| Summary: | The 2022 Article IV Consultation with Algeria highlights that the upswing in hydrocarbon prices has alleviated pressures on public and external finances and the post-pandemic recovery has likely gathered pace. The prospects for 2023 are favorable but growth is projected to decelerate and inflation to remain high in the medium term. The near-term outlook for the Algerian economy has materially improved, buoyed by the upswing in hydrocarbon prices. The announced sizeable rise in spending under the 2023 budget could reverse the progress achieved on narrowing the deficit since 2018, weaken the resilience of public finances and add to inflation pressures. The medium-term deficit trajectory also carries risks for macroeconomic stability. Continued wide fiscal deficits and increasing principal repayments coming due on past monetary financing would result in large fiscal financing needs through the medium term. As the authorities have ruled out foreign borrowing, meeting these financing needs would heap significant pressure on the domestic banking system and pose risks to financial and macroeconomic stability. Gradual fiscal rebalancing guided by a rules-based framework is needed to enhance the resilience of public finances and safeguard macroeconomic stability in the medium term
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