Algeria

Growth driven by investment and public spending

Growth has been robust since the pandemic, driven by non-hydrocarbon activities, consumption and public investment. Household consumption has benefited from wage increases in the public sector, regular increases in the minimum wage and social transfers in the form of unemployment benefits and food subsidies. Public investment has also played a central role, particularly in infrastructure, housing and transport. In December 2025, the African Development Bank granted a loan of EUR 747 million to finance the first phase of a railway line linking Algiers to Tamanrasset. The project is part of an ambitious programme to double the national railway network from 5,000 to 10,000 km by 2030. The country has continued its efforts to diversify its economy, with a particular focus on agriculture, which is the second-largest contributor to GDP (13% of GDP, 10% of employment), a sector that nevertheless continues to fall short of its potential and local demand. Services (45% of GDP, 60% of employment) have benefited from sustained domestic demand.

However, falling hydrocarbon prices and the reduction in production quotas by OPEC+ have reduced the government's budgetary margin, limiting public spending from 2024 onwards. Hence, growth could continue to erode slowly in 2026, even if it remains supported by the gradual normalisation of oil production (lifting of OPEC+ restrictions) and increased local and foreign investment in energy. In October 2025, the Minister of Energy and Mines announced a USD 60 billion investment plan in hydrocarbons between 2025 and 2029, of which nearly 80% will be earmarked for exploration and development, with the remainder financing downstream projects such as the new Hassi Messaoud refinery (scheduled for 2027), methanol plants and petrochemical infrastructure. At the same time, foreign investment will help increase gas production and pipeline capacity, which will correct years of underinvestment and increase export volumes. In this regard, in October 2025, Sonatrach signed a USD 5.4 billion production-sharing agreement with Midad Energy (Saudi Arabia) for exploration and development in the Illizi basin, targeting approximately 1 billion barrels of oil equivalent over 30 years. Foreign investment will continue in mining, as will government investment in housing, water supply, sanitation and electricity generation. Furthermore, despite budget constraints, social spending will not be sacrificed so as not to cause too much social unrest.

In 2025, inflation continued to slow, thanks to lower food prices, price controls and the stability of the official exchange rate, despite a growing gap in the parallel market. Faced with these deflationary pressures, the central bank eased its monetary policy for the first time since 2020. At the end of August 2025, the key interest rate was lowered from 3% to 2.75% and the reserve requirement ratio was cut from 3% to 2%. However, monetary policy has little influence on credit and private sector activity. In 2026, inflation is expected to edge up slightly again, driven by sustained public spending due to its weight in the economy and stricter restrictions on imports.

Twin deficits: a comeback marked by shrinking oil revenues

Since 2024, the budgetary situation has deteriorated significantly under the combined effect of declining hydrocarbon revenues and steadily rising public expenditure. Hydrocarbons account for around two-thirds of government revenue, making public finances extremely vulnerable to fluctuations in global prices. Public expenditure will continue to be dominated by social and military spending. In 2026, the government will maintain a high level of social transfers and employment programmes to prevent social unrest. Military spending will account for a quarter of expenditure. As a result, the already very deep budget deficit is expected to peak in 2026, pending fiscal consolidation measures planned from 2027.

With the depletion of the Revenue Regulation Fund (FRR) in 2024, which was the main budgetary buffer fed by oil surpluses, deficit financing now relies almost exclusively on domestic debt. The public debt ratio is expected to continue to rise in 2026, with the risk that the Central Bank will resume direct monetary financing – a practice abandoned in 2019 – to cover budgetary needs. Fiscal consolidation seems inevitable.

The current account deficit, which reappeared in 2024, is expected to continue widening in 2026, albeit at a slower pace. The decline in hydrocarbon export revenues prompted by falling prices should be mitigated by the increase in OPEC+ production quotas and the quantities of gas exported. At the same time, the import bill will remain high, driven by strong consumption and investment. As a result, the trade balance, which turned negative in 2025, is expected to widen further in 2026. In addition, the slight surplus in the secondary income balance arising out expatriate remittances is well below the cumulative primary income deficits (repatriation of profits by foreign companies) and the services balance, which have been widened by the investment boom. The current account deficit is mainly financed by foreign exchange reserves, which are comfortable (equivalent to 10 months of imports in June 2025) despite falling by more than USD 12 billion between September 2024 and July 2025. The rise in foreign investment flows also contributes to financing. To ease pressure on the balance of payments, the government imposed in July 2025 the Import Forecast Programme on companies. Companies must plan their imports and have them approved.

Internal political stability and diversification of external partnerships

Re-elected again with army support for a second and final five-year term in September 2024, Abdelmadjid Tebboune will continue to focus on maintaining political stability in 2026. Action will be based on two pillars: ensuring high social spending to curb popular discontent and wielding strict control of the political arena. The concentration of power around the presidency, the power of the security forces, the opposition’s weakness and the repression of civil liberties through propaganda, media control and marginalisation of critics should consolidate power until the next presidential election scheduled in 2030.

The passing in October 2025 of Resolution 2797 by the UN Security Council, which described Morocco's autonomy plan as a “realistic political solution” and no longer refers to self-determination as a means of resolving the Western Sahara conflict, has reignited the dispute between Algiers and Rabat. Tension has been amplified by the recognition of Moroccan sovereignty over the territory by several European countries, including France. Despite the bilateral friction, energy cooperation with the EU remains strong and has been driven by the EU's high demand for gas since the start of the war in Ukraine. In 2025, Algeria joined the SoutH2 Corridor project to deliver 4 million tonnes of green hydrogen per year to Europe via Tunisia, signed the TaqatHy+ programme with the EU and Germany to support the country in its energy transition, and obtained the green light for Medlink, an underwater electricity interconnection to Italy. At the same time, Algiers is consolidating its ties with BRICS countries, particularly China, which is investing heavily in infrastructure, hydrocarbons and mining projects, as well as with Russia, its main arms supplier and strategic ally on the Western Sahara issue (although it abstained from voting at the UN). However, keen to avoid excessive dependence on Moscow, Algiers signed a Memorandum of Understanding with Washington in January 2025 to strengthen military cooperation. Last, surveillance of the southern borders with Libya and the Sahel (Mali and Niger) remains a major concern.

Last updated: 8 January 2026