LONDON, Dec. 18, 2016 /PRNewswire/ --
While still well below 2015 levels, Algerian economic growth over 2016-2017 will be stronger than previously anticipated given an improving outlook for Algeria's hydrocarbon sector output and amid signs that Algiers will hold off on drastic fiscal consolidation measures. With austerity measures relatively limited in scope in coming quarters, the country's fiscal deficit will remain wide over 2017. Budget shortfalls will be funded by still-large reserves, while over the medium term, the government will increase borrowing. The ruling elite's efforts to consolidate power will limit risks of widespread unrest in Algeria over the next few years. In the long term, this strategy will prove unsustainable, as lower oil prices and a lack of economic diversification force Algiers to drastically cut public sector jobs and welfare programmes.
Although the Algerian government has called for more foreign investment into the country, we expect FDI inflows to remain sparse in the years ahead. Foreign investors will continue to be deterred by numerous restrictions and a weak business climate, and we do not anticipate any comprehensive liberalisation of the economy. Core Views
Libya's rivalling factions are no closer to a peace deal, and risks of clashes between eastern and western militias are elevated. While a final resolution to the conflict could be reached in 2017 on the back of stronger, more unified international support, the chances of it breaking down would remain exceptionally high over the next several years. The recent sharp uptick in oil output improves Libya's short-term real GDP growth outlook; however, any sustained economic recovery still depends on the country's rivalling political factions reaching a lasting peace agreement.
We maintain our view that Libya's economy will not surpass its nominal 2012 levels for another decade. Libya will continue to record large fiscal deficits in coming years, as a result of ongoing instability, diminished oil output and weak global oil prices - despite cuts in public expenditure. With few other options available, authorities will continue to fund fiscal shortfalls through international reserves. As a result of the ongoing conflict, a significant degree of productive capacity (both physical and human) throughout the Libyan economy has been lost. Road, housing and utility infrastructure have suffered considerable damage and will take years to repair under even the most stable of political environments.
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