Algeria’s economy on an unsustainable path

Algerian President Abdelaziz Bouteflika’s re-election in April seemed to mark a return to business as usual for the economy. However, Algeria’s growth model is looking increasingly unsustainable. If, as we expect, global energy prices fall over the coming years, Algeria will start to run large twin current account and budget deficits. In the near-term, the government should be able to finance these through its large savings. But over a longer horizon, and in the absence of much-needed reforms, the economy is likely to hit a crunch point, leading to a prolonged period of weak domestic demand and a fall in the currency.