Editor’s note: This post is from analyst Lahcen Achy, below left, with the Carnegie Middle East Center. Neither the Los Angeles Times nor Babylon & Beyond endorses the positions of the analysts, nor does Carnegie endorse the positions of The Times or its blog.
The country also launched a new round of negotiations with the European Union aimed at postponing Algeria’s obligation to lift customs barriers on European imports. Policymakers also took various measures to improve the country’s business environment and stimulate private investment.
Although these moves may suppress the potential risk of short-term popular unrest, they fail to address the structural flaws in Algeria’s economy. Its excessive dependence on global oil and gas prices, along with the absence of any credible strategy for economic diversification, present clear mid- to long-term challenges.
This failure to use available resources today to develop competitive economic activities outside the fuel sector is exposing Algeria to serious dangers in the future. If the price of oil suddenly drops below $100 — which is plausible — it will be impossible to maintain the current pace of government spending without tapping the country’s sovereign wealth fund, known as the Revenue Regulation Fund, and then resorting to foreign loans.
On the other hand, sharply reducing government spending to limit the budget deficit could fuel popular anger and throw the country into a cycle of social unrest. Even if fuel prices stay high, however, Algeria’s oil and gas reserves could be depleted within 20 years. Algeria’s leaders must therefore start now to seriously plan for a post-fuel economy.