Foreign debt crisis .. What are the papers Algeria to fortify its sovereignty?

Abdelhakim Hazaqa - Algeria

In five years, falling oil prices eroded Algeria's exchange reserves from $ 200 billion at the end of 2014 to $ 70 billion in the middle of this year, as oil is the only source of income for the country's hard currency.

To counter the financial crisis, the Algerian government has rejected the option of foreign borrowing because of the bitter experience of the country in the 1990s, preferring to resort to local alternatives.

In 2016, the Algerian authorities introduced Sindhi loans to citizens and economic institutions to finance strategic projects, and urged activists in the parallel market to adopt formal banking transactions with attractive facilities.

After that, it amended the Monetary and Exchange Law at the end of 2017 for internal borrowing through non-traditional financing from the Bank of Algeria, where it printed until April last equivalent to 55.6 billion dollars, before the Ministry of Finance announced after the fall of the government of Ahmed Ouyahia after the movement of 22 February February stop the operation.

Faced with the continuing trade deficit - which amounted to about $ 5 billion in 2018 - and the gradual depletion of foreign currency reserves, the new draft financial law 2020 approved the trend towards "external development debt."

The government stressed that foreign loans will be directed exclusively to finance important strategic economic projects, and stipulated that such borrowing should be from international financial institutions specialized in development so that the country does not fall under the dictates of restructuring the industrial sectors, or any sovereign intervention in economic and social affairs.

A thoughtful necessity
Economist Abderrahmane Toumi defends this option by saying that "going to indebtedness is inevitably dictated by a whole range of data. It does not necessarily reflect a country's deficit or a collapse in its economy, but it may be a mechanism within a strategy to promote development, so Algeria chose the indebtedness."

Toumi said in an interview with the island Net that indebtedness may pose a real risk to the value of the national currency when the foreign exchange reserve of hard currency covers less than 6 months for import, while in Algeria covers almost three times the duration.

He added that the Algerian negotiator, through his experience and distinguished diplomatic relations with some countries, can get loans of importance to reduce the burden on the treasury and to avoid resorting to non-traditional financing.

As for the securities available to Algeria to protect its sovereignty from the effects of indebtedness, Tommy stipulated that the loan amount should not be large, threatening the GDP or the value of the currency.

He added that Algeria produces energy, and with the next survey and exploration program can expand production capacity, and thus increase earnings earnings in foreign currency.

He predicted that stability after the upcoming presidential elections will help increase investment, trade and development in general, which will enhance the ability of the economy to meet the challenges, and add value that can exceed 50% of the economic growth index.

A burden on generations
However, economic analyst Abdel Rahman Aya warned of the repercussions of indebtedness, stressing that Algeria paid 120 billion dollars against borrowing about 80 billion dollars in the nineties of the last century, note that $ 130 billion was deducted from the exchange reserves, which are originally savings for future generations to cover Balance of payments deficit.

Aya told Al Jazeera Net that the loans are originally required to finance productive projects that make a profit, which is deducted annually to pay part of the debt service (part of the principal + interest).

He explained that it is economically illogical to find creditors (countries or at the level of financial markets), because Algerian government funding is almost entirely directed either to companies that do not yield or bankrupt, or to support social projects such as housing projects, or to import food and medicines and support prices of goods and services , Not for productive projects.

He stresses that urgent reforms must be made to the tax system by digitizing the sector and simplifying the collection procedures, which will allow raising the revenues of the ordinary collection, and it is necessary to expand the electronic payment system in order to support liquidity at the bank level, in addition to the need to move to targeted support, All this in order to avoid a projected budget deficit for 2020 of $ 15 billion.