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Algeria
PUBLIC FINANCES
Algeria ranked in the upper range of medium-income countries
in 1992, and the government had concentrated for some years on
enlarging its industrial sector. The emphasis placed on manufacturing
industries resulted in an average gross domestic product (GDP--see
Glossary) increase of 18 percent over the decade from the mid-1970s
to the mid-1980s. But accelerated industrialization was achieved
at the expense of the agricultural sector, whose GDP share declined
from 15 percent in 1965 to 9 percent in 1985 (see
table 3, Appendix). The decline compelled the government to
spend hard-earned foreign currency on food imports to meet serious
food shortages facing a population that was growing at an average
annual rate of about 3.2 percent in the late 1970s. Oil and gas
revenues remained Algeria's largest single source of income, but
the government in 1993 used up to 98 percent of its hydrocarbon
export revenues to ensure its foreignexchange needs. The government
in 1993 also revised its budget to reflect the fluctuating, i.e.,
decreasing, percentage of hydrocarbon earnings caused by oil price
changes. As a result, the government has decided to diversify
the hydrocarbon industry away from crude oil toward natural gas,
condensates, refined products, and petrochemicals. The success
of this policy notwithstanding, and in spite of enhanced revenues
from other sectors, additional taxation, and customs duties, the
government has been unwilling to cut public expenditures significantly,
fearing an adverse socioeconomic impact. Whereas the government
has committed itself to reducing its external debt in the 1990s,
it seemingly cannot afford to abandon investing in critically
needed social infrastructure plans.
The government eventually instituted some reforms in public finance
management by shifting the responsibility for financing economic
activity from the Ministry of Finance to financial institutions
and by decentralizing the decision-making process. Begun in 1986,
these reforms were designed to transfer economic financing to
local governments and public enterprises, including state-owned
banks. Financial institutions, which had been limited to acting
as cashiers for the ministry, took over the function of financing
public enterprises and investment. Ministry of Finance investment
financing was limited to strategic projects. The financial system
also absorbed most of the ministry's role in housing finance.
The Law on Money and Credit, promulgated in 1990, formally transferred
the role of financial management to the Central Bank and the Money
and Credit Council (see Investments
, this ch.).
Data as of December 1993
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