IMF Warns Algeria’s Budget Deficits Deplete Financial Buffers Despite 3.9% Growth

ALGIERS, Algeria (XOL Africa) — Algeria’s public-investment strategy has sustained a post-pandemic economic expansion, but persistent budget deficits have severely depleted the nation’s financial buffers and heightened long-term risks, the International Monetary Fund said.

In its annual Article IV consultation report, the IMF estimated Algeria’s real GDP growth at 3.9% for 2025—up from 3.7% in 2024—and projected output to remain steady at 3.8% in 2026. However, the Fund cautioned that high government spending and heavy reliance on oil and gas revenues continue to leave the country vulnerable to price volatility.

“Algeria’s reform program has supported diversification and robust growth, although large fiscal deficits have depleted fiscal buffers and external buffers have eroded,” IMF staff wrote in the report.

To stabilize public debt and protect the economy against potential commodity price shocks, the Fund recommended that Algerian authorities implement a gradual fiscal consolidation plan. IMF staff calculated that additional fiscal measures equivalent to about 5% of nonhydrocarbon GDP from 2026 through 2029 would be required to stabilize central government debt.

“Credible and gradual fiscal consolidation while continuing to diversify financing sources and avoiding further monetary financing will be critical,” the IMF stated.

Inflation and Monetary Policy

Headline inflation picked up sharply in late 2025 and into early 2026, reaching 8.6% in May 2026, driven primarily by rising food prices and a sharp increase in gold and jewelry costs. The IMF projected overall consumer price inflation to average 5.5% in 2026.

The report urged the Bank of Algeria to prepare to tighten monetary policy if underlying inflation spreads more broadly. Directors advised the central bank to establish a clear low-inflation target as a nominal anchor, strengthen its operational independence, and restrict central bank financing of the public deficit to exceptional circumstances.

IMF Directors also commended Algerian officials for the country’s swift removal from the Financial Action Task Force (FATF) list of jurisdictions under increased monitoring, noting the progress made in strengthening anti-money laundering frameworks.

Government Outlook

Algerian authorities offered a more optimistic medium-term outlook than the Fund’s baseline projections, citing anticipated returns from large-scale foundational infrastructure, mining, and agricultural projects.

Government officials noted that major public investments are expected to boost nonhydrocarbon exports and substitute imports, thereby easing fiscal and external pressures after 2028. They added that financing provided by the central bank represented equity investments and temporary advances rather than direct monetary expansion, and emphasized that fiscal risks continue to be closely monitored.