• Crude production accounts for more than 90% of the country’s export receipts
  • IMF predicted that Algeria's economy will shrink by 5.2%
  • Algeria slashed its state budget for this year by 50%.

The president of Algeria has ruled out seeking emergency loans from the International Monetary Fund or the World Bank or other foreign financial institutions as his country deals with both the coronavirus pandemic and collapsed oil prices.

“Accumulating debt harms national sovereignty”, Abdelmadjid Tebboune said.

“I would rather borrow from Algerians than from the IMF or other foreign banks,” Tebboune said. “When we borrow from foreign banks, we can’t discuss [important subjects like] Palestine or the Western Sahara.”

Tebboune claimed that certain “friendly” nations had offered Algeria “loans,” but he did not identify them and he said he also rejected their offers.

Falling oil prices have crippled the Algerian economy – crude production accounts for more than 90% of the country’s export receipts. Oil and gas represents some 20% of the country’s gross domestic product.

Even before the current crises, Algeria’s foreign exchange reserves had plunged from €162.4 billion ($176 billion) in 2014 to €57 billion ($62 billion) at the end of 2019.

IMF predicted that Algeria will enter into a recession in 2020, its economy will shrink by 5.2%, and it will have one of the largest budget deficits in the region.

Prime Minister Abdelaziz Djerad warned that domestic national debt as a percentage of GDP jumped from 26% in 2017 to 45% in 2019.

Algeria has an unhappy history with the IMF – after the country borrowed from the organization in the 1990s it sank into heavy debt.

Last week, Algeria, a member of the Organization of the Petroleum Exporting Countries that produces about 1 million barrels of crude oil per day, slashed its state budget for this year by 50%.

The cost to produce Algeria’s crude, Saharan Blend, is $20 per barrel – thus any price below $20 mean the country is selling its crude at a loss.

"We will soon start to feel a big crisis unless oil prices go back up," said Halim Cherifi, a banker in Algiers.

Economics professor Abderrahmane Aya similarly warned: "The current oil market level is far below government forecasts. The situation may hit the value of the dinar currency and then the purchasing power of Algerians."

Algeria has already halted most of its state housing construction projects, suspended some energy schemes and nixed some other development plans in order to cut spending.

"In the short term, Algeria can resist the consequences of what is happening on the oil market. But this exceptional situation requires urgent structural, economic and financial reforms," said El Houari Tighersi, a member of the parliament's finance committee.

A former energy minister warned: "Algeria no longer has the choice of delaying economic reforms. They are going to be difficult to implement, but this is the time to diversify the economy.”

On Monday, the Algerian Minister of Communications, Ammar Belhimer said low crude prices will likely to reduce the nation’s oil and gas export revenues for the year to $20.6 billion, down from an earlier $37.4 billion forecast.

“It’s a more critical moment of reckoning than it was a year ago, because here we have three crises -- economic, political and the virus -- potentially converging at a time when the population is still highly mobilized and trust in the state is low,” said Riccardo Fabiani, North Africa project director at the International Crisis Group. “The patronage system that buys support has never been this weak.”

Algeria was hammered by a deadly civil war for much of the 1990s – and now fears are rising that an economic collapse will trigger new waves of social unrest and violence.