As the drop I oil prices continue to affect economies worldwide in the wake of the coronavirus pandemic, oil-dependent countries are being hit the most, with some bracing themselves for recession. Algeria has made a move which has attracted credits from economist and stakeholders.
The North African country yesterday announced its decision to cut its national budget by half and increase the minimum wage of citizens amid a financial crisis caused by the global collapse in oil prices and worldwide coronavirus lockdowns. Sources say the government is using funds earmarked for capital expenditure (currently on hold) to compensate citizens.
According to authorities, the financial crisis caused by the global collapse in oil prices and worldwide coronavirus lockdowns has put pressure on Algeria's economy, but the country’s government under President Abdelmadjid Tebboune is determined to ease the hardship of citizens by increasing the country’s minimum wage benchmark.
The government has decided to reduce the budget by "50 percent" for this year, President Abdelmadjid Tebboune's office said in a statement released by AFP.
Despite this huge reduction, the government also agreed at a cabinet meeting to increase the minimum wage from 18,000 dinars ($140) per month to 20,000 dinars, while income tax will be abolished for those earning 30,000 dinars or less, the statement said.
A collapse in hydrocarbon prices this year - caused by plunging demand amid societal lockdowns designed to combat the spread of the virus and exacerbated by a brief price war between key players Russia and Saudi Arabia - is putting ever greater pressure on Algeria's external accounts.
Algeria's Saharan Blend was recently trading at less than $20 a barrel, while this year's budget was based on a price of $50 a barrel, Reuters said. Benchmark international crudes are trading at their lowest in about two decades.
Algeria, which has joined Saudi Arabia, Russia, and other oil producers in a global deal to curb oil supplies, has repeatedly said it aimed to diversify away from oil and gas but has proved reluctant to open up an economy dominated by state industries.
"In the short term, Algeria can resist the consequences of what is happening in the oil market ... But this exceptional situation requires urgent structural, economic and financial reforms," El Houari Tighersi, a member of the parliament's finance committee, said last month.
Even before this year's crisis took hold, Algeria's foreign exchange reserves had fallen to $62bn at the end of 2019, from $180bn in 2014.
The draft law factors in a plunge in oil receipts this year to $20.6bn, compared with the $37.4bn previously anticipated.
President Abdelmadjid Tebboune has also ruled out an option to approach the IMF for a bailout, contending that "accumulating debt harms national sovereignty" when it is owed to foreign institutions. He said he preferred to rely instead on domestic borrowing.
Critics and social observers have stressed the need for other African nations to follow the footsteps of the North African country, as the coronavirus pandemic coupled with the drop in oil prices has affected the living standards of Africans in no small way.
What are your thoughts?