The largest African country and the third-largest Arab economy, Algeria moved back to the upper-middle income category under the World Bank¡¯s country income classification in July 2024. Over the past two decades, Algeria has made economic and human development advances, investing in infrastructure projects and introducing redistributive social policies that alleviated poverty and significantly improved human development indicators.
The main challenge for the Algerian economy remains the high dependency on hydrocarbon revenues and public spending. The hydrocarbon sector accounted for 14 percent of GDP, 83 percent of exports, and 47 percent of budget revenues between 2019 and 2023. Algeria aspires to diversify its economy to vary the country's sources of revenues and improve employment prospects, particularly for young people, given its demographic profile. The unemployment rate was estimated at 12.7 percent overall, with 25.4 percent for women and 29.3 percent among young people (aged 15 to 24) in 2024.
Despite moderating hydrocarbon production, growth has been robust since the pandemic, but inflation rose, driven by food prices. GDP grew by 3.8 percent in 2021, 3.6 percent in 2022, and 4.1 percent in 2023, and was fueled by public spending rising by over 60 percent between 2021 and 2023, amid increasing public sector wages and pensions, the introduction of unemployment benefits, expanding food subsidies, and surging public investment. The concurrent soar in hydrocarbon prices narrowed the fiscal deficit and resulted in current account surpluses in 2022 and 2023. However, falling prices and OPEC quota cuts, coupled with dynamic investment-driven imports and strong spending growth, have put the fiscal and external balances under renewed pressure.
Algeria, like other oil-exporting countries across the MENA region, will need to shift toward a more diversified economy to lift job prospects, a crucial task given the country¡¯s young demographic profile. Since 2020, the government has taken steps to boost foreign and domestic investment by issuing a new Hydrocarbon Law, partly lifting restrictions on the foreign ownership of domestic firms, adopting a new Investment Law, and issuing a new Money and Credit Law. Meanwhile, the September 2021 Government Action Plan has made the transition to private sector-led growth and job creation model a developmental priority, notably by arguing for rationalizing public spending, reducing imports, boosting non-hydrocarbon exports, and for significant improvements to the business environment, including reforming public banks and state-owned enterprises.
Last Updated: Apr 25, 2025
