November 9, 2017 / 11:56 AM / a year ago

UPDATE 1-Algeria sees 2018 GDP growth at 4 pct vs 2.2 pct this year

(Adds details, background)

By Hamid Ould Ahmed

ALGIERS, Nov 9 (Reuters) - Algeria’s economy should grow by 4 percent in 2018, up from the 2.2 percent forecast for this year, as oil prices recover, the government said in a document seen by Reuters.

The government anticipates inflation reaching 5.5 percent next year, unchanged from its projection for 2017, according to the document, part of the draft budget for 2018.

OPEC member Algeria relies heavily on oil and gas, which account for 60 percent of the budget and 95 percent of total export revenue. Its finances were hit by a more than 50 percent fall in crude oil prices since mid-2014.

The document, written a few weeks ago, said the latest forecasts would be hit if global crude prices returned to below $50 a barrel.

“This potential risk would weaken our macroeconomic and financial equilibrium,” it said.

Oil prices steadied just below two-year highs on Thursday, with Brent crude hitting $64.65, its highest since June 2015.

The draft budget document said Algeria’s foreign exchange reserves would fall further to $84.6 billion in 2018 from $97 billion by the end of this year, down from $193 billion in May 2014.

Algeria aims for a 6.5 percent growth in the energy sector in 2018, after a 2.7 percent fall projected for this year.

Gross domestic product in the non-hydrocarbon sector is expected to grow by 3.4 percent next year, slightly up from the 3.2 percent forecast for 2016, the document said.

Aiming to boost growth, the North African country plans to increase state spending by 25 percent in 2018 after two years of falling expenditures. It cut spending by 14 percent this year and by 9 percent in 2016, and imposed import restrictions.

In order to secure money for the extra spending, the government has approved amendments to the Money and Credit Law to allow the central bank for the first time to lend money directly to the public treasury. (Reporting by Hamid Ould Ahmed; Editing by Ulf Laessing and Robin Pomeroy)

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