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Algeria’s new austerity measures

Though oil prices have soared to $55 per barrel for the first time since mid-2015 on the promise of an Opec production cut deal in early December, the pain of low oil prices is still far from over for exporters like Algeria.

Algeria’s new 2017 budget, passed by parliament at the end of November, includes deep spending cuts as part of the government’s efforts to adjust to the low oil price shock.  

Subsidised gasoline, diesel, electricity, tobacco and alcohol will all cost more in Algeria from January 2017. The new budget bill also includes new taxes on goods and fuel, including a rise in value-added tax (VAT) of 2 percent, to 19 percent. Taxes on property rentals will also increase by nearly 10 percent.

“The country's 2017 budget law is a watershed in Algeria's economic history as ordinary income is gradually catching up with the level of hydrocarbon-generated revenue ,” economist Hassan Haddouche tells This is Africa.

Cheap oil has hit Algeria hard. Like other producers in the region, efforts to diversify the economy have fallen flat and the government remains highly dependent on hydrocarbon revenues. Oil and gas account for 94 percent of Algeria's total exports while energy sales provide 60 percent of the state's income.

Under these pressures, the Algerian authorities plan to slash public spending for the third consecutive year. Following a 9 percent cut in 2016, the 2017 budget aims for a 14 percent cut in an attempt to halve the budget deficit, estimated at 15 percent of GDP.

The Algerian government is maintaining an optimistic tone and does not use the term “austerity”. They argue that though taxes have increased, “there are a lot of provisions that are there to improve, boost and enhance economic growth”, Hadki Baba Ammi, Algeria's finance minister, declared in a speech to parliament.

Budget boycott

Not everyone is on board. Lawmakers approved the 2017 budget law in vote that was boycotted by most of the opposition parties.

During the vote, boycotters brandished posters outside that read “Starving the people” and “Undermining the social nature of the state”.

“The bill is controversial because it fundamentally affects Algerians' social benefits,” says Hassan Laribi, deputy of the opposition El-Adala islamic party.

Algerians have long benefitted from a generous – and unsustainable – package of government subsidies. These kept energy prices far below market rates, supported housing and provided mostly free services.

This helped to sustain the agreement between the state and citizens: stability in return for acquiescence. The Arab Spring revolutions that spread through many of its neighbours in 2011 never reached Algeria.

These cuts, though necessary, partially erode that pact at a time when ordinary Algerians are struggling with inflation and joblessness. The political fortunes of Algeria’s leaders could face new challenges as the population feels the bite of austerity.

Analyse Africa

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