Currency equivalents

C. Fiscal Trends

2.13 The recent increase in world hydrocarbon prices has transformed Algeria’s fiscal situation. The overall budget balance for the central government went from a deficit of 2 percent of GDP in 1999 to a surplus of 14 percent in 2005. Budget revenues increased from 30 percent of GDP in 1999 to 41 percent in 2005. Expenditures declined from 31 percent of GDP in 1999 to 27 percent in 2005, as current expenditures were contained and a sizable public investment program was launched.

2.14 The share of hydrocarbon budgetary revenue and the share of capital spending in the budget of the central government have increased appreciably. The share of hydrocarbon revenue in total budget revenue increased from 60 percent in 1999 to 76 percent in 2005. During this period, the share of capital expenditures in total expenditure increased from 26 percent to 36 percent, reflecting spending of the higher hydrocarbon revenue on much needed public investment. The PSRE, which supplemented the capital budget from 2001 to 2004, amounted to US$7 billion (about 13 percent of 2001 GDP).
2.15 An increasingly used measure for assessing the fiscal stance in hydrocarbon exporting countries is the nonhydrocarbon primary deficit in relation to nonhydrocarbon GDP. In hydrocarbon-exporting countries, government revenue increases sharply during hydrocarbon price booms. As a result, fiscal positions may improve, even when expenditures rise in an unsustainable fashion. A better indicator of the fiscal stance is the nonhydrocarbon primary deficit in relation to nonhydrocarbon GDP, as it delinks expenditures from hydrocarbon revenues. In the case of Algeria, the nonhydrocarbon primary deficit of the central government widened from 22.5 percent of nonhydrocarbon GDP (NHGDP) in 1999 to 29 percent of NHGDP in 2005, reflecting the impact of the PSRE and the first year of the PCSC.
2.16 However, Algeria’s large external current account surpluses imply that a significant part of the hydrocarbon GDP that accrued during the recent period of higher hydrocarbon prices has been saved. The current account balance, which was negative until 1999, increased to a surplus of 21 percent of GDP in 2005. In 2003–05, the improvement in Algeria’s current account balance represented 82 percent of the additional hydrocarbon GDP of that period.
2.17 The saving/spending decisions of the government have contributed importantly to national savings. In Algeria, as in several other hydrocarbon exporting countries of the region, government spending policies only partly followed the strong growth in hydrocarbon revenue that resulted from higher world prices since 2003.

18. 
    Government savings in 2003-04 has been to some extent a reaction to high spending during the initial years of the PSRE. The overall fiscal balance increased from a deficit of 2 percent of GDP in 1999 to a surplus of almost 10 percent of GDP in 2000. Spending under the PSRE led to the disappearance of the surplus by 2002, as the increase in spending coincided with declines in hydrocarbon revenue in 2001–02. The overall fiscal surplus increased to 14 percent in 2005 as capital expenditures were broadly contained in 2003–05.
    

Fiscal revenue

2.19 Hydrocarbon budget revenue has been volatile, representing 18 percent of GDP (29 percent of nonhydrocarbon GDP-NHGDP) in 1999 and 31 percent of GDP (57 percent of NHGDP) in 2005, with a standard deviation of 10.5 (Figure 2.4 and Table 2.2). In terms of NHGDP, Nonhydrocarbon revenue increased from 16 percent in 1999 to 19 percent in 2002. It then declined to 17.5 percent in 2005, mainly as a result of lower tariffs on imports and a fall in VAT revenue. The standard deviation of this ratio was 1.5 in 1999–2005. The tax component of nonhydrocarbon revenue has stayed fairly stable at about 10 percent of GDP (15 percent of NHGDP) in 1999–2005.

Public expenditure

2.20 Since 2002, current expenditures have declined to below 24 percent of GDP (35 percent of NHGDP) (Figure 2.5). The decline in current expenditures reflected mostly a drop in interest payments as public debt declined from 89.5 percent of GDP in 1999 to 28.5 percent in 2005. Further decomposition of current expenditure shows revealing trends.

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Source : Bank staff calculations
.21 Algeria spends a relatively average and declining share in wages, a very significant one in transfers, and too little on goods and services (Figure 2.6). On the one hand, the government bill fell from 8.6 percent of GDP in 1999 to 6.5 percent of GDP in 2005, much lower than the average of MENA countries around 10.5 percent of GDP and close to levels seen in comparator transition economies in Eastern Europe, Central Asia that turn around 7 percent (World Bank 2006). Personnel expenditure declined slightly partly because employment in the central government increased only by 1.3 percent on average per year and partly because of wage moderation. On the other hand, there is a marked contrast between the high and steady share allocated to (social) transfers—which averaged 10.4 percent in 2000-04—and the very low and declining share allocated to materials and supplies, which fell from 3.9 percent of GDP in 1999 to 1 percent of GDP in 2005. Such ratio is markedly below those of comparator countries and MENA, which are well above 5 percent of GDP. The big size of transfers adds rigidity to Algeria’s budget.
2.22 Capital expenditures increased in stepwise fashion from 7 percent of GDP in 1999 to 10 percent of GDP in 2005 (Figure 2.5). They increased from 11.5 percent of NHGDP in 1999 to almost 15 percent in 2002 as a result of the higher public investment under the 2001–04 PSRE. There followed a pause, with the ratio declining to 13 percent of NHGDP in 2003–04. As the 2005–09 PCSC got under way, capital expenditures increased to 18 percent of NHGDP in 2005. The PCSC envisages the continuation of relatively large outlays on public infrastructure projects, housing, and the social sectors.
2.23 However, effective capital spending has been below budget allocations. The execution rate of capital expenditures was 74 percent in 2005 (see Executive Summary). Allocated amounts for public investment that are unspent at the end of a fiscal year may be available for spending in subsequent fiscal years by means of multiyear special treasury accounts tied to specific projects (see chapter 4).