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After Oil Price Drop, Algeria Eyes Subsidy System Reform

Source: Algeria Times 11/28/2015, Location: Africa

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Algeria's government is considering reforming its subsidy system, covering everything from energy and gas prices to food costs, to reduce spending as the OPEC country struggles with a sharp fall in oil prices.

The North African country, a major gas supplier to Europe, has said energy earnings will drop by 50 percent this year to $34 billion before reaching $26.4 billion in 2016, and is studying ways to cut spending.

Finance Minister Abderrahmane Benkhalfa said in declarations on Thursday the state would shift the focus of spending to the poorest people as part of that reform proposal.

"We will target the most impoverished people," state radio cited him as saying.

He did not give details on how that would work, saying the new subsidy system would be ready in "one, two or three years." But his is the latest official comment that Algeria needs reforms to deal with the oil price drop.

The petroleum slide is testing an economic system that relies on energy revenues to pay for a vast programme of social subsidies, which helped Algeria avoid the kind of "Arab Spring" uprisings that erupted in its neighbours.

Oil and gas exports make up 95 percent of its total sales abroad and account for 60 percent of state budget. Officials point to the country's large foreign reserves and low debt as a sufficient cushion to weather the oil price slide.

The government has already planned a 7.5 percent rise in spending on subsidies for next year as it seeks to ensure social stability. It was not clear how planned reforms would affect those planned increases further down the line.

Opposition leaders and some analysts have been critical of the government's handling of finances, saying they need to be more flexible. But Benkhalfa sought to ease concerns for the country's financial outlook in the next few years.

"We control the situation perfectly," he said.

Algeria's government has already announced a 9 percent cut in its budget for next year and the parliament is now debating a finance law for 2016.

It is also considering higher taxes, imports duties and an increase in subsidised diesel, gasoline and electricity prices, according to the draft of its 2016 budget.

Domestic prices for energy products are very low by international standards, which analysts say is the main reason behind growing energy consumption rates in the country of 40 million people.

To cover its deficit, Algeria relies on foreign exchange reserves, which the government says will fall to $121 billion in 2016 from $151 billion by the end of this year and $159 billion in June 2015.

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