Algeria risks bleak economic prospects in 2026 as Oil prices slump

Algeria’s state-led economic model faces growing vulnerabilities as global oil prices weaken and fiscal imbalances deepen,while diversification stalls.

Latest IMF and World Bank assessments reveal a troubling mix of widening deficits,persistent unemployment,and distorted macro indicators that mask underlying fragility.

The IMF projects average oil prices at $65.8 per barrel in 2026,down from $68.9 in 2025,well below Algeria’s fiscal breakeven. Hydrocarbons still account for 83% of exports and nearly half of budget revenues,leaving the economy highly exposed to external shocks.

The 2026 budget targets a 35% reduction in the deficit to $40 billion (12.4% of GDP),down from $62 billion in 2025. Yet it is unclear how the government can attain such a goal given that spending will hit a record $135 billion,with public wages consuming one-third of outlays.

Oil price assumptions of $60 per barrel underpin these projections,but IMF warns that without structural reforms,Algeria risks financing gaps through costly borrowing,including its first sukuk issuance.

Unemployment remains stubborn at 11.4%,with youth rates far higher. Inflation,which fell to 4% in 2024,is projected to rebound to 5.5% in 2026 as food and import prices rise. The IMF notes that fiscal expansion and import restrictions amplify supply-side pressures,undermining price stability.

After two years of surpluses,Algeria’s current account swung to deficit in 2024 and is widening in 2026 amid falling hydrocarbon receipts and strong import demand. Import restrictions to “essential goods only” aim to conserve reserves but risk choking industrial inputs and fueling inflation. EU arbitration proceedings highlight the strain these measures place on trade relations.

Official GDP is reported at $264 billion,calculated using the official rate of ~129 DZD per dollar. Yet on the parallel market,the dinar trades near 230 per dollar,a gap exceeding 70%. This distortion inflates Algeria’s dollar-denominated GDP and misrepresents purchasing power,complicating investor assessments and external debt sustainability.