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'New Growth Model' to Cope with Oil Price Drop

Source: Reuters 7/27/2016, Location: Africa

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OPEC member Algeria says it will launch a new "economic growth model" for the next four years focussed on reforming the tax system to bring in more revenue and reduce dependence on energy exports.

The plan is part of long-awaited moves to diversify the North African economy away from oil and gas, which account for 95 percent of of export revenues and 60 percent of the state budget.

A sharp drop in global crude oil prices has pushed the government to cut spending for 2016 by 9 percent and plan further cuts over the next few years.

"The new economic growth model is based on a revised budget policy backed by the improvement of revenues from ordinary taxation," the presidency said in a statement after a cabinet meeting chaired by President Abdelaziz Bouteflika late on Tuesday.

That measure will help "cover, by the end of 2019, operating expenditures as well as irreducible expenditures for public infrastructure", it said.

Algeria has already suspended several infrastructure projects to ease financial pressure since oil prices started falling in mid-2014.

The government posted a record budget deficit of about 16 percent of gross domestic product (GDP) in 2015, and its foreign exchange reserves are expected to fall to $116 billion by the end of 2016, from $136.9 billion in May.

The government says GDP (gross domestic product) grew 3.9 percent in 2015, just below its 4 percent forecast, but a little faster than 2014 growth of 3.8 percent. It put 2013 growth at 4.2 percent.

The International Monetary Fund put growth at 3.7 percent in 2015 and expects it to slow to 3.4 percent this year.

The new model aims to boost investment in "high value-added sectors" such as agribusiness, renewable energy, services, digital economy, industry, mining and downstream activities in the hydrocarbons sector, the statement said. It did not give details.

Algeria will also mobilise "additional resources on the local financial market, including bond issues", the presidency said.

Earlier this year Algeria launched its first bond issue in more than a decade to finance investment projects in several sectors.

In an apparent move to reform its subsidy system, it raised petrol and utility prices for the first time in about a decade this year, lifting the price of fuel by about 35 percent and increasing value added tax on electricity from 7 percent to 17 percent.

It has also approved a new investment law aimed at improving the business climate in the non-oil sector.

"Officials should intensify efforts to inform public opinion on the difficult financial conditions facing the country as well as the growth and employment prospects that Algeria is able to achieve in the medium term," Bouteflika said during the cabinet meeting, according to the statement.

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