ALGIERS (AFP) – Algeria faces economic and social turmoil if crude prices continue to collapse, experts have warned, with the oil-dependent country reeling from a year of popular protests, political turmoil and now, coronavirus.
The North African country is an example of how hydrocarbon economies are likely to face unrest if oil prices remain at near two-decade lows due to the COVID-19 pandemic and a price war between key players Saudi Arabia and Russia.
Oil cartel OPEC announced that major producers had proposed to cut output between May and June by 10 million barrels per day.
But G20 countries failed to agree on cuts at a virtual summit Friday.
Even if a deal is reached, Algeria will not be out of the woods, oil expert Nazim Zouioueche told official news agency APS, as any impact would be “temporary” due to the worldwide pandemic.
In Algeria, the price collapse has destroyed revenue projections, with President Abdelmadjid Tebboune acknowledging the “vulnerability” of the country’s oil-dependent economy.
It is “imperative to put an end to bad practices instilled over a period of financial well-being, such as waste and a spirit of laziness and overconsumption”, Tebboune has said.
His words might be too little, too late, as the drop in prices, the coronavirus and ongoing political uncertainty create a perfect financial and social storm.
Algeria “is on the edge of a financial abyss”, according to Luis Martinez, North Africa specialist at France’s Sciences Po University.
The government decided to slash public spending in March, after oil prices dipped to USD22.50.
The country’s 2020 budget had been based on an oil price of USD50 per barrel, with growth of around 1.8 per cent.
Algiers announced a 30 per cent cut to the state budget, without touching civil servants’ wages, and a reduction in its enormous imports bill.
State oil giant Sonatrach is to halve operating and capital expenditure, from USD14 billion to USD7 billion, in order to preserve foreign currency reserves.
But former Sonatrach CEO Abdelmadjid Attar said in principle, the company “shouldn’t have to reduce hydrocarbon production” as the cuts would affect other operations.
Meanwhile, Algeria’s foreign reserves dropped to under USD60 billion at the end of March, compared to almost USD80 billion at the end of 2018 and over USD97 billion at the end of 2017. Some economists are concerned those could quickly run out.