Expert Insight

Public Spending FinancingPublic Spending Financing Challenges in Algeria under Fuel Price Decline Challenges in Algeria under Fuel Price Decline General Law Professor Al Meseilah University Republic of Algeria . Dr.Khudhari Hamza


The petroleum revenues represent 65% of the public spending finance in Algeria. The contribution percentage of oil proceeds in the budget financing witnessed an increase during the past years due to the expansion of public spending to support the economic growth programs. The successive governments during the period from 2000 to 2015 adopted several development programs under different titles the implantation of the same depends mainly on increasing the public spending and upgrading the individual spending power. The oil price decline in international markets since 2014 so far caused an increasing deficit in the State budget. Consequently, the country is facing major challenges in enhancing budget financing sources beyond fuels. Such challenge was overcome through diversification of public spending sources through several economic and financial mechanisms.

Public Spending Rationalization and Combating Squandering

The Algerian government by virtue of the laws, regulations and guidelines passed by the President and cabinet members adopted the public spending rationalization policy with the preservation of effectiveness and efficacy in fulfilling the general applications of citizens in various ministerial sectors. Among the legal mechanisms which are adopted in the field of public spending rationalization is obliging all central and local administrative entities to precisely identify the general requirements prior to entering into and completing deals.

As a result, the squandering phenomenon is minimized upon the procurement of movables or provision of services or completion of works for the benefit of State public utilities.

In the same context, the State laws and regulations obliged the central and local administrative entities to coordinate with each other upon the processing of the general applications through the adoption of central procurement mechanism at the level of economic, industrial and commercial public institutions.

At the level of local communities (municipalities and provinces), the municipality legislation obliged the elected councils to handle exclusively the general applications which are ascribed by priority only so as to reduce the public spending budget to utmost extent possible. In this context, Article 11 of Law No. 10-11 dated 22nd, June 2010 on municipality law reads as follows : The elected councils are obliged to take all measures required to consult the citizens on the applications of priority nature so as to be handled annually by local communities budget. In the same context, the Province Law provides the elected popular council with the frame through which the peoples’ representatives are consulted on the local development priorities.

Adoption of Unconventional Financing Plan of Budget.

The process of issuing money by the Central Bank is associated with several financial restrictions provided for in various laws regulating spending and monetary in the world and represented in three controls in the absence of which the Central Bank will be unable to issue the national currency namely the availability of golden financial equivalent for monetary issuance process or availability of foreign currency equivalent or availability of credit equivalent issued by the Public Treasury. However, the unconventional financing of the Public Treasury is represented in allowing the Central Bank to issue currency without the availability of gold or foreign currency or credit equivalent. Algeria took this action when it amended monetary Law and loan in 2019 and allowed the Central Bank to supply money beyond the traditional frames provided that Bank of Algeria shall purchase the bonds issued by it for a specific period of time of five years.

Algeria allocated the currency issued within the unconventional finance scale to ensure budget financing, settlement of internal debt, financing national investment fund ender the provision of monetary Law and loan amended in 2019.

The conventional finance constitutes a significant source of public spending sources during the two past fiscal years (2019/2020). However, a lot of criticism was made to unconventional finance method in relation to the decline of the Algerian dinar value against foreign currencies due to the high inflation ratio. this leads inevitably to the hike of prices and decline of individual living. Therefore, State institutions expressed their strong wills to abandon unconventional finance and to look for more active and less loss sources to individual and to national economy.


Internal Borrowing

Algeria still absolutely refuses the external borrowing which is associated with its grave experience with the major financial institutions all over the world and particularly International Monetary Fund and World Bank during the last decade of the last century wherein, Algeria had no alternative but to reschedule its debts more than once under arbitrary conditions particularly in connection to demobilization of workers and wind up public economic institutions. These conditions led to catastrophic consequences to the national economy.

The Country selected the internal borrowing approach through public or debenture loans. Algeria banks issued securities and offered them for public subscription as well as for public and private economic institutions in particular. Algeria Bank could generate financial proceeds through the sale of these securities. However, the overall outcome of subscription process was not satisfactory and failed to achieve the prescribed results. The debenture loan of 2017 realized only Algerian Dinar 568 billon which is an insignificant amount in view to the objectives targeted by the government. Algerian’s lacks demand for debenture loans is attributed to several social, economic and financial reasons.


Reform of Revenues, Upgrading Resources for Public Spending

In order to expand the revenues contribution in financing the public spending, Algeria tempted recently to leverage the ordinary revenues yield to ensure the public spending coverage in a bid to replace the same by petroleum revenues which still dominates considerably the State budget. For this purpose, the supplemental financial law of 2020 provides a set of tax measures including overcharging petroleum products by Algerian Dinar 03 and rising the fees applicable to touristic cars and to replace the tax imposed on properties by wealth tax and to expand the range of taxpayer and to leverage the value there of increasingly by 0.1% on all properties the value of which exceeds Algerian Dinar 100 million.

For the achievement of the desired revenue reform, the government tends to digitalize it taxation system for transparent tax collection and enhancement of antifraud and tax evasion mechanisms and ensure equality in the application of tax payment commitment principle to all taxpayers. Besides, the process of reviewing the taxation system for the reduction of the taxation and expansion of the taxpayers range has been already started.

Orientation Towards Profitable Economy

Algeria started the implementation of an economic plan to form a profitable economy through several axes:

The first axis represented in agricultural investment and utilization of major potentialities particularly the wide agricultural lands technical and specialized manpower who are enrolled in Algerian universities and Higher Agricultural Schools in addition to the considerable water resource in the Southern area of Algeria. The agricultural investment started to generate profitable and fruitful results on self-sufficiency level and provide employment opportunities and generate hard foreign currency proceeds resulted from export to Europe and few neighboring countries.

Among the key sectors which the Algerian government pays great attention to attract the small, medium size and emerging enterprises, three public funds were found to finance the small and medium enterprises projects by an interest margin not exceeding 01%. Besides, the consecutive financial laws allocated incentive considerable and semi revenue for those who are interested in establishing such kind of enterprises.

Algeria undoubtedly shall covert to a leading agricultural and industrial country during the forthcoming ten years due to the several diversified strategies approved by the State institutions to finance the public spending beyond fuel sale proceeds through the development of diversified profitable economy.

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