Algeria Caught Between Economic Depression and Social Discontent

The government in Algeria is caught between an expensive policy of food subsidies and a population dependent on food aid. It is trying to find a structural solution, but stumbling over the economic realities, our correspondent in the Maghreb writes.

Algeria spends about 19 billion dollars on subsidies of basic commodities a year. Researchers argue that the consequence of the measure is a loss of fiscal resources for the state, which has a negative impact on its budget and public spending.

The economy of Algeria needs urgent recalibration after years of over-spending. The economic depression has even caught the attention of the International Monetary Fund (IMF) which in its latest report published in October 2021 urged the government to undertake structural reforms. This call for reform has not fallen on deaf ears. The current government of President Abdelmadjid Tebboune approved a new finance bill, which was accepted by parliament in November 2021.

The new law raised some concerns among the population giving the basic thrust of lifting generalized subsidies for food staples. The main concern focuses on the question whether the government is jeopardizing the socio-political stability in the country, which depends largely on the capacity of the state to provide for the needs of the most disadvantaged in order to guarantee social peace.

One after another of Algeria’s governments, part of an elite that has been in charge of the government since independence, opted to retain the social policy based on the subsidization of basic necessities. A choice that seemed warranted in their eyes because it was part of a social contract that allowed them to ensure a certain level of social stability in exchange of a recognition of the government’s legitimacy.

Wave of Protests and Social Discontent

Opting for a new social policy and the lifting of subsidies for basic necessities, the state finds itself in an uncomfortable position, facing protests from a segment of the population. Prices have been rising since the announcement of the government’s new policy choice. The increases on some products have reached 100 or even 200 percent. For example, the price of a kilogram of potatoes rose to 150 dinars (0.95 euro) from 60 (0.38 euro).

The discontent reached the middle class, which to a certain extent was unexpected. But with salaries ranging from 200 to 400 dollars, it is the middle class that is paying a heavy price for the new law. The uproar also has reached sectors of the economy including education and health care, with teachers going on regular two-day strikes since November.

Not to mention the Hirak movement that was the cause of the ouster from power in 2019 of former President Abdelaziz Bouteflika. On March 6, the flames of this movement were rekindled with anti-government protests reaching European capitals such as Paris, Marseille and Berlin. The slogan used by demonstrators was an end of social injustice, dictatorship, and oppression.

With the lifting of general subsidies the government has also introduced a law against illegal speculation. The sale of table oil to minors is forbidden, with the law prescribing prison sentences ranging from 3 to 30 years and financial fines of up to 14,000 dollars. The government hopes to curb the soaring prices of basic foodstuffs. The speculation had boosted the prices of oil and thus created an unnatural form of inflation. A risky situation for the Algerian economy which according to the latest report of the World Bank published on December 22, 2021, has recorded a historical inflation rate of 9.2% during the last ten months of the previous year.

Financial Compensation for the Needy

To compensate for the painful changes to the subsidy regime, which considerably affected the purchasing power of Algerian citizens, the regime opted to pay financial compensation directly to low-income households. However, the impact of these financial compensations leaves much to be desired. Despite the aid, Algerians are increasingly struggling with the erosion of their purchasing power, soaring prices, shortages and especially the gradual impoverishment of the middle class. It should be noted that in Algeria, the prevalence of poverty has increased significantly.

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