Algeria Should Reduce Reliance on Oil, Create More Jobs, Says IMF

Despite progress, unemployment remains high, especially among youth

Recent investment in infrastructure, education is a positive step

But country must do more to improve business climate, create jobs

In its annual assessment of the economy, the IMF notes that Algeria’s economic performance has been good, but that the country remains highly dependent on oil and gas and on public expenditure.

To achieve diversification, which is a key objective of the authorities, the country needs a business environment that is more conducive to private sector development, says Joël Toujas-Bernaté, the IMF’s mission chief for Algeria. In the following interview, he talks about the findings of the IMF’s recently completed analysis.

IMF Survey online: Could you paint a picture of Algeria’s economy today?

Toujas-Bernaté: The Algerian economy is dominated by its oil and gas resources, which account for 98 percent of the country’s exports. The hydrocarbon sector represents about 40–45 percent of total GDP and about two-thirds of budget revenues. Another key feature of the economy is the predominant role of the state. Ninety percent of the country’s banks are public, the hydrocarbon company is state owned, and government spending represents two-thirds of non-hydrocarbon GDP.

The country’s macroeconomic performance over the past decade has been solid. Because of relatively high oil prices combined with prudent macroeconomic policies, Algeria was able to achieve relatively strong growth, low inflation, and a sharp reduction in public and external debt. It has also accumulated large external reserves and budget resources in an oil stabilization fund, which helped to shield the country from the decline in international hydrocarbon prices in 2009. That said, major challenges remain—foremost of which is unemployment, which remains high, especially among the youth.

IMF Survey online: Youth unemployment now exceeds 20 percent in Algeria. Why?

Toujas-Bernaté: Demographic trends have played an important role. The Algerian population is young and rapidly growing, so Algeria needs much higher growth to be able to absorb new entrants in the labor market. As indicated by the analysis of others like the World Bank, there is the issue of labor market rigidity—it’s costly and difficult to hire and fire people—and there is also a skills mismatch between the demand and supply of labor. I should stress that Algeria has come a long way—a decade ago, youth unemployment...