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.
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.
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.
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 .
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 is set at T+1 for bonds. The settlement cycle has not changed since the establishment of a Central Depository (Algeria Clearing).
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 Agency||Current Rating||Outlook|
|Moody's||No rating||No outlook|
|Fitch||No rating||No outlook|
|Standard & Poor's||No rating||No outlook|
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.
- Caisse Nationale d'Epargne et de Prevoyance
- Societe Nationale d'Assurance
- Compagnie Algerienne des Assurances
- Compagnie Algerienne d'Assurance et de Reassurance
- Banque de l'Agriculture et du Developpement Rural
- Banque Exterieure d'Algerie
- Banque Nationale d'Algerie
- Credit Populaire d'Algerie
- Caisse Nationale d'Assurance Chomage
- Compagnie Internationale d'Assurance et de Reassurance
- Caisse Nationale de Mutualite Agricole
- Citibank Algeria
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.
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.