Algeria, which hasn’t sold debt abroad in over two decades, signalled it may reverse its aversion to outside borrowing and lift some restrictions on foreign investment.
The protest-torn Opec member, still led by veterans of the war for independence from France waged over half a century ago, was forced to restructure billions of dollars worth of loans from foreign banks in the 1990s. While struggling to revive the economy, the government has been wary of turning to outside financing for fear it could again leave the nation beholden to others.
Now that attitude may be changing. A draft budget law for 2020 prepared by Finance Minister Mohamed Loukal proposes the “selective recourse to external finances from international financial institutions” for “profitable and solvable” projects, according to the state-run APS news agency. The current cap on foreigners owning more than 49% of companies would also be lifted on non-strategic enterprises, it said.
The announcement is a “recognition of the limits of the unconventional financing policy, in other words the use of printing money,” said Alexander Kateb, an independent economist and former adviser to ex-Prime Minister Abdelmalek Sellal.
Grappling with unrest that has continued after the April ouster of president Abdelaziz Bouteflika, the North African oil and gas producer is struggling to shift its economy away from hydrocarbons that account for over 90% of export revenue.
The ratio of foreign debt to gross domestic product stood at 2.1% in 2018, while foreign direct investment amounted to 0.8% of economic output, according to the International Monetary Fund.
Instead of raising capital abroad, officials have instead opted to tighten import restrictions and rely on borrowing from the central bank. It’s a solution that’s become increasingly untenable. Foreign reserves have plunged from around $177bn in 2014 to an expected $64bn this year, according to the IMF.
The proposed law would stop borrowing from the central bank, APS said. But it’s unlikely to provide quick relief, especially as it doesn’t affect the vital energy sector.
The challenges in attracting foreign investment in Algeria include “the opacity of decision-making, red tape, heavy bureaucracy, corruption, the entrenched interests of the deep state and uncertainty as to the form of Algeria’s next government,” said Anthony Skinner, Middle East and North Africa director at Verisk Maplecroft.
Even as Algeria’s powerful military chief, Ahmed Gaid Salah, insists that elections to replace the interim president are the only way forward, protesters are pressing on with their demand for a dismantling of the ruling elite, testing both the government’s patience and its ability to address economic challenges.
Young people have spearheaded the demonstrations. About 70% of the country’s roughly 41mn populations are under the age of 30, and about a quarter of them are unemployed.
Kateb, the former prime ministerial adviser, said it’s unclear if the government is even empowered to make such a far-reaching policy pivot before the political transition is complete.
“We cannot resort to international borrowing without defining a real economic strategy, and including it in this strategy,” he said. “The impression that emerges is of a navigation with no real control of the stakes.”
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