October 1, 2019 / 6:06 PM / 5 months ago

UPDATE 2-Algeria to slash spending, seek foreign debt

(Adds foreign debt plans, political and economic background)

By Hamid Ould Ahmed

ALGIERS, Oct 1 (Reuters) - Algeria plans to seek foreign loans in 2020 for the first time in years and cut public spending by 9.2%, the finance minister said on Tuesday, as it grapples with years of low revenue from energy sales.

The OPEC member’s foreign debt is currently estimated at less than $1 billion, but lower energy prices since mid-2014 have bitten deep into its foreign currency reserves as it struggled to reduce its lavish social spending.

Painful fiscal decisions have been further complicated by a year of political tumult, with mass protests demanding a complete overhaul of the ruling elite and an end to corruption that forced President Abdelaziz Bouteflika from power in April.

The government will turn to foreign financial institutions of which it is a member to fund strategic development projects, Finance Minister Mohamed Loukal told state radio. It is a member of the African Development Bank and the Islamic Development Bank.

A draft 2020 budget plan announced by Loukal on Tuesday envisages cutting the deficit to 7.2% of gross domestic product next year from a targeted 8% this year, partly by raising new taxes.

Algeria approved a 1.5% spending cut for 2019 after a 25%rise last year.

However, spending on politically sensitive subsidies will remain unchanged next year at around 8.4% of gross domestic product, Loukal was quoted saying by state news agency APS.

Algeria subsidises almost everything from basic foodstuffs to housing and medicine.

Protests sporadically erupt to demand better services in sectors such as water and roads, as well as sufficient subsidised housing units.

A large part of Algeria’s energy earnings is used to pay for imports of food and other goods due to poor domestic production after the government failed to diversify its economy away from oil and gas.

In a bid to reverse the trend, Algeria is planning to scrap a rule limiting foreign ownership in projects involving non-strategic sectors.

“In order to improve the business climate and the attractiveness of our economy, We decided to lift constraints expressed in the 51/49% rule,” Loukal said.

The government will also increase taxes on tobacco products and impose for the first time an “environment tax” on motorists which will be included in car insurance contract cost, Loukal said.

The economy is expected to grow by 1.8% in 2020, down from a 2.6% forecast for this year, amid a political crisis caused by mass protests demanding a change in the political system, creating uncertainties for both national and foreign investors. (Reporting by Hamid Ould Ahmed in Algiers Editing by Ed Osmond and Matthew Lewis)

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