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IMF sees oil price risk for Algeria

Oil and natural gas sector represents about 35 percent of country's GDP.

By Daniel J. Graeber
IMF sees oil price risk for Algeria
Algeria needs to move ahead with reforms to protect an economy that relies on oil and gas, the International Monetary Fund warns. Photo by Steve Oehlenschlager/Shutterstock

ALGIERS, Algeria, March 15 (UPI) -- The International Monetary Fund warned Algeria's government that deep structural reforms are necessary to buffer against pressure from low oil prices.

Algeria has the 10th-largest natural gas deposits in the world and is the third-largest supplier to Europe. Its exports have been in decline, however, because of lagging foreign investments. Crude oil production is around 1.1 million barrels per day and the country is the largest African member of the Organization of Petroleum Exporting Countries.

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Jean-Francois Dauphin, a regional staff leader for the IMF, said the nation's economy is under sustained pressure from lingering weakness in oil prices.

"The impact of the oil price shock on growth has been limited thus far, but the fiscal and external balances have deteriorated significantly," he said in a statement.

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Real gross domestic product for Algeria grew by 3.7 percent last year and inflation was relatively healthy at 4.8 percent. Federal deficits, meanwhile, doubled to 16 percent of GDP and hydrocarbon exports fell by nearly half last year.

According to OPEC, the oil and gas sector is the "backbone" of the Algerian economy, representing about 35 percent of its GDP.

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Dauphin said the government in 2016 has planned for oil shocks by reviewing spending and focusing more on non-hydrocarbon revenue streams. In November, Italian energy company Eni said it would consider developing renewable energy in the country alongside state-owned energy company Sontrach.

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"Rapidly declining fiscal savings mean that Algeria will need to rely more on borrowing to finance future deficits," Dauphin advised. "Wide-ranging structural reforms are needed to help support economic activity during fiscal consolidation and to diversify the economy to achieve high and inclusive growth over the medium term."

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