Maghreb’s economic distress deepens as virus, oil slump hit region
TUNIS-- Maghreb countries are increasingly threatened by new economic and health crises that are adding to deep social unrest.
Algeria’s government, struggling to tame nationwide protests, is facing a “multidimensional crisis,” driven by declining oil revenue and the novel coronavirus. Economies in Morocco and Tunisia are in equally dire straits, facing the outlook of the lowest growth rate in decades, with a drought withering the key farming sector and the coronavirus pummelling the tourism industry.
Algerian Prime Minister Abdelaziz Djerad said all parties would be expected to “mobilise” to help get the country out of its “multidimensional crisis.”
Algerian President Abdelmadjid Tebboune ruled out borrowing money from abroad or implementing an unconventional policy to lessen the effects of oil price declines.
“The state has sufficient resources for the years 2020 and 2021 to avoid shortages of inputs for the economy and necessities for the population,” a presidential statement added. It was not clear how the state would react if the decline in oil prices lasted longer.
The United Arab Emirates joined Saudi Arabia in promising to expand oil output to record levels in April, as the two oil producers took a united stand in a standoff with Russia that has hammered crude prices.
Oil prices have almost halved since the start of the year over fears OPEC members would flood the market after Moscow refused to broaden output cuts that had propped up prices since 2016.
Analysts said Algeria’s oil-dependent economy was expected to suffer more than in 2014, when oil prices fell more than 40%. Algeria had the eighth largest stock of foreign reserves in the world, some of which was funnelled to cushion the blow from falling prices.
Authorities have not implemented reforms to diversify the economy and Algeria finds itself at a similar impasse — forced to implement deep reforms at a time of deepening social unrest but with fewer financial resources.
Djerad said foreign reserves shrank more than $116 billion from 2014-19, when the budget deficit averaged 10% and the country’s retirement fund was expected to run dry.
“We have inherited a disastrous situation in all the plans. Our assessment of the record of the previous governance showed huge risks that continue to weigh on the economic and social climate of the country,” he said. “The financial situation is very fragile, marked by deep internal and external imbalances.”
Djerad said he deplored the rise of poverty in Algeria, which once had one of the most generous subsidy plans in the Maghreb, including health care, food, transport and foreign currency allocations for Algerian tourists.
Djerad pledged “structural reforms” to diversify the economy in the face of declining oil revenue. However, analysts warned that ruling out foreign debt and unconventional monetary policy exposes Algeria to the risks of depleting its foreign currency reserves.
“Several experts envisage the scenario of an average price of oil at $45 a barrel for the year 2020,” said Algerian writer Hassan Haddouche. “That means the value of oil and gas exports falls by around $10 billion to $25 billion compared to $35 billion in 2019.”
Algeria envisages an average price of oil of $60 a barrel for this year.
The prospect of $45 a barrel this year would lead to a current account deficit of more than $25 billion at the end of 2020 and would cause foreign currency reserves to shrink to $30 billion compared with around $60 billion currently.
Experts said if the oil price slump extends beyond 2020, Algeria’s budget deficit would widen to around 15% from an expected 7%, reducing the government’s ability to finance Tebboune’s campaign promises of rising wages and lowering taxes.
With the possibility of such a budget gap, the government would be expected to devalue the currency to increase its revenues from oil receipts, causing dire repercussions for imports and the cost of living.
In Morocco, which has no oil of its own, the economy has the worst potential growth rate in nearly 20 years because of severe drought hitting its labour-intensive farming sector and the coronavirus outbreak battering its tourism industry.
The Moroccan Agriculture Ministry said rainfall this season was 141 millimetres, well below the annual average of 254 millimetres the past 30 years. Rainfall was 40% lower than last season.
Farming accounts for 13% of Morocco’s GDP and employs 33% of the total workforce of more than 11 million.
The global coronavirus outbreak was expected to slow arrivals of foreign tourists and decrease remittances from Moroccan expatriates. As a result, the government-run National Planning Commission slashed its forecast of Morocco’s economic growth to 2.2%, compared to 3.5% envisaged by the government and 3.7% by the International Monetary Fund.
In Tunisia, the coronavirus was expected to cut 0.5% of this year’s meagre prospect for growth because of the effect on tourism, its key foreign currency earner, as authorities reduce or shut down flights to and from main European markets
“We worked on a forecast of 1.5% growth rate for this year but, after the virus outbreak, we cut that forecast by 0.5%. Yes, we head towards a rate growth of 1%,” said Tunisian Prime Minister Elyes Fakhfakh.
That rate would be less than half of the average growth of 2.04% for the 2000-19 period.