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Algeria Sees Reserves Dropping Sharply In 2016

Source: Reuters 11/22/2015, Location: Africa

Algeria's energy earnings are forecast to fall to $26.4 billion next year while foreign exchange reserves will dip to $121 billion after low oil prices cut into the OPEC nation's economy, Finance Minister Abderrahmane Benkhalfa said.

The North African state, a major gas supplier to Europe, has already said energy earnings will fall by 50 percent this year to about $34 billion. Oil and gas sales make up 95 percent of its exports and account for 60 percent of the country's budget.

Algeria is considering higher taxes, import duties and a hike in subsidised diesel and electricity prices to help cover its deficit after the slump in crude oil prices eroded its revenues, according to a draft of its 2016 budget.

"We have to be vigilant in the management of our money. We have to control public spending," the minister told the parliament where the draft budget law was presented.

"We have to mobilise new resources. We have planned a reasonable increase in the prices of fuel and electricity to cover production costs," he said.

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

The world oil price slide is testing an economic system that relies on energy revenues to pay for a vast range of social subsidies, from public housing to cheap loans and subsidised fuel, which helped Algeria avoid the kind of "Arab Spring" uprisings that erupted in its North African neighbours.

Benkhalfa said overall spending on subsidies will rise 7.5 percent next year. That includes mainly food, transport, housing and public health coverage.

Algeria is also trying to draw more foreign investment to help increase oil and gas production, which has remained largely stagnant in the past three years.

Algeria posted a trade deficit of $10.825 billion in the first 10 months of 2015 against a $4.29 billion surplus a year earlier, after a 40.7 percent drop in energy earnings, customs data showed on Sunday.

The finance minister said foreign exchange reserves will drop to $151 billion by the end of this year before reaching $121 billion in December 2016. That represents the equivalent of 23 months of imports, he said.

Reserves were $159 billion in June 2015, down from $193 billion in the same month in 2014.

The law is widely expected to be approved by the parliament, but some lawmakers have criticised the government's plans to increase the prices of some subsidised fuels.

"This is a dangerous law. The government wants its citizens to pay for deficits from their own pockets," said Lakhdar Benkhellaf, a deputy for the opposition Islamist party Justice and Development Front. "The price increases will push inflation up."

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