Algiers (AFP)

If there is one country vulnerable to the volatility of the hydrocarbon market, it is Algeria, hyper dependent on oil rent, already facing a political shake-up coupled with a health emergency, and which is approaching a serious economic crisis.

The G20 countries failed on Friday to agree to a drop in oil production after long negotiations.

The Organization of the Petroleum Exporting Countries (OPEC), chaired by Algiers, had previously announced a prior agreement on a reduction in world supply of 10 million barrels of crude per day (mbd), in May and June, in order to curb the plunge in prices.

But even if there is an agreement, Algeria is far from being out of the woods because this measure would only "have a short-term impact on black gold prices" because of the Covid pandemic -19, predicts Nazim Zouioueche, an oil expert, in an interview with the local agency APS.

The country "is on the brink of a financial abyss," says Luis Martinez, a specialist in the Maghreb at CERI-Sciences Po in Paris.

In fact, the 2020 finance law expected a barrel of $ 50 for growth of about 1.8%. We are far from it.

President Abdelmadjid Tebboune recognized "the vulnerability" of the Algerian economy "because of our neglect for decades to free it from oil rent".

- "Laziness" and "overconsumption" -

Mr. Tebboune considers it "imperative to put an end to the bad practices instilled during the period of financial affluence, with the example of waste and the spirit of laziness and overconsumption".

Economist Ahmed Dahmani lists the dangers: rapid drying up of foreign exchange reserves; worsening of the budget deficit and the balance of payments; sharp devaluation of the dinar and inflationary surge. Ultimately, the economic recession and its corollary: mass unemployment.

Foreign exchange reserves fell below 60 billion dollars (55 billion EUR) at the end of March, against 79.88 billion USD (73 billion EUR) at the end of 2018 and 97.22 billion USD (88.8 billion EUR) at the end of 2017.

According to some economists, these reserves could run out in the very short term.

"The government has no choice but to broaden the tax base, resort to public debt and negotiate loans. With the rest of the foreign exchange reserves, this should allow it to hold out until 2021 But after? "Wonders Mr. Martinez.

To cope with this alarming situation, the government announced a 30% cut in the state's operating budget (without affecting the salaries of civil servants) as well as a reduction in the huge import bill from 41 to 31 billion USD (38 to 28 billion EUR).

Algeria will no longer have recourse to foreign expertise firms for its major projects in order to save 7 billion USD (6.5 billion EUR) per year.

And the public oil giant Sonatrach will cut its 2020 budget by 50%, the equivalent of 7 billion USD (6.5 billion EUR).

The suspension of imports of services "mainly concerns only feasibility studies of projects not started or non-essential projects that can be postponed without additional costs", nuance Abdelmadjid Attar, ex-CEO of Sonatrach.

"As for the reduction in operating and investment costs of Sonatrach, it should not in principle reduce the production of hydrocarbons," he adds.

- "Popular distrust" -

The solutions are known: diversify the economy, reduce the share of oil in GDP and develop the attractiveness of Algeria.

But many are skeptics who, like economics professor Aderrahmane Mebtoul, doubt Algeria's ability to attract foreign direct investment (FDI) because of "bureaucracy, a sclerotic financial system and corruption ". Mr. Mebtoul does not believe either in the possibility of recovering the capital which fled the country.

In any case, the pandemic is paralyzing all productive activities on a global scale, recalls analyst Ahmed Damani.

"The Algerian authorities will be able to argue that the economic and financial situation is not better in the other countries", observes for his part Mr. Martinez.

Without a doubt. But to the coronavirus is added the unprecedented political crisis that Algeria has been going through since the outbreak of the popular protest movement ("Hirak") on February 22, 2019.

"In the current context of popular distrust (with regard to the regime), it is illusory to believe that we are able to stem the crisis, the socio-economic effects of which are already there," said Dahmani.

"The hardest part will be to maintain public spending and rebuild a new political system," says Luis Martinez.

"It is not the year 2020 which is on trial but the 20 years of clientelism, nepotism and corruption of the reign of ex-president Abdelaziz Bouteflika," he said.

© 2020 AFP