This article was taken from our Algeria Politics & Security publication.

On 8 September the Banque d’Algérie’s governor, Mohamed Laksaci, announced that Algeria’s foreign exchange reserves had continued their downward trend during the first half of the year. He said that they stood at US$159.02 billion at the end of June 2015. This compared to US$193.26 billion at the end of June 2014.

This fall, of US$34.24 billion (17.7%) in the past year, was to be expected given Algeria’s continued dependence on oil and gas production and export for most of its revenues, and the prevailing low prices for both commodities.

The need for further diversification and investment within Algeria’s economy is urgent, and the lack of sufficient remedial steps is becoming a hallmark of the country’s emerging political and economic crisis. The measures announced so far have either been notional (not yet enacted) or partial (having a relatively small impact without addressing the primary causes of Algeria’s budget deficit). Algeria Politics & Security has analysed these policies as they’ve been announced, while warning that more needs to be done to attract investment and lower government spending.

Concerns that Algeria’s reserves are being depleted still underpin fears that social unrest could emerge, if Algeria can no longer to maintain the spending on social welfare measures or the extensive security apparatus that have so far largely served to underpin stability. Such concerns were exacerbated by suggestions that the announcement of the latest figure for the foreign reserves may somehow be concealing the true extent of the decline, an observation premised on the figure announced for June 2015 being almost identical to that revealed a few months earlier. A consistent fall would have been expected, given the prevailing conditions.

On 13 July 2015, the Banque d’Algérie’s governor had announced that the foreign exchange reserves had fallen to US$159.918 billion at end the end of March 2015. This data was published by APS on 13 July 2015 and by Algeria Politics & Security17.07.15. Given the figure announced a few weeks ago, this would mean that the reserves fell by only US$891 million (0.6%) in Q2 of 2015 compared to a fall of US$19 billion (10.6%) in Q1 2015.

It is possible that some sort of a currency blockage may have occurred during this period. Based on published economic data for oil prices, associated revenues, balance of trade, and foreign reserve data for Q3 and Q4 of 2014 and Q1 2015, we would have expected the reserves to continue their downward trend at a rate of around US$6 billion per month, to have perhaps reached around US$140 billion by the end of June 2015.

None of the macro-economic fundamentals seem to have changed in Algeria, but neither the central bank nor any government spokesman has given an explanation as to why the rate of decline in the reserves has slowed to a near halt.

The doubt about the figures has contributed a sense of unwelcome uncertainty to assessments of Algeria’s financial stability. That could have political implications for the country’s stability more generally, as well as having a cooling effect on investment at a time when it is needed. Algeria may have to turn to the international debt markets within the foreseeable future, and Algeria Politics & Security continues to monitor the debate currently taking place in the government about when or if that may be necessary.