Algeria enters fiscal year 2026 at a pivotal moment. The government has chosen, since 2020, a sovereign development pathway centred on a strong social contract, public investment in strategic infrastructure (water, energy, logistics, housing), and the preservation of external buffers without resorting to foreign borrowing. The macro-financial trajectory has produced measurable results: inflation moderation, stable foreign reserves, diversification in non-hydrocarbon segments, and a resilient domestic banking system capable of absorbing the State’s refinancing needs.
The continuation of this trajectory now depends on restoring coherence across three core balances that shape sovereign credibility:
(i) the fiscal balance,
(ii) the monetary balance,
(iii) the external balance.
The purpose of this briefing — addressed to foreign missions, international analysts and economic partners — is to clarify Algeria’s macro-financial position, identify its structural vulnerabilities, and outline the technical measures that can consolidate the country’s sovereign stability over 2026–2028.
“Fiscal discipline is not the opposite of sovereignty; it is the precondition for it.”
— Mario Draghi
1. Fiscal Position: Distinguishing the Domestic Deficit from the External Constraint
For 2026, total expenditure remains high due to strategic capital spending and a deliberate social orientation. The fiscal deficit is financed almost entirely domestically, with no recourse to external borrowing and with foreign reserves maintained at over USD 65 billion.
However, a crucial indicator is not yet published in an operational format: the non-hydrocarbon primary balance (NHPB) in USD, along with a sensitivity analysis to oil and gas prices — a tool mandated implicitly by Organic Budget Law 15-18.
Publishing the NHPB is essential for three reasons:
- It separates domestic liquidity needs from external sustainability constraints.
- It prevents misinterpretation by markets and diplomatic observers.
- It anchors expectations on the government’s ability to maintain stability without external dependence.
The depletion of the former Fonds de Régulation des Recettes (FRR) created a gap in Algeria’s financial architecture. A redesigned stabilization mechanism — structurally similar to those used in Norway, Kazakhstan or Saudi Arabia — would reduce budget volatility by 30–45% when based on automatic rules and transparent accumulation criteria.
Critically, fiscal consolidation must exclude sovereign and security institutions, which remain central to Algerian stability.
2. Domestic Debt, Monetary Governance and the Role of M1
Algeria’s domestic debt stands at approximately DZD 18 trillion, half of which results from past unconventional financing (2017–2020) and debt restructurings for public enterprises. Domestic debt is not, in itself, a risk for a country with a banking system enjoying excess liquidity and no external debt.
However, M1 has grown faster than real GDP, and a significant share of currency remains outside the banking sector. These factors complicate monetary transmission and raise inflationary sensitivity.
The recent amendments to the Monetary and Banking Law (raising the Treasury advance ceiling from 10% to 20% and extending maturities) offer flexibility but must be framed within a disciplined liquidity strategy to avoid a de facto remonetisation of the deficit.
A credible monetary anchor requires:
• A narrower interest rate corridor, allowing the interbank rate to converge toward the policy rate.
• Quarterly publication of M1 and M2 aggregates, liquidity flows, and Treasury advance positions.
• A functioning yield curve in dinars starting from 5-year maturities — as demonstrated by G20 markets, even those dominated by domestic players.
The expansion of sovereign sukuk is a critical tool to absorb excess liquidity without monetary creation. Their development restores duration to bank balance sheets, supports intermediation, and strengthens monetary credibility.
“Without financial transparency, even the strongest currencies eventually erode.”
— Stanley Fischer
This principle applies directly to Algeria’s current monetary transition.
3. Fiscal Governance and Traceability: The Central Determinant of Revenue Growth
Despite progress in administrative digitalisation, Algeria’s fiscal system remains constrained by:
• A large informal sector
• Limited interoperability between fiscal authorities (DGI, Customs, CNAS, ONS)
• Absence of mandatory e-invoicing and real-time transaction traceability
Amnesties such as the current 10% voluntary regularisation may offer administrative relief but weaken tax discipline and long-term compliance.
In contrast, e-invoicing reforms in middle-income economies (Mexico, Türkiye, Brazil, Vietnam) have increased effective tax collection by 1–1.5% of GDP per year without raising rates, according to the World Bank (2023) and the OECD Forum on Tax Administration (2024).
For Algeria, the adoption of:
• Mandatory B2B and B2G e-invoicing
• Automatic VAT withholding and digital remittance
• Administrative sanctions and supplier dereferencing for non-compliance
constitutes the most efficient non-distortive method to broaden the tax base while respecting presidential commitments not to increase taxes on middle-income households.
4. External Position: Robust but Exposed to Price Volatility
Algeria’s external accounts remain stable:
• Exports around USD 51 billion
• Imports around USD 46 billion
• A small but positive current account balance
• Foreign reserves covering more than 15 months of imports
The primary risk is gas price volatility in Europe, not the structural capacity of Algeria to honour its commitments.
Diversification of energy export partnerships in Asia (notably China and India) and Africa (South Africa, Nigeria, Ethiopia) has begun to mitigate concentration risks. Stability in the investment framework for upstream and midstream energy projects will be a determining variable for external partners.
5. What Foreign Missions Should Retain
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Algeria is not facing a balance-of-payments or sovereign debt risk.
External constraints are controlled; debt is almost entirely internal. -
The macroeconomic trajectory is sustainable if the State implements the structural transparency measures listed earlier.
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The government has openly rejected external borrowing, preferring domestic financing instruments that preserve sovereignty.
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The monetary framework is in transition, requiring improved data publication and a clear yield curve to reinforce credibility.
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Social stability remains a core policy priority, anchored in the President’s directives and reflected in budget allocations.
6. Key Measures to Consolidate Sovereign Stability (2026)
(i) Publish the Non-Hydrocarbon Primary Balance (NHPB) quarterly in USD
Essential for financial institutions, sovereign analysts, and energy partners.
(ii) Deploy mandatory e-invoicing with automatic VAT withholding
High-impact measure with international evidence of +1–1.5% of GDP in additional revenue.
(iii) Establish a functioning domestic yield curve and quarterly monetary reporting
Strengthens the dinar, enhances policy transmission, and reduces the risk premium applied to public enterprises and major projects.
Conclusion
Algeria’s macro-financial architecture is grounded in sovereignty, resilience and internal financing. The country’s risks are manageable, provided that fiscal transparency, monetary discipline and revenue traceability continue to progress.
For diplomatic missions and international observers, the conclusion is clear:
Algeria is not seeking external support; it seeks recognition of a sovereign, internally financed model that is entering its phase of technical consolidation.
The coming year will be decisive not for reasons of vulnerability but for reasons of credibility. With the measures outlined above, Algeria is positioned to reinforce both.
