Algeria Approves a Budget with the Highest Deficit in Its History
Despite an expected GDP growth of 4.5%, according to the International Monetary Fund (IMF), the national gross debt-to-GDP ratio is projected to reach 63.9% by 2025.
One month after his re-election as President of Algeria, Abdelmadjid Tebboune approved, during a Council of Ministers meeting, the new state budgets as part of the Finance Bill (PLF) for the years 2025, 2026, and 2027.
With a record budget of $125.34 billion, the budget approved by the Algerian executive saw a 9.9% increase compared to last year. Based on a fiscal oil price of $60 per barrel and a market price of $70, the National Bank of Algeria anticipates a GDP growth of 4.5% in 2025, driven by a 1.9% increase in hydrocarbon exports. However, this growth is partly due to the fluctuation of the Algerian dinar exchange rate, which went from 253 to 257 dinars per euro, without significantly increasing the state’s reserves.
As a result, the budget deficit will reach $61.72 billion, representing 21.8% of GDP, marking a 3.5% increase compared to 2024, despite a 9% rise in fiscal revenue due to tax hikes approved at the end of Tebboune’s term.
The worsening deficit is concerning, as it could accelerate inflation according to economists. The economic situation is such that, to balance the budget, the price of oil would need to reach $140 in 2023 and exceed $150 in 2024, compared to $110 required between 2021 and 2022.
The depreciation of the official dinar compared to the parallel market, with an exchange rate between 253 and 257 dinars per euro in early October 2024, artificially boosts fiscal revenues from hydrocarbons. Although exports are increasing, inflation on imported goods is worsening.
One of the most alarming aspects of the new budget is the sharp rise in defense spending, which has reached $25 billion, making it the largest expenditure item. With an increase of $2 billion compared to 2024, the Ministry of Defense will receive 19.8% of the total budget.
This increase has sparked widespread dissent among the population, as the main victim of these increases has been social spending. With $4.953 million allocated, this item has been reduced by more than 750% over the last three years.
