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Algerians say oil price crash shows need for reform

March 9, 2020 at 9:12 pm

Thousands of Algerians take part in an anti-government demonstration against the Bouteflika regime in Algiers, Algeria on 5 November 2019 [Farouk Batiche/Anadolu Agency]

Plunging oil prices have increased the urgency for Algeria to reform its economy, politicians and business leaders said on Monday.

Energy Minister Mohamed Arkab said the country had been in “permanent consultations” with other oil producers after the collapse on Friday of an OPEC+ supply deal, which led Saudi Arabia and Russia to say they would raise output.

Arkab added that a decision was needed very quickly to restore balance to the market and said the lack of a decision was “very negative” for producers.

Algeria depends on energy exports for 95% of its foreign earnings, which had already halved over the past five years to about $30 billion in 2019. Currency reserves have more than halved in the same period.

“Algeria must urgently find alternatives and adopt a new management model. We still have time to change things,” said Houari Tighersi, a member of the parliament’s finance committee.

READ: OPEC countries to consider significant oil output cuts

The 2020 budget, passed in December, envisaged an oil price of $60 a barrel but still planned for a 9.2% cut in public spending to bring years of deficits under control.

Benchmark Brent crude futures were down some 20% at about $36 a barrel at 1646 GMT on Monday.

Algeria’s falling energy revenues are partly due to lower production levels and higher domestic consumption. It passed a new law last year to offer better terms to foreign firms investing in its oil sector in an effort to support output.

“Investments from international partners could be delayed, which will impact Algeria’s efforts to raise output,” a former chief executive of state energy company Sonatrach told Reuters, declining to be named due to the sensitivity of the matter.

The government also approved new rules last year to allow foreign companies to have majority ownership of projects in “non-strategic” sectors to encourage investment.

Algeria has struggled for years to diversify its economy away from oil and gas and encourage private sector growth. Mass protests over the past year against the old ruling elite could make it difficult to implement painful spending cuts.

READ: Algeria’s public debt rises to 45% of GDP, economy ‘delicate’

“A barrel at $34 a barrel is very bad news for Algeria as it tries to solve its multidimensional crisis. It is not easy to do more with less money,” said analyst Farid Ferrahi.

President Abdelmadjid Tebboune, elected in December in a vote opposed by the protest movement, had already pushed for his new government to “rationalise” public spending.

A former government minister, speaking anonymously, said the oil price crash could force the government to make overdue changes. “It could be a great opportunity for it to undertake the needed reforms to modernise the economy,” he said.