Algeria

Country Summary

Macroeconomic performance

Real GDP growth was an estimated 2.5% in 2018, up from 1.4% in 2017, driven mainly by growth in the non-hydrocarbon sector (5.2% growth) and significant fiscal spending (36.7% of GDP). The hydrocarbon sector remained sluggish (shrinking 0.1%).

Growth estimates and projections over 2018–20 are based on the conservative hypothesis of a weak hydrocarbon sector and a slightly improving nonhydrocarbon sector. Economic growth is projected to be 2.7% in 2019 and 1.9% in 2020. The subdued 2020 growth is due partly to a more restrictive fiscal policy—as of 2019 public expenditures are projected to decline due to budgetary consolidation, which is projected to reduce the fiscal deficit from 5.3% of GDP in 2018 to 5.0% in 2019 and 4.7% in 2020.

Faced with contracting bank deposits since 2015, the Bank of Algeria resumed bank refinancing and stimulated the interbank money market by reducing reserve requirements and better regulating the capital markets. Inflation remained under control at 4.8% in 2015, 6.4% in 2016, and 5.6% in 2017.

Tailwinds and headwinds

Algeria’s infrastructure, geographic position, diaspora, domestic market, and natural resource endowment provide the assets to transform and diversify its economy. In addition, the external debt reduction policy over the past decade and substantial foreign exchange reserves, though declining, enable Algeria to better withstand economic shocks.

Algeria has not financed its deficit through increased external debt, which remains negligible at less than 2% of GDP. Likewise, government debt, consisting mainly of domestic debt, is limited to 40% of GDP. A major decline in external financial resources led authorities in 2016 to adopt the New Economic Growth Model 2016– 2030, aimed at structural transformation. The main reforms relate to improving the business climate and replacing direct and indirect subsidies with targeted social protection for low-income populations.

To respond to the sharp deterioration in the country’s external position in 2015, import restrictions were introduced on 850 products. The large current account deficit in 2018 (9% of GDP) is smaller than in 2017 (13.1%) and is projected to reach 7.4% in 2020. Official foreign exchange reserves decreased from 22.5 months of imports at the end of 2016 to 18.6 months in June 2018, and the drop is expected to continue. Inflation is projected to drop further to the 4% range by 2020.

Despite efforts to diversify the economy, Algeria still depends on external resources from oil and gas exports. Directly or indirectly, around 80% of the economy relates to hydrocarbons. The economic outlook will depend mainly on hydrocarbon prices, which started to fall in June 2014, rebounded to nearly $80 a barrel in October 2018, and fell again toward the end of the year. Between 2012 and 2017, falling oil prices reduced the hydrocarbon sector’s contribution to GDP from 37.1% to 21.1%. Real GDP growth, projected at 2.7% in 2019 and 1.9% in 2020, seems insufficient in the medium term to tackle social protection and unemployment reduction.

The terms of trade improved in 2017 and 2018. The real exchange rate depreciated by 8.8% in 2018.

Source: African Economic Outlook 2019

Fixed Income

Summary

Algeria Fixed Income's intruments consist of debt securities issued by corporations and  government. Treasury securities and restructured debt purchased from public enterprises are the main  domestic debts. in 2018,  the domestic debt amounted to 64,935.2  million dollars, most of debt held by banks and insurance companies. The Bank of Algeria buys and sells government securities with maturities of up to 6 months, private securities eligible for rediscounting and advances for its financing operations. Except for Treasury securities, there is no secondary market and bonds placed in the public are still unlisted.By the end of August 2019, they are 28 OAT listed on the bond market with 474.317 billion DA as bond issue value.

Issuance strategy

The bond market has expanded  since 2015. During the 4th quarter of 2017, the law on money and credit was amended to authorize the Bank of Algeria to directly finance, in particular, the deficit budget, the refinancing of public debts and the National Fund Investment Fund (FNI). Monetary funding has so far via the ad hoc issue of government securities subscribed by the Bank of Algeria. In 2018, Domestic Public Debt  as a share of GDP for Algeria was 37.2 %.The Treasury bond (OAT)  issued by the Algerian State through the General Directorate of the Treasury dominates the Algerian bond market. They are issued on three main maturities, namely seven, ten and fifteen years.

Benchmark issues 

There are irregular intervals for Treasury  issuance.  Sovereign debt issuance at regular intervals can establish a yield curve that can serve as a reference for the private sector or public companies looking to borrow internally .

Yield curve 

 

Building a yield curve is a big issue in Algeria because:

  •  Narrow investor base (  the investor base for government debt is consisting almost  of domestic banks and insurance companies )
  • Domestic debt market is underdeveloped and illiquid 

Guide to Buying Bonds

Procedures for market participation

The Primary Dealers (PDs) are required to submit their bids in sealed envelopes. The highest bids are served first until the offering amount is reached. Bidders can submit their subscription on their own behalf or for their clients’ accounts. Special accounts, opened by the bidders, are pre-requisites to trade in government securities. Treasury bills are traded on the secondary market by PDs who act as market makers. These PDs provide liquidity through continuous announcement of bid and ask prices on listed securities. In 2009 - the last year in which the COSOB posted a publication on its website- total traded instruments amounted to 180 billion Dinars. Bonds with maturities of 7, 10 and 15 years are the only government securities traded by PDs. These fixed income securities are traded five times a week. Today, 25 bonds are listed on the Stock Exchange of Alger:

  • Seven have a maturity of 7 years
  • Ten have a maturity of 10 years
  • Eight have a maturity of 15 years

Bonds are listed using an electronic trading platform that allows orders to be matched automatically. The fixing quote applies a fixed price on all the transactions of one particular instrument operating during a day. 

Settlement cycle

Settlement is set at T+1 for bonds. The settlement cycle has not changed since the establishment of a Central Depository (Algeria Clearing).

Taxation

There is a 10% withholding tax on interest on bonds. For treasury bills, a fixed rate of 10% is payable at maturity whereas for coupon-bearing instruments, tax is paid on the coupon date. Bonds with maturities greater than 5 years are exempt from tax.

Rating

Rating Agency Current Rating Outlook
Moody's No rating No outlook
Fitch No rating No outlook
Standard & Poor's No rating No outlook

Primary Dealers

Only primary dealers are authorized to participate in the auctions in the primary market.  All primary dealers are approved by the Treasury.

There are eleven (11) primary dealers, among which six (6) are state-owned banks, six (6) are insurance companies and one (1) is a commercial bank.

Market restrictions

Openness to International Investors

The Algerian market is open to foreign investors. Furthermore, the Algerian authorities are trying to guaranty benefits for Algerian interests. Several restrictive foreign investment rules have been adopted.

Capital controls

There are restrictions on foreign investments in Algeria, set up by the 2009 Complementary Finance Law, which stipulates that Algerians should have a 51% stake in new foreign investments.  In 2010, the 2010 Complementary Finance law, allowed the government to veto the sale of Algerian companies to foreigners investors.

Restrictions on FX and profit repatriation

Foreign exchange is available for investors to repatriate their profits without prior authorization. There is restriction on the repatriation of dividends and profits.

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