| ALGIERS, April 10
ALGIERS, April 10 Algeria released details of
its "new model of growth" on Monday to cope with a sharp fall in
oil prices, recognising that its vast system of government
subsidies is unsustainable and must be overhauled.
The document outlining the new model frankly admitted the
country's reliance on energy, which accounts for 60 percent of
its budget, and put forward an ambitious programme for
developing its non-oil sector through 2030.
Subsidies are a sensitive issue since the state helps pay
for everything from basic food items to housing. The system
amounts to some 20 percent of GDP, according to some estimates.
"The abruptness of the drop in oil prices has revealed the
fragility of the economic system," the document said.
"In all sectors of the public service (electricity, gas,
water, rail transport, telecommunications), tariffs are kept at
levels lower than the cost of operations for more than a decade
for social considerations," it said.
"This financial support is no longer sustainable for the
state," it said. "The internal adjustment foreseen though
2016-2019 is not the end but just a start of the end of this
Algeria started cutting public spending after 2015 and its
finance law for 2017 includes more increases in prices for fuel
and electricity. It forecast a 15 percent deficit last year.
The document proposes to diversify the economy with a focus
on renewable energy, agriculture and industry. Algeria has long
aimed to diversify its largely state-controlled economy but
investment has been hampered by state bureaucracy and inertia.
The document includes two scenarios for the evolution of oil
prices. One will worsen Algeria's economic situation if prices
are $40 per barrel in 2017, $45 in 2018 and $50 in 2019.
A second one sees a more sustainable scenario with the oil
prices at $50 in 2017, $55 in 2018 and $60 in 2019.
With proper reforms, the second scenario sees Algeria's
budget deficit reduced to 1.9 percent of GDP in 2019. Its
balance of payments surplus would be $2.2 billion, with the
possibility of new debt and foreign reserves at a "comfortable"
level to cover 27 months of imports.
As Algeria's energy revenues declined to $27.5 billion in
2016 from $60 billion in 2014, the government has cut spending
and reduced petrol subsidies.
It has also restricted imports to protect foreign reserves,
which have fallen to $114 billion in 2016 from $178 billion two
years earlier. It can still cover around 2 years of imports.
Most analysts say Algeria has time to carry out reforms with
little short-term risk because of its very low foreign debt.
Three million heavily subsidised houses have been provided
and slums have been cleared in the capital Algiers in the past
two years. Public health and education are free and young people
setting up small businesses can get cheap loans.
(Editing by Patrick Markey and Tom Heneghan)