Algeria

Stable growth supported by investment and public spending

In 2024, growth slowed down due to the restrictions imposed on oil activity by the OPEC+ quota (-99,000 barrels per day). The voluntary reduction of 51,000 barrels per day (b/d), decided by the country in January 2024, will be phased out between April 2025 and September 2026, bringing national production from an average of 907,000 b/d in 2024 to 934,000 b/d in December 2025. However, this increase in production will be offset by the erosion of oil prices. After a contraction of 6.5% in 2024 due to maintenance operations in the liquefaction plants in Arzew, gas production should rebound in 2025 thanks to the numerous investments of the national company Sonatrach, in association with foreign companies. One of the major projects in 2025 is Boosting III, launched at the end of 2024 with a budget of USD 2.3 billion, in partnership with Baker Hughes and Tecnimont. The project aims to modernise and extend the production network of the Hassi R'mel deposit, the country's largest gas field, located in the province of Laghouat. However, gas exports will be limited as half the production will be consumed locally and the European Union favours American gas to reduce its dependence on Russian gas. Public investment will also continue in the construction of social housing, which is still sorely lacking, and of public infrastructure (water, sanitation, transport, electricity, in particular). Private consumption will continue to be strongly supported by public spending, boosting the service sector which accounts for 45% of GDP and provides 60% of employment.

The country will continue its efforts towards economic diversification in 2025, with a particular focus on agriculture, the second largest contributor to GDP (13% of GDP, 10% of employment). In 2024, the State deployed incentive measures, in particular the raising of the purchase price of cereals and legumes from farmers and a subsidy for fertilizers increased to 50% of their reference price. Several strategic projects have been launched in the southern provinces, including a major project worth USD 3.5 billion in April 2024 in partnership with the Qatari group Baladna, involving dairy farming and the production of milk powder on 117,000 hectares in the province of Adrar. Similarly, in July 2024, a partnership worth USD 420 million was concluded with the Italian company BF for the production of cereals, legumes and pasta on 36,000 hectares in Timimoun. The state plans to achieve total and complete self-sufficiency in durum wheat by the end of 2025, after covering 80% of national needs in 2024. As for tourism (5.8% of GDP and 7.5% of employment), performance will lag far behind that of neighbouring countries, with 3.5 million visitors in 2024, well below Morocco’s tally of 14 million. The lack of transportation, hotel and restaurant infrastructure and the difficulty in obtaining a visa are largely to blame. Some 90 tourism projects will come into operation in 2025, and Air Algérie will inaugurate two new international routes as early as March, thus improving the accessibility of Algerian tourist destinations. Last, the country has considerable mining potential, with major sites such as Gara-Djebilet (iron) and Tala Hamza-Amizour (zinc, lead), currently being exploited by foreign companies. However, with the sector currently contributing only 1% to GDP, it wants to make itself more attractive by passing a new mining law. The purpose of the legislation would be to exclude mining from the list of sectors subject to the 49/51 rule that limits foreign participation to 49% and to allow foreign investors to hold up to 80% of a project's capital.

Inflation slowed significantly in 2024 due to a decline in imported inflation (particularly food inflation), supported by government measures to stabilise the national currency and strengthened price controls. In 2025, the government will continue its efforts to strengthen purchasing power and stimulate local agricultural production to limit shortages and further price spikes. However, the persistently expansionary fiscal policy combined with robust private consumption will put slight upward pressure on inflation. The central bank will keep its monetary policy unchanged, maintaining a stable key rate of 3% since May 2020, to little effect given the excess liquidity in the market.

Large public deficit and widening current deficit against a backdrop of weaker oil revenues

In 2025, fiscal policy will remain expansionary to support purchasing power and investment. The Finance Act provides for a record budget of nearly 17 trillion dinars (USD 128 billion, +10% compared to 2024). Expenditure will continue to be dominated by wages, social transfers and defence. Transfers will be increased, particularly through an increase in food subsidies. The budget also includes several advantageous tax measures, such as VAT exemption on basic food products and internet services, and a 50% reduction in the global income tax (IRG) and the corporate income tax (IBS) for activities carried out in the South. At the same time, the State plans to increase its revenue excluding oil tax in order to mitigate the declining income from hydrocarbons. Consequently, to mobilise tax resources, taxes on activities related to tobacco and precious stones and metals are being increased. A higher property tax will apply to unoccupied secondary properties, and vehicle sticker tariffs on high-powered vehicles will be raised.

Despite durably comfortable oil revenues, weaker revenues will encourage the State to limit withdrawals from the Revenue Regulation Fund (RRF) intended to finance the deficit (around one-third of the latter). In 2025, it will therefore rely more on domestic debt issuance. As a result, the outstanding public debt is expected to increase in 2025. The ban in external debt will remain in place, accounting for less than 3% of GDP.

A modest current account deficit materialised again in 2024 which is expected to widen in 2025. Hydrocarbon revenues, which account for 90% of total exports, will decline as a result of lower energy prices. At the same time, robust domestic consumption will drive high imports on back of food requirement and household equipment and automobile purchases, notably in light of the fact that many restrictions have been lifted. Imports of capital goods needed for investment will continue to grow strongly. The trend will lead to a further reduction in the trade surplus. Furthermore, the slight surplus in the secondary income balance will not be enough to offset the deficits in the primary income and services balances. The increase in tourism revenues will only partially offset the increase in service imports, which is being driven by the boom in investments. The current deficit will be easily financed by the comfortable foreign exchange reserves, which also contribute to dinar stability.

Second presidential term: a mix of internal stability and diplomatic tension

Re-elected for a second five-year term in September 2024 with the army’s ongoing support, President Abdelmadjid Tebboune will continue to govern with a focus on maintaining political stability in 2025. This will be ensured by high social spending to contain popular discontent and limit the risk of social unrest. The power of the security forces, a weak opposition and the repression of civil liberties (propaganda, repression of the opposition, control of the media) will strengthen the government.

At the regional level, tension with Morocco will persist over Western Sahara, a territory claimed by Morocco, which the United Nations describes as non-self-governing and awaiting self-determination. Algiers supports the Polisario, the Sahrawi independence movement. At the end of 2024, Algeria lifted the trade restrictions it had imposed on Spain in June 2022 after the latter supported the autonomy plan proposed by Morocco for the territory. However, Franco-Algerian relations have deteriorated since Paris recognised, in July 2024, that this autonomy plan was the “only basis” for resolving the conflict. Since then, the two governments have been clashing over issues of migration cooperation, access to their territory and respect for bilateral agreements. Algeria will, however, continue to cooperate with the Europeans in the field of gas and renewable energy. In January 2025, it officially joined the major SouthH2 Corridor project which aims to supply 4 million tons of green hydrogen per year to Europe via Tunisia. It has also reaffirmed its commitment to the Medlink project, an underwater electrical interconnection aimed at exporting Algerian green electricity to the European continent. Last, the country will continue to maintain ties with BRICS countries, in particular China, which is investing heavily in infrastructure, hydrocarbons and mining projects, and with Russia, its main arms supplier and strategic ally on the issue of the Western Sahara. However, keen to avoid becoming overly dependent on Moscow, Algiers signed a memorandum of understanding with Washington in early 2025 to strengthen their military cooperation.

Last updated:March 2025