The International Monetary Fund has urged Algeria to undertake sizable fiscal consolidation, warning that the erosion of fiscal and external buffers threatens the country's economic resilience. The 2026 Article IV consultation mission, led by Charalambos Tsangarides, visited Algiers from June 16 to 30 to conduct the annual review of Algeria's economic policies.
Algeria's Economic Performance in 2025
The Algerian economy grew an estimated 3.9 percent in 2025, according to the IMF, driven by strong investment even as the hydrocarbon sector remained sluggish. The fiscal deficit narrowed to 10.5 percent of gross domestic product last year, helped by one-off dividends from state-owned enterprises and the central bank, though it remained large, pushing public debt to 52.1 percent of GDP. The current account also deteriorated sharply as a surge in imports, fueled by heavy public investment, combined with a decline in hydrocarbon exports, draining international reserves.
IMF Mission's Warning and Outlook
“Strengthening economic resilience has become more urgent due to eroded fiscal and external buffers,” Tsangarides said in the mission’s closing statement. Looking ahead, the fund’s near-term outlook for Algeria is broadly positive, with rising hydrocarbon prices expected to lift both export earnings and fiscal revenue. Growth is projected to hold at 3.8 percent in 2026, while inflation, which rose in September largely on higher jewelry prices, is expected to pick up temporarily before easing. The current account gap is also expected to narrow as hydrocarbon prices climb and import growth slows.
Medium-Term Risks and Policy Recommendations
Over the medium term, the mission cautioned that growth would likely moderate while persistent deficits push debt higher and reserves lower, unless Algeria pursues reforms to shore up fiscal sustainability, diversify its economy, and encourage private investment. The IMF flagged hydrocarbon-price swings, chronic fiscal shortfalls, and the tight financial ties between the government, state enterprises, and state-owned banks as the main risks to the outlook. “In addition, continued reliance on monetary financing could undermine price stability and policy credibility,” the report added.
Immediate Fiscal and Monetary Actions
On the policy response, the fund called for a significant near-term fiscal squeeze, particularly given the widening current account gap linked to public investment, alongside a halt to monetary financing and tighter monetary policy should inflation keep accelerating. “Improved liquidity management would help align the interbank rate more closely with the policy rate and strengthen monetary policy transmission,” the mission recommended.
Medium-Term Structural Reforms
Over the medium term, priorities include strengthening fiscal and monetary institutions, loosening the links between the sovereign, state enterprises, and state banks, and pressing ahead with reforms geared toward private-sector-led growth. On the fiscal side specifically, the mission called for boosting nonhydrocarbon revenue through a broader tax base, fewer tax exemptions, and stronger compliance efforts, alongside reform of subsidies and transfers to state enterprises to free up room for targeted support to vulnerable households.
Diversification and Business Climate
The IMF welcomed Algeria’s early steps to diversify its financing sources, including its first sovereign Sukuk issuance and expected funding from a regional development bank. On monetary policy, the fund pressed the authorities to make low inflation the central bank’s primary objective and to tighten safeguards around any emergency financing of the government to protect the bank’s independence. The mission also encouraged continued efforts to improve the business climate, level the playing field between state and private firms, cut trade and regulatory barriers, and reduce informality, while pointing to Algeria’s energy resources and geography as assets it could leverage further in regional energy markets. It welcomed diversification progress in mining and agriculture, as well as Algeria’s recent removal from the international watchdog’s list of countries under increased monitoring for anti-money-laundering and terrorism-financing gaps. “The mission encourages the authorities to sustain the reform effort,” the statement read.
