The Largest Budget in the Country’s History: Will the New Budget Protect Algerians’ Purchasing Power?

On December 25, Algerian President Abdelmadjid Tebboune signed the general budget law for the year 2023, which amounted to nearly $100 billion, the largest in the country’s history since its independence from France in 1962.

The president’s signature comes after a week of discussions, which were dominated by a fierce debate over some articles that the deputies demanded to be amended, especially with regard to the import of used cars less than three years old.

Algerian laws and regulations require the President of the Republic to sign the General Budget Law, after both chambers of Parliament have approved it before it enters into force at the beginning of 2023.

 

Budget Distribution

The value of the 2023 budget amounted to about 99 billion dollars (more than 13 thousand billion dinars), the largest in Algeria's history since its independence in 1962.

In the new budget, the government relied on an estimated reference price for a barrel of oil at $60 for the period between 2023 and 2025, as revenues from commodity exports in 2023 are expected to reach $3.46 billion.

In the new budget law, the government aims to achieve an economic growth rate of 4.1% in 2023, and set the level of inflation at 5.1% from 9.4% in the current year, and an increase in expenditures by 26.9% compared to 2022.

The budget allocated more than 20% of its expenditures to the army, as the Ministry of Defense obtained a budget estimated at 22.3 billion dollars. It also included covering the expenses of hiring more than 700,000 temporary contract employees who were permanently integrated into their positions.

The budget deficit will reach 20.6% of GDP, at more than 43 billion dollars, up from 15.9% during the current year, which is equivalent to 4092 billion dinars (31 billion dollars).

The Ministry of Finance attributed the high deficit rate to the expected financial impact of raising expected wages and salaries during the next year, in addition to reviewing the unemployment allowance (raising it to about 2 million beneficiaries).

 

Reasons and Significance

In this context, the professor and economic analyst Mohamed Hamidouche believes that a budget of about $100 billion indicates a trend toward a new economic model in which the locomotive of growth is driven by consumption rather than by the public sector’s investment.

Mohamed Hamidouche, who previously worked as an expert at the World Bank, explained that this budget, which is the largest in the country’s history, is directed primarily at the expected wage increases next year.

The expert explains that this means that there is a tendency to change the economic model, so that instead of the government’s public sector driving the locomotive of growth, Algeria will gradually move towards families that stimulate growth by relying on consumption.

The expert considered that this trend would give an impetus to economic growth. He explained that contrary to what the budget law itself expects to be greater than 4 percent in 2023, the percentage would approach 6 percent.

For his part, Akram Kharief, a journalist specializing in strategic and defense issues, believes that two main reasons can explain the authorities’ adoption of this huge budget.

In an interview with Anadolu Agency, he said that the huge budget, which is close to $100 billion, indicates an intention to launch major reforms, especially in the economic sense.

The journalist added that the authorities are also apprehensive about the social situation and the possibility of its exacerbation as a result of the global economic crisis, which affected many countries and could also reach Algeria, albeit with less severity.

The huge budget is a kind of anticipation to address any social emergency and attempts to calm the social front in anticipation of the repercussions of the global economic crisis.

Regarding the budget of the defense sector, which is also considered the largest in the history of Algeria, Akram Kharief considered that this is due to the repercussions of the war in Ukraine and the conviction of the Algerian army of the need to develop further, as well as preparations to confront the crisis situation in the African Sahel region.

 

Social Benefits

The new budget was devoid of any new taxes, and it also included a relative increase in wages and an unemployment grant benefiting 1.3 million unemployed young people, in the context of what President Tebboune considers consecrating the social character of the state and preserving the purchasing power of Algerians. The law also allows measures for the supply of tourist cars less than three years old.

In light of the budget, the Council of Ministers decided to increase the salaries of workers and employees over the two years 2023-2024, between the equivalent of 20 to 40 dollars per month, and it was also decided to raise the minimum retirement grant in Algeria to the equivalent of one hundred euros, an increase estimated at about Ten euros.

In this context, it was decided to slightly increase the unemployment grant from 13,000 to 15,000 dinars, equivalent to 85 dollars, free of all fees, in addition to the state ensuring the burden of health coverage for the unemployed during the period they benefit from the grant.

In order to protect the purchasing power of the Algerian citizen, which is eroding due to the collapse of the dinar and the subsequent increase in the volume, the Algerian government approved a number of decisions to avoid price drop, especially for widely consumed items, by exempting the import of sugar from customs duties, and canceling the value-added tax on locally produced sugar.

During its local distribution, in addition to reducing customs duties applied on importing materials destined for the production of edible oils, while obligating wheat producers to sell their wheat and barley crops exclusively to grain bureaus, in order to avoid speculation and monopoly, which jumped wheat prices locally, affecting the prices of widely consumed dough in the country.

In addition, the economist and former deputy, Elhouari Tigharsi, confirmed that it is remarkable that the budget did not bring new taxes, in order to absorb some of the inflation and the jumps that affected the prices of goods and services.

The government understood that it did not need to impose a tax expansion in this harsh economic circumstance that it is going through. The country was affected by the remnants of the financial crisis after the COVID pandemic and now the Russian-Ukrainian war.