Algeria’s foreign exchange reserves plunge amid drop in oil revenues

Algeria’s public debt rose to 45% of GDP while its foreign exchange reserves continue to shrink on the back of falling oil prices in international market boding ill for the social peace of a country where dissent is growing.

Newly appointed Prime Minister Abdelaziz Djerad sounded the alarm bell recently while speaking to MPs about the country’s worsening debt saying “the financial situation is still fragile due to oil price volatility.”

The reserves that were amassed by the country during the era of expensive oil were not invested in productive areas that would help ease dependence on hydrocarbons.

The country’s reserves now stand at 62 billion dollars, down from 97 billion in 2017. The stockpile is expected to further drop in view of the expanding trade deficit, which hit 10 billion dollars in 2019.

The government is so far resorting to time buying measures such as spending cuts and import restriction leaving the economy hinging on oil price and sales.

The government would need crude prices nearer $100 a barrel to balance its budget, a target denoting a bygone era according to analysts as US continues to pump and export crude while renewable energy use is on the rise globally.

Meanwhile, Algeria plans other measures including tapping the international bond market, issuing Sukuk, or Islamic bonds, and develop its small stock exchange as the oil-reliant economy seeks to diversify funding sources, according to a government document reviewed by Reuters.

If Algeria managed to eschew the turmoil of 2011 the Arab Spring thanks to handing out oil money through salary hikes and subsidies, today it seems unable to buy off protesters who perceive the current ruling elite as a recycled from a corrupt but also inefficient regime.

The mass protests which are still ongoing since 22 February 2019, though at a lower scale, have exacerbated Algeria’s unfriendliness to investments adding to an underdeveloped banking system, unfriendly laws and an energy sector plagued by ageing fields, misguided economic policies, project delays, and infrastructure gaps.

The political crisis puts the country on the same course as Angola, Iran, Libya, Nigeria and Venezuela, referred to by OPEC as the “shaky six’ that suffer involuntary production cuts.

Algeria’s natural gas pipeline exports to Europe are getting squeezed by cheaper Russian supplies and a global abundance of the liquefied form of the fuel.

Algeria risks becoming a net gas importing country as its domestic production continues to be devoured by a rising consumption that could turn the country into a net gas importer in ten years, head of oil and gas at the ministry of energy Mustapha Hanafi had said.