Algerian economy braced for bumpy ride as political unrest mounts

The Algerian economy is set to suffer, regardless of how the current political unrest plays out, according to Capital Economics.

Abdelaziz Bouteflika, the long-standing president of the oil-rich North African country, announced this week he would not seek a fifth term in office following weeks of protests.

Presidential elections scheduled for 18 April have been postponed and Bouteflika – who was elected in 1999 – has said he will oversee a national conference on political and economic reforms, with a new constitution going before a referendum.

Demonstrations, however, have continued, with protestors concerned that the ruling party is simply stalling for time as it seeks to decide a successor to Bouteflika.

In a note on the country's political unrest, Jason Tuvey, senior emerging markets economist at Capital Economics, said: “Whichever direction proceedings now take, the economy is likely to suffer.

"Protests and broader security concerns will lead to some disruption to activity, and ongoing political uncertainty will weigh on sentiment and result in softer consumer and investment spending.

“The bigger picture, though, is that whoever eventually assumes power will inherit an economy that hasn’t adjusted to low oil prices. Since the collapse in oil prices in 2014, large budget and current account deficits have opened up. Few measures have been taken to address these balances and foreign exchange reserves have been drawn down to prop up the dinar. At the current rate of depletion, these reserves will last no more than four years.”

Tuvey argued that any new regime will prioritise tempering further political unrest, which from an economic perspective would include fiscal policy being loosened via increased spending on subsidies and public sector wages.

“But this will simply exacerbate the strains in Algeria’s balance of payments,” he said.

“A period of weaker economic growth almost certainly lies in store. Among the countries that faced unrest during the Arab Spring, GDP growth slowed by an average of 2.2%-points in the subsequent years relative to the previous decade.

“Algeria’s weak starting point means that the fallout could ultimately more severe.”