Hard Currency Erosion To Cause A New Financial Crisis In Algeria

Algeria_UN.jpgExperts warned of the erosion of Algeria’s exchange reserves after falling to less than $ 80 billion by the end of last December for more than $ 97 billion at the end of 2017, a drop of more than $ 17 billion.

Analyses of the Bank of Algeria indicates that these imbalances are due to the large deficit that was recorded by the public finances, confirming that the continued decline calls for continuous efforts to restore the stability of the balance of payments and reducing the decline of official exchange reserves.

“There is no mechanism to cover the deficit except for the exchange reserve. In the past, we had a deficit at the budget level. We used the fund to cover it. When the fund ran out, the previous government used to print the money”, APS quoted Abderrahmane Aiya, an economist.

“Now we follow the same path and this means if the exchange reserve is completely exhausted, the government will not find another mechanism, because the reserve is made up of difficult currencies and does not be printed locally, and this is dangerous to the national economy and in order to avoid the continuous decay of the exchange reserve we must restructure the national economy”, he added.

The experts attributed the decline in exchange reserves to two important aspects of the equation of the economy, the first is related to the national production of oil, and the second is related to its prices, and any imbalance may appear on the balance of the national economy.

“The double-dip in oil and gas on which the national economy depends pushed to the need of the state for forty or fifty billion dollars”, said the economist Farid Ben Yahya.
Economic analysis indicates that these imbalances are due to the deficit that is recorded by the public finances. Hence, structural reforms should be introduced in order to fortify the regular cellection.

For its part, the central bank explained in its note of the second semester of 2018 that this decline is slightly higher than the deficit of the balance of payments balance due to the impact of the negative valuation of about 1.73 billion dollars that is linked to the devaluation of the euro against the dollar between December 2017 and December 2018.

The bank added that the annual declines of the exchange reserves are associated with the deficit of the total balance of payments and reflect the increase in the internal raw costs of the total economic active elements around the national income, ie the rise in imports compared to exports.

During its recent meetings, on 2, 8 and 15 May, the government gave the green light to actions under this initiative that is led by the Ministries of Finance, Trade, and Industry.
The first measure that is presented to the government by the Finance Minister, Mohamed Loukal, through his periodic presentation on the measures that should be taken to reduce the balance of payments deficit in order to preserve the country’s spare parts in rationalizing the import of spare parts (CKD / SKD) for the installation of tourist cars, households, electronic devices and mobile phones.

This rationalization will speed up the preparation of the conditions’ book for the installation of households, electronic and electrical devices, in order to comply with the standards and conditions that are governing this activity, particularly the integration rate and the employment of local labor, and the mandatory exportation as well.

The Government also approved the amendment of the Executive Decree that was issued in 2000 defining the conditions for the definition of production activities based on the assembly models for the synthetic industries and the assembly models in order to define the concept of assembly for the domestic and electronic industries, which must be limited to the basic components of the product, introducing handling and determining the duration of utilization of various incentives.