Algeria: External creditors may see President Bouteflika as a political risk

Algeria

Published on Friday, 20 January 2017 Back to articles

Algeria’s return to external debt is now almost inevitable, and is more or less accepted by the government, although many senior officials, including former prime minister and RND leader Ahmed Ouyahia, have tried to avoid such an outcome. The main question now is whether Algeria will succeed in convincing its future creditors to lend to it at the least cost and for reasons other than the bailout of the public deficit.

In the view of most experts, the many tax increases and austerity measure adopted in the 2017 Finance Law will be insufficient to overcome the country’s serious financial crisis. With prices rising, wages remaining unchanged, and the Algerian Dinar likely to further devalue, times are likely to get much harder for most of the country’s citizens.

As we reported in Algeria Politics and Security – 06.01.17, the Council of Ministers approved a €900 million (US$990 million) loan agreement with the African Development Bank (AfDB) at its 28 December 2016 meeting. This is the first external loan taken on by Algeria since it repaid its foreign debt early in 2008.

While this loan will help the renewable energy sector, a billion dollars will not go far in ending Algeria’s financial crisis. It needs to find other creditors to get it out of deep water. But, will the country be able to find creditors, and who might they be?

According to Mourad Goumiri, a former professor of economics at Algiers University, Algeria will have no problem in incurring debt again either on the international financial market; or with the international financial institutions, such as the Inter-American Development Bank (IDB), the Arab Bank for Economic Development in Africa (BADEA) and the European Bank for Reconstruction and Development (EBRD).

Goumiri claimed that Algeria could also resort to bilateral debt with sovereign financial institutions, which Prime Minister Abdelmalek Sellal almost certainly recently discussed with Saudi Arabia. Algeria should be able to guarantee whatever debt it takes on, as long as it has proven hydrocarbons reserves.

However, Algeria’s problem is not economic, but political. Given the uncertainty over the question of the presidential succession and the political transition that it will involve, some creditors might be reluctant to lend the country the money it needs. As Goumiri explained: ‘the political uncertainties, and in particular the replacement of President Bouteflika is an exponential political risk.’

This article has been taken from our Algeria Politics & Security publication.

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