Algeria economy: IMF warns of persistent deficits, debt and reserve losses

The International Monetary Fund has highlighted persistent fiscal and external vulnerabilities in Algeria, warning that large budget deficits, rising public debt and declining foreign-exchange reserves could weigh increasingly on the country's economic resilience over the medium term.

In its 2026 Article IV consultation, concluded by the IMF Executive Board on September 11 and published on September 21, the Fund projected continued economic growth in the near term while stressing the need for fiscal consolidation, stronger monetary-policy credibility and deeper structural reforms.

Growth remains positive, but fiscal pressures persist

The IMF estimates that Algeria's real GDP expanded by 3.9% in 2025 and forecasts growth of 3.8% in 2026. Growth is then expected to moderate to 3.1% in 2027 and around 2.9% by 2030 and 2031.

The Fund attributes the near-term outlook partly to stronger hydrocarbon prices, which are expected to support export and government revenues. At the same time, it cautions that the positive short-term picture does not eliminate underlying fiscal and external vulnerabilities.

The central government's overall budget deficit is projected at 9.6% of GDP in 2026, following a deficit of 10.5% in 2025. The gap is expected to remain above 10% in 2027 before gradually narrowing to 8.7% by 2030 and 2031.

Public debt set to rise

One of the clearest trends identified by the IMF is the continued increase in gross government debt.

According to the Fund's projections, public debt is expected to rise from 52.1% of GDP in 2025 to 53.2% in 2026. The ratio could reach 60.4% in 2027 and continue increasing to 79% of GDP by 2031 if current fiscal pressures persist.

The IMF links these developments to Algeria's substantial financing requirements. It also points to the close financial relationship between the state, public enterprises and public banks as an area requiring continued attention.

The Fund recommends a gradual and credible fiscal consolidation strategy, stronger non-hydrocarbon revenue collection and more efficient public spending. It also calls for reforms to improve the business environment and create more favorable conditions for private-sector investment.

Foreign-exchange reserves under pressure

External buffers are another major concern in the IMF's assessment.

Official gross reserves stood at an estimated $51 billion in 2025 and are projected to fall to $46.5 billion in 2026. The Fund forecasts a further decline to $41 billion in 2027 and $19.8 billion by 2031.

The decline would also reduce the number of months of imports covered by Algeria's reserves. The IMF projects coverage to fall from 8.6 months in 2025 to 8.1 months in 2026, 7.2 months in 2027 and 3.3 months by 2031.

The deterioration reflects pressure on the external position, with the IMF pointing to stronger imports and weaker hydrocarbon exports as important factors behind the decline in reserves.

Hydrocarbons remain central to the outlook

Despite Algeria's efforts to diversify its economy, hydrocarbons continue to play a major role in determining the country's fiscal and external position.

The IMF projects hydrocarbon-sector growth of 2.7% in 2026, followed by a contraction of 0.8% in 2027. Meanwhile, the non-hydrocarbon economy is expected to grow by 4% in 2026 and 3.6% in 2027.

Higher hydrocarbon prices are providing Algeria with additional revenue in the short term. The IMF, however, stresses that this window should be used to rebuild fiscal and external buffers rather than postpone structural adjustments.

The Fund specifically identifies a sharp fall in hydrocarbon prices as one of the principal downside risks to Algeria's economic outlook.

Monetary financing and inflation remain closely watched

The IMF has also drawn attention to Algeria's reliance on central-bank financing.

Its data show central-bank financing equivalent to 3.7% of GDP in 2025, with the figure projected to reach 5.5% in 2026. The IMF warns that continued reliance on monetary financing could undermine price stability and the credibility of economic policy.

Inflation has already accelerated. Headline inflation moved from -2% in September 2025 to 5.2% in April 2026, according to the Fund. Average consumer-price inflation is projected at 5.5% for 2026 before easing to 3.5% in 2027.

The IMF therefore recommends limiting monetary financing to exceptional circumstances and strengthening the monetary-policy framework, with price stability serving as a clearer nominal anchor.

Reform agenda remains central to medium-term stability

The IMF's assessment does not describe Algeria's economic outlook solely in negative terms. The institution acknowledges robust growth, investment-led activity and efforts toward diversification, while emphasizing that deeper reforms are needed to strengthen resilience.

Among its recommendations, the Fund calls for improved public-finance management, greater efficiency in public investment, stronger non-hydrocarbon revenues and a gradual reform of energy subsidies accompanied by targeted assistance for vulnerable households.

It also highlights the need to improve the business climate, reduce regulatory barriers and informality, strengthen governance and transparency, and establish more balanced competitive conditions between public and private companies.

The IMF further recommends greater exchange-rate flexibility, arguing that it could help the economy absorb external shocks and reduce the premium between official and parallel exchange rates.

A window to rebuild economic buffers

The IMF's latest assessment therefore presents a mixed picture for Algeria: economic activity remains resilient in the short term, but substantial fiscal deficits and weakening external buffers create important medium-term challenges.

Higher hydrocarbon revenues offer the government an opportunity to rebuild reserves and strengthen public finances. The Fund's message is that exploiting this window will require fiscal adjustment, monetary discipline