Algeria Reduces Unemployment, Inflation

The Algerian government has reduced unemployment and kept inflation under control through an “easy money” strategy, confounding critics who said the policy would hamper long-term success of a diversified economy.

The Bank of Algeria has bought assets, including government debt with a long-term maturity, and churned out more than $190 billion—double the country’s expected foreign currency reserves for the year—to cover the 2017 and 2018 budget deficits and keep the economy afloat, Reuters reported.

The policy, known as quantitative easing, is similar to expansionary monetary policies used by the US Federal Reserve and the European Union to jump-start the global economy during the 2008 financial crisis.

In Algeria’s case, the result has been impressive: Algeria’s jobless rate dropped 0.6% to 11.1% year on year during the first quarter of this year. The economy grew 1.3% during the same period and inflation slowed to 4.6% versus 5.6% year-on-year, official figures released July 24 indicated.

That contradicted predictions by international financial institutions, such as the International Monetary Fund and the World Bank, which argued the policy would weaken the economy and cause massive inflation. They used the example of Venezuela, which recorded an annual inflation rate of 41,838% in June.

Algeria turned to “easy money” to stabilize the economy during a period of low oil prices. Oil and gas exports account for 95% of its total sales abroad and 60% of the state budget.

Analysts said Algeria’s policy has been surprisingly effective. “Few experts shared the government’s assumptions that this financial alternative would have positive results,” said Algerian economist Mohamed Touati. “The experts, including teams of the IMF, expected an inflation rate at least of two digits. In their eyes, Algeria would be contaminated by the Venezuelan syndrome.”

Inflation in Algeria was 5.6% in 2017 but slowed to 4.6% year-on-year this June, well below the government’s target inflation rate of 5.5% for 2018.

“The government announced these figures about inflation, growth and unemployment to show that it had made the right choices,” said Touati. “With the rising oil prices, the Algerian economy will not be in the stagnation many experts had predicted earlier.”