Algeria

Country Summary

Macroeconomic performance

Real GDP growth is estimated at 2.3% for 2019, up from 1.4% in 2018, on the back of a slight rebound in hydro- carbon prices. The hydrocarbon share of GDP fell from 34.2% in 2012 to 19.7% in 2017 (it was 44.3% in 2005), and agriculture and services gained slightly in weight. The relatively subdued economic growth is mainly due to the fall in value added of the hydrocarbon sector, while growth in the nonhydrocarbon sector continues to be modest. The fall in private consumption and the public investment freeze have also been drags on growth.

Inflation, 4.3% in 2018, remains under control and is estimated to decline to 2.0% in 2019. The Algerian dinar has depreciated in recent years, with the average exchange rate weakening from 77.6 dinar to the dollar in 2012 to 120 dinar in 2019, and the parallel foreign exchange market offering a premium of around 60%.

Fiscal and current account deficits are estimated to rise in 2019 (7.9% and 12.6% of GDP, respectively, compared with 7.0% and 9.6% in 2018). The Oil Stabili- zation Fund (FRR), which financed the fiscal deficit, was depleted in 2017. Since then, the central bank has had recourse to unconventional financing. From mid-No- vember 2017 to April 2019, it raised $55 billion, equiva- lent to 32% of GDP in 2018.

The poverty rate has come down since the 1990s thanks to direct transfers, universal subsidies, and mea- sures in favor of social inclusion, amounting to 12.3% of GDP. Data from 2011 give a poverty rate of 5.5%, with an extreme poverty rate of only 0.5%. The unemploy- ment rate, estimated at 12.6% for 2019, is forecast to rise to 13.7% in 2020.

Tailwinds and headwinds

In the medium term, economic growth is forecast to remain relatively stable, at 2.2% in 2020 and 1.8% in 2021. The authorities have an ambitious plan of struc- tural reforms with a view to streamline business regu- lation, improve governance and transparency, reform the pension system, and modernize the financial sector. This plan is based on actions already taken to improve the business climate, including opening sea and air freight to the private sector.

The country’s low external debt and substantial for- eign exchange reserves should enable it to weather any shocks and implement its reform program without sac- rificing social programs. External debt remains negligi- ble (less than 2% of GDP), but domestic debt (excluding guarantees) rose from 7.2% of GDP in 2015 to more than 26% in 2018.

The Algerian economy will continue to be dependent on and vulnerable to oil and gas prices (96% of export receipts in 2017). The rise in oil prices since 2018 (to around $70) will not enable Algeria to balance its budget (according to a study by the IMF, Algeria would need an oil price of $90 a barrel). A further fall in oil prices cannot be ruled out given the trend increase in US production.

Official foreign exchange reserves fell from $114.1 bil- lion (22.5 months of imports) at the end of 2016 to $79.8 billion (16 months) at the end of 2018.

In 2019 and 2020, economic activity will be curbed by the sharp fall in public investment spending and by political uncertainty. The main challenge in the short term is to continue to maintain price stability and deal with inflationary pressures in an environment of sub- stantial and persistent surplus liquidity.

Health sector preparedness

The 2019 Global Health Security Index ranked Algeria 173 among 195 countries globally, and 44 among 54 countries in Africa. Algeria is ranked poorly for detection capacity (124), compliance with international standards (184), and capacity to respond quickly to pandemics (181).

Policy responses

Since the appearance of COVID–19 in Algeria, the author- ities have expanded measures to contain its spread. Actions to support the medical sector consist of an excep- tional allocation to the Ministry of Health of 3.7 billion Alge- rian dinars (DZD) (about €27 million), and a one-time bonus for medical personnel. The government adopted a series of economic measures aimed at supporting economic activ- ity, preserving employment, and limiting the deterioration of Algerian public and external accounts. Key measures include postponing tax returns and paying taxes, reducing the central bank’s key rate to 3.25% (down 25 basis points), and lowering the reserve requirement rate from 10% to 8%. Social measures include paying at least 50% of the staff of institutions and public administrations on exceptional paid leave, paying an allowance of 10,000 DZD (€72) to 2.2 mil- lion poor families as part of solidarity operations during the month of Ramadan, exceptional procedures for customs clearance of certain consumer goods, and intensifying awareness campaigns. In addition, the Algerian govern- ment has decided to cut the state’s operating budget by 30% and to reduce the national oil company’s operating and capital expenditures from $14 billion to $7 billion.

Source: African Economic Outlook 2020

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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