Algeria’s 2023 budget: President Tebboune’s make-or-break first-term project

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On December 25, 2022, Algerian President Abdelmadjid Tebboune signed the 2023 budget bill into law. The new financial law sets out an unprecedented government expenditure of $98 billion, the largest state budget in Algeria’s history and a 25% increase on 2022 levels. The financial law provides a clear picture of the Algerian authorities’ vision for the future and possible scenarios for the country’s direction on the economy and international relations. According to Algeria’s official journal, the budget will be basically divided between military needs, social welfare policies, and the rehabilitation of outdated sectors, such as education, health care and agriculture. Unlike previous and former yearsHirak movement dynamics and the COVID-19 Pandemic that imposes other political and public health priorities, the government’s financial plans will now be under close scrutiny, especially as the Tebboune administration embarks on a crucial test before the 2024 presidential elections.

Due to the recent increase in energy revenues, estimated to be $50 billion in 2022, Algeria’s current leadership is benefiting from increased diplomatic attention from Europe and the United States for its gas resources and security role possible in the Sahel. However, Algeria faces complex geopolitical and domestic circumstances related to its defense needs and development efforts that make addressing military and economic concerns extremely challenging. Policy makers now have a difficult mission to translate strong macroeconomic indicators such as their $60 billion in foreign exchange reserves into a socio-economic relief package that will help average Algerians, especially if a second term bid for the current head of state is an option for political stability to preserve. .

Military transfers

Over the years, the Algerian military has benefited from significant increases in its budget, which rose from $2 billion in 2000 to $10 billion in 2022. The new budget for 2023 continued this trend and the military is set to spend around for $18 billion this year to end. its overall power and influence — a substantial sum equal to around 10% of Algeria’s GDP in 2022. However, it represents a downgrade from the first draft budget, which initially allocated $23 billion to the military. A total of $5 billion in funding, which was said to be used for arms deals, particularly with Russia, was removed from the final version of the budget. The Algerian armed forces have long been a prominent customer for Russian defense contractors and the two sides have been engaged in another major negotiation for 2023 which appears to be on hold for now due to the military collapse and strategic from the war in Ukraine.

But these spending cuts are only one piece of the overall answer to potential government priorities. In November, an official communiqué from the Ministry of Defense announced that the joint anti-terrorist exercises “Desert Shield”, previously scheduled to take place with Russian troops on Algerian soil, were not taking place. Although official reports did not detail why the exercises were canceled or whether they would be rescheduled, Western pressure following Russia’s invasion of Ukraine may have played a key role in the last-minute change. At the same time, Algiers also applied to join the BRICS group of emerging economies – which includes Brazil, Russia, India, China and South Africa – suggesting that economic incentives could be driving the agenda aside from Algeria’s historic ties and military partnership with Russia. . In addition, President Tebboune’s recent disapproving statements regarding the presence of the Wagner Group in the Sahel region underscored Algeria’s priority for economic and industrial development at home and abroad to encourage greater independence from Algerian military rule .

Algerian leaders have previously understood the importance of ensuring that the country has a strong and well-equipped military to deal with the region’s turbulent geopolitical environment. The Tebboune administration is no different and could even downplay that strategy by facilitating the development of a local arms industry, as mentioned in the October issue of the military magazine. Algiers is also actively looking to diversify its defense partners. The current leadership may be interested in using its substantial energy revenues to reduce its heavy reliance on Russian contractors, before the benefits of strong Russian-Algerian military ties turn into a serious liability. Sources reported that negotiations are underway with Chinese and Italian public and private defense firms regarding new purchases and potential joint ventures. All these dynamics suggest a political decision to shift defense spending from buying weapons abroad to establishing a defense industry at home, with the aim of making Algeria more independent and boosting its economy in the process.

