirus crisis and tumbling oil revenues. And unless remedial action is taken on a massive scale, a slide into foreign debt will become inevitable, economists warn.
The National Office of Statistics (ONS) has reported a 3.9 percent fall in Gross Domestic Product (GDP) in the first quarter alone, with unemployment nearing 15 percent - "alarming" figures, according to Mansour Kedidir, associate professor at the Higher School of Economics in Oran.
Excluding the energy sector, GDP fell by 1.5 percent year-on-year in the 1st quarter, against an increase of 3.6 percent last year compared to Q1 2018. With confinement measures in place since March 19 to curb the spread of the novel coronavirus, sectors such as services and freight have come to a virtual standstill.
The construction sector, a major provider of jobs, has been paralysed for months. Finance Minister Aymen Benabderahmane estimates the losses of state-owned enterprises at nearly one billion euros ($1.17 billion).
Private sector losses have yet to be assessed, but many closed businesses, including restaurants, cafes and travel agencies, risk bankruptcy. Algeria faces an "unprecedented economic situation", said Prime Minister Abdelaziz Djerad, who has also blamed mismanagement under the rule of ousted longtime president Abdelaziz Bouteflika.
Due to a lack of diversification, the Maghreb region's largest economy is highly dependent on oil revenues and exposed to fluctuations in crude prices. The International Monetary Fund (IMF) forecast that Algeria's economy will shrink 5.2 percent this year.
Kedidir predicts that unless reforms are brought in, "a Pandora's box will be opened... riots, irredentism, religious extremism". President Abdelmadjid Tebboune has already ruled out seeking loans from the IMF or other international financial agencies, in the name of "national sovereignty". Algeria has painful memories of its 1994 recourse to the IMF and a structural adjustment plan that resulted in massive job cuts, shutdowns and privatisations.
The government is about to launch an economic recovery plan and decided at the start of May to halve the state's operating budget. A 2020 complementary finance act is based on a decrease in revenues to around 38 billion euros, against the 44 billion euros initially forecast. Experts say any solution will require drastic reforms.