IMF warns Algeria’s foreign reserves could fall sharply by 2031

Yesterday 11:26

By: Azzat Manal

IMF warns Algeria’s foreign reserves could fall sharply by 2031

Algeria’s financial buffers are expected to come under increasing pressure over the coming years, with the International Monetary Fund projecting a substantial decline in the country’s foreign exchange reserves by 2031. The assessment comes as the IMF calls for stronger fiscal discipline, reduced reliance on central bank financing and deeper economic diversification.

In its latest Article IV consultation, concluded by the IMF Executive Board on September 11 and published on September 21, the Fund projected that Algeria’s gross official reserves could decline from $51 billion in 2025 to around $46.5 billion in 2026 and $19.8 billion by 2031. The reserve level would correspond to about 3.3 months of the following year’s imports, compared with 8.6 months in 2025.

The IMF’s projections point to a gradual erosion rather than an immediate depletion of Algeria’s reserves. The institution expects reserves to fall to $41 billion in 2027, $33.4 billion in 2028, $27.8 billion in 2029 and $23.5 billion in 2030 before reaching the projected $19.8 billion level in 2031.

The deterioration is closely linked to Algeria’s fiscal and external imbalances. The IMF estimates that the overall budget deficit reached 10.5% of GDP in 2025 and projects deficits of 9.6% in 2026 and 10.2% in 2027. Public debt, meanwhile, is projected to rise from 52.1% of GDP in 2025 to 53.2% in 2026 and 60.4% in 2027.

Another concern highlighted by the Fund is the growing use of central bank financing. According to the IMF, financing from the Bank of Algeria represented 3.7% of GDP in 2025 and is projected to reach 5.5% in 2026. The institution has warned that continued monetary financing could put pressure on price stability and weaken confidence in economic policy.

Hydrocarbon revenues remain a crucial factor in Algeria’s economic outlook. Higher oil and gas prices could improve export earnings and government revenues in the short term, creating an opportunity to rebuild fiscal and external buffers. However, the IMF identifies a sharp decline in hydrocarbon prices as one of the main risks to the country’s economic prospects.

The Fund also points to the risks created by persistent fiscal deficits and close financial links between the government, state-owned enterprises and public banks. A combination of weaker hydrocarbon revenues, wider fiscal imbalances and continued monetary financing could increase pressure on public finances and external reserves.

Despite these challenges, the IMF expects Algeria’s economy to maintain positive growth. Real GDP growth is projected at 3.8% in 2026, followed by 3.1% in 2027 and around 3% annually through 2029. Inflation is expected to average 5.5% in 2026 before falling to 3.5% in 2027.

To strengthen resilience, the IMF is calling for gradual and credible fiscal consolidation, including higher non-hydrocarbon revenues, more efficient public investment and tighter control of expenditure. It also recommends gradually reforming energy subsidies while improving the targeting of support toward vulnerable households.

The institution is also urging Algeria to strengthen the independence of its central bank and limit monetary financing to exceptional circumstances. It recommends maintaining a monetary policy focused on price stability and tightening policy if inflationary pressures become more pronounced.

Economic diversification is another central element of the IMF’s recommendations. Reducing dependence on hydrocarbons, improving the business environment and creating more equal conditions between state-owned companies and private firms could help attract private investment and support more sustainable, private-sector-led growth.

The IMF’s assessment therefore presents Algeria with a mixed outlook: economic growth remains resilient and higher hydrocarbon revenues offer room to rebuild buffers, but persistent fiscal deficits and external pressures could gradually weaken the country’s financial position. The pace of fiscal adjustment, monetary policy and diversification efforts will be key factors in determining how Algeria manages these pressures over the medium term.