Algeria launches “helicopter money” as plan to plug the country’s budget deficit
Algerian Prime Minister Ahmed Ouyahia presented a comprehensive plan meant to reduce the country’s budget deficit.
The controversial plan also includes the approval for several loans from the central bank, as OPEC member countries are trying to offset declines in oil revenues without accessing the international debt markets, writes Bloomberg.
According to Ouyahia, non-traditional funding will pull Algeria out of the crisis within five years.
The five-year plan would balance the country’s budget by 2022, covering a deficit that has grown strongly against the background of the dramatic collapse in oil prices, which has also led reducing the country’s foreign currency reserves to half.
“If we resort to foreign loans, as the IMF suggests, we will need to borrow $20 billion a year to cover the deficit, and in four years we will be unable to pay the debts. That’s why the government has used the non- traditional financing”, added the Algerian prime minister.
Given that the internal debt of the country is around 20% of GDP, Algeria can borrow more, the IMF has stated.
Earlier this month, the Algerian government authorized the central bank to lend the Treasury in order to solve the deficit reduction.
Dubbed by the current import restrictions, “the central bank’s financing of the fiscal deficit will fuel rising inflation and lead to depreciation of the local currency,” said a recent report by Riccardo Fabiani, senior analyst at the Eurasia Group.
Taking into consideration the depreciation of the dinar, Ouyahia argues the local currency has depreciated by 25-30% in the last three years, although no traditional funding was made in that period.