Algeria’s ‘optimistic’ budget is the largest since independence

With subsidies still being paid, the budget deficit has ballooned from $45bn in 2024 to an expected $62bn next year. This largesse worries some, but apparently not the government

Algerian President Abdelmadjid Tebboune riding a military vehicle during the parade on the 70th anniversary of the Algerian Revolution on November 1 in Algeria.

Algeria’s ‘optimistic’ budget is the largest since independence

Rabia Abdul Salam

last update on 16 Nov 2024

Algeria has approved its largest budget since gaining independence from France in 1962, with expectations of more revenue from tax and non-carbon industries. The 2025 budget amounts to $126bn, with Algiers “optimistic” about the economic and financial situation. Growth in non-oil economic activity is expected to be around 5% between 2025-27, while an increase in the exports of goods and hydrocarbons is based on a market price of $70 per barrel.

Analysts say the draft budget shows that President Abdelmadjid Tebboune wants to strike a balance between promoting economic health and social justice, with money for education, health, housing, and support for vulnerable groups accounting for 35.3%.

Defence and subsidies

Algeria is strengthening its military capabilities in response to challenges, and the 2025 budget shows significantly more funding for the armed forces, allocating 3.35tn Algerian Dinars (DA), or $25bn, an increase of $3bn compared to the 2024 budget. Analysts describe this as “logical” given the state’s growing security and defence needs, with an increased risk of terrorism stemming from political instability in neighbouring states such as Mali, Niger, and Libya.

The issue of state subsidies remains controversial. The government has been urged to shift from general subsidies to targeted help for those most in need and knows it needs to rationalise government spending and reduce a large budget deficit. A committee to reform subsidies now includes politicians, trade unions, and experts.

Algeria has been urged to shift from general subsidies to targeted help for those most in need

Economics Professor Salah Salhi at Ferhat Abbas University in Setif has suggested several ways to rationalise subsidies, including digitising and auditing them, as well as updating data on beneficiaries.

Salhi also suggested "reviewing the means of controlling indirect subsidies to limit the appropriation, smuggling, or export of subsidies, and adopting new complementary tools from outside the public budget, first and foremost the resources of the third sector, which includes endowments, zakat, and charitable institutions". Rationalising transfer allocations is a "crucial step as it will allow for flexible demand management, contain price increases and minimise inflationary risks," he added.

A growing deficit

According to Algeria's 2025 draft budget, the expected deficit is equivalent to about $62bn, having risen significantly from around $45bn in 2024. Algiers cited a rise in expenditure, but did not say how it would cover this deficit. Suleiman Nasser, an Algerian researcher in Islamic banking and finance, said this was "the most important question that parliamentarians should be asking".

Nasser explained that there are several ways to cover the deficit. "Either by foreign borrowing, which the Algerian president has already said he will not do, or by internal borrowing, which means printing money as part of unconventional financing, a system that the president has also criticised a lot."

Positive outlook

Some indicators are being seen as evidence of strong economic performance since 2021. Growth is expected to be 4.5% in 2025-26 before slowing to 3.7% in 2027. Nominal gross domestic product (GDP) is projected to hit DA 37.9tn ($278.7bn) in 2025, DA 40.85tn ($300.7bn) in 2026, and DA 41.86tn ($308.13bn) in 2027.

AFP — A Sonatrach facility in Algeria which produces 60,000 barrels of crude oil/day and nearly 2 million m3 of natural gas.

For its part, Algeria's oil sector is expected to grow by 2.4% in 2025 and by 0.3% in 2026 before declining by 2.6% in 2027. Algeria wants to revitalise its oil sector by intensifying exploration and improving recovery across its oil and gas fields to increase production to 206m equivalent tonnes by 2027.

Revenue for 2025-27 is slated to rise by an average of 3.1% over the three years, mainly driven by a forecast 9% increase in tax receipts. Revenue for 2025 is scheduled to rise by 3.5% compared to the 2024 closing forecast, up to DA 8.5tn ($64bn) from DA 8.23tn.

Non-oil budget revenue is expected to increase by 7.3% next year, 7.2% in 2026, and 5.4% in 2027, again driven by taxes and government property income. Contributions from government financial institutions are projected to decline by 56.8% this year.

Algeria wants to revitalise its oil sector, with intensified exploration efforts and improved recovery rates

Reserves and zones

Algeria is one of the five African countries with the highest foreign exchange reserves, and this is expected to increase from $64.6bn to $72.95bn in 2025. Its trade balance is also expected to record a surplus over 2025-27 ($4.83bn in 2025, $3.57bn in 2026, and $3.35bn in 2027).

Algiers wants to promote the sustainable financing of strategic projects and stimulate local investment, so authorised the Treasury to issue sovereign bonds, to let investors participate in the financing of infrastructure programmes. The decision to do so was spurred by positive results from the Islamic banking sector to help curb the parallel market and seek new sources of bank financing to strengthen Treasury resources. From its launch in April 2020 through the end of August 2022, the value of deposits in public and private banks and financial institutions reached about DA 500bn ($3.7bn).

Finally, a new law is paving the way for free trade and industrial zones, setting conditions and rules for the entry and exit of goods in preparation for their establishment, especially in border areas. Tebboune says Algeria wants to create five such zones with Tunisia, Libya, Niger, Mauritania, and Mali. In February, he and Mauritanian President Mohamed Ould Ghazouani laid the foundation stone for the first. A zone with Niger is likely to be next. The aim is for these zones to serve as a trade link between Algeria and West Africa.

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