BNP Paribas projected Algeria's real GDP growth to accelerate from 2.5% in 2018 to 2.8% in 2019 and to reach 2.2% in 2020. It considered that the government's policy aims to stabilize the country's macroeconomic situation that significantly deteriorated in 2017, instead of supporting domestic demand. It added that the authorities' prudent monetary policy and administered prices have contained inflationary pressure from the monetization of the fiscal deficit that started in late 2017, following the depletion of assets in the oil stabilization fund. It said that the government is facing the risk of a "painful" medium-term macroeconomic adjustment, either through the depreciation of the exchange rate or import controls, which would have a severe impact on inflation. It forecast the average inflation rate to increase from 4.4% in 2018 to 5% annually during the 2019-20 period.

Further, BNP Paribas indicated that the budget for 2019 maintains the current subsidy system and does not incorporate any additional taxes. It noted that the fiscal breakeven oil price stands at more than $90 p/b, which it considered as unreachable amid the current fundamentals in the oil market. It projected the fiscal deficit to widen from 5.2% of GDP in 2018 to 7.7% of GDP in 2019, while it forecast the government's debt level to rise from 43% of GDP at the end of 2018 to 48% of GDP at end-2019. 

In parallel, BNP Paribas expected the current account deficit to widen from 7.6% of GDP in 2018 to an average of 11% of GDP annually in the 2019-20 period, due to lower hydrocarbon prices. It anticipated Algeria's external liquidity to remain under pressure in the near term due to lower hydrocarbon export receipts, the authorities' refusal to borrow externally and the country's unattractive business climate. In this context, it forecast foreign currency reserves to decline from $83bn, or 16.2 months of import cover, in 2018 to $48bn, or 9.2 months of imports, in 2020.
Source: BNP Paribas