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After Bouteflika, Algeria’s economy needs revival

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Protests that gripped Algeria for nearly two months finally came to fruition this month, after long-ruling, ailing President Abdelaziz Bouteflika announced that he would be stepping down. His resignation was hailed as the end of an era in a country where 70 per cent of people have known no other ruler during their adult life.

Yet with the figurehead gone, the country’s fragility, particularly its economy, is in the spotlight; growth has fallen dramatically in recent years, inflation has been volatile and government debt has soared. Much of the recent protests were motivated by public frustration at economic austerity, with too few improvements observed for their sacrifices. Moving forward, Algeria’s new government will have to take decisive steps to prevent further economic disintegration and address the structural challenges that have underpinned the country’s economic and political authoritarianism for decades.

Algeria’s main source of income has long been its natural resources; the government relies heavily on sales of natural gas for its revenue and sales of hydrocarbons almost account for its entire export income. Its lack of diversification has rendered it a rentier state, largely dependent on external states to pay rents for use of their resources.

However, with the price of oil falling, Algeria’s international reserves have more than halved since peaking in 2014. Algerian authorities have projected the stockpile would drop further to $68 billion in 2019, based on a conservative budget that assumed an average oil price of $50 per barrel. At current rates of spending, the government would need prices to return to nearly $100 a barrel to balance its budget.

READ: IMF slashes growth forecast for MENA economies

Algiers has attempted to cushion the impact of falling prices by redirecting funds from the country’s oil stabilisation funds. However, after running dry in early 2017, the government embarked on a series of austerity measures to cut public spending, even as growth continued to fall.

Recent protests and political upheaval have left oil production relatively unaffected, but a multibillion-dollar fallout is still a possibility. Last month, petroleum giant Exxon announced its negotiations with Algeria for the development of local shale gas resources were being delayed because of the widespread anti-government protests. Weeks later, Algeria’s state-run oil company Sonatrach........

© Middle East Monitor