Economic vision

During an interview with local media in December, President Tebboune reiterated his plan to increase wages and unemployment allowances and maintain popular social welfare policies, including subsidies. These policies were reflected in the finance bill across several different ministries, with a total cost of approximately $43 billion. In that sense, the state treasury will once again take on the burden of ensuring social peace through traditional rent strategies that are likely to create new client networks. However, such an approach is inefficient and ineffective. The government does not have the right tools to identify the most vulnerable sectors of society due to the scale of the informal market and the use of outdated taxation mechanisms, resulting in a broad, but not targeted, subsidy system. which benefits everyone equally regardless of income. level. The Algerian authorities are deeply entrenched in an unsustainable governance framework that offers no long-term vision to create added value, facilitate growth or move the economy to a more dynamic base.

Beyond these efforts to calm the local population, there is no change in the country’s economic model, which protects companies and public funds that are in debt and failing. In its report for the year 2022, the National Accountability Council highlighted the negative financial indicators of almost all public institutions and the limited success of public-private partnerships. This points to a deeper problem with Algeria’s socialist, protectionist economic philosophy: Not only does it come at a huge financial cost — the budget deficit is estimated at $30 billion in 2023 — but it also fuels significant political dissent. The Islamic Movement of Society and Peace, an opposition bloc in the Algerian parliament, voted against the financial bill and raised its concerns about the level of government spending, the budget deficit, and the lack of a clear economic roadmap. In fact, Prime Minister Aymen Benabderrahmane was on the verge of giving a motion of no confidence a few days before the Arab League summit last November. The future survival of his government depends on providing real solutions to Algeria’s daily struggles as Ramadan approaches.

Socio-economic complaints are a major concern of the Tebboune administration. The local population is beginning to feel the impact of inflation, which has been growing over the past five years to an alarming peak of 9%. Meanwhile, the administration’s efforts to increase wages by 47% during 2022-24 may not be enough to protect citizens’ purchasing power, which is barely making ends meet as the economic situation worsens dangerously worse compared to a few years ago. Phased efforts to address growing domestic concerns will only bear fruit if they involve new economic thinking that prioritizes the needs of Algeria’s youth, rather than simply dusting off known practices aimed at buy time and social peace.

Hard choices

It is true that Algeria’s current leadership experienced a major boom after Russia’s invasion of Ukraine, as rising energy prices pumped an unexpected surge of cash into the state’s dwindling coffers. But for now, Algiers appears to be repeating the mistakes of the past, pushing ahead with excessive spending and cosmetic reforms that will do little to ensure viable, sustainable economic development in the long term. Despite plans to pay more attention to education, health care and agriculture, Algeria’s bureaucratic structures and technological constraints may hinder efforts to make good use of recent allocations. In addition, the government remains wary of investing outside the hydrocarbon sector, which is expected to undergo a $40 billion state-led upgrade and expansion plan. While Algeria’s youth could do much to break the country’s old and bad habits of relying on fossil fuels to power the economy, such reforms would first require a risk-taking mindset . So far, it appears that the new budget bill is reluctant to accept or consider meaningful change due to obstacles imposed by the country’s governance model.

This year could make or break Tebboune’s tenure in office, and the 2023 budget comes as his most significant first-term project to ensure the domestic and international landscape is favorable for a possible re-election bid in 2024. In the eyes of some local activists , the current commander-in-chief promotes a relatively popular image at home for his authoritarian rhetoric and socialist policies. However, the upcoming presidential elections will involve complex calculations and will require a new and more pragmatic financial approach that is not currently reflected in the budget. The current administration may seek to revive economic growth, but the success of that effort will depend heavily on its ability to make hard choices that look outside the comfort zone of the usual rent-madness and expensive habits of the welfare state. As long as Algeria’s energy revenues are spent in an ad hoc, short-term way to maintain the status quo, it seems that the vicious cycle of deficits and clientelism will continue.

Zine Labidine Ghebouli is a political analyst and postgraduate scholar at the University of Glasgow. His work focuses on Euro-Mediterranean cooperation and the political and security dynamics of Algeria.

Photo by LUDOVIC MARIN/AFP via Getty Images


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