Reconciling economic efficiency and social justice . . .

On Tuesday, October 4, 2016, the long awaited Algeria’s 2017 Finance Bill was enacted by the Council of Ministers, meeting in the presence of the President of the Republic. A finance law is only an accounting document for a country’s public finances of a fiscal year, showing all expenditures and revenues, hence the importance of defining the strategic objectives, and as highlighted by the president on this occasion, Algeria’s 2017 Finance Act would require a language of truth in the face of the current difficult financial situation, involving a sustained dialogue and active communication interface.  It is the subject of this article.

A Finance Act refers to the year budgetary legislation enacted in Algeria by the Government, with multiple provisions as to taxes, duties, exemptions and reliefs.

The foundations of the Finance Act 2017

1         Algeria being a rentier economy where foreign exchange earnings from exports of hydrocarbons and their derivatives represent 97%, all other exports outside hydrocarbons being marginal, the Act was established on the basis of a $50 a barrel of oil. According to the prospects of the world economy report presented on October 4th by the International Monetary Fund (IMF) and contrary to the euphoric predictions of some experts establishing it without referring to this IMF report to $51 annual average price for 2017. According to the IMF, Algerian GDP would decrease from 3.6 in 2016 to 2.9% in 2017.

2         Moreover, conventional gas representing a third of the revenue of SONATRACH with supply contracts review of 50% in 2020, according to the IMF is at its lowest in 12 years, due to the fall in the price of oil, but also by the strength of Russian natural gas supply and weakening Asian demand.

3         Despite this, the 2017 Finance Act anticipates a revenue of Algerian Dinar (DZD) 5,635.5 billion revenue, or an increase of nearly 13% from that of fiscal 2016. Ordinary taxation is estimated to be DZD 2,845.4 billion, up 3.5%, and revenues of oil taxation at DZD 2.200 billion, and expenditures valued at DZD 6,883.2 billion, the overall balance of the Treasury component should close by end of 2017 at DZD 1,248 billion and with DZD 109 a Dollar, the deficit could be $11,44 billion or 8%, against a deficit of 15% of 2016, thanks to rationalization of expenditures.

But let’s not forget that the Dinar skidding or devaluation meant the Dollar inflated the oil taxation (sales in Dollar) and against the Euro for the ordinary taxation, at customs increased against a devalued Dinar. With a DZD 75 a Dollar, and DZD 85 a Euro, the Treasury deficit would exceed $ 20 billion. As the Regulatory Fund is likely to be exhausted in 2017, any increase in expenses compared to projected revenues will consequently inflate the budget deficit with an inflationary impact.

In this context, the Council of Ministers reminded that for more than two years we are witnessing a severe drop in the price of hydrocarbons, and several proposals for legislation have been adapted for purposes of improvement of the State’s revenue, the encouragement of investment, as well as more simplification and relief of tax procedures.  Meanwhile, DZ 1,630.8 will be allocated to social welfare (23.7% of the budget of the year 2017) essentially through the support of commodities, to health and housing programmes. In the future if the price stays on between $45 and $55, this generalization of subsidies, will be unsustainable financially.

So this Bill would be best to be interpreted with all the precautions to avoid surprises. The price of between $80 and $100 is likely not to come back ever, it would make it urgent for Algeria, so as to avoid to go for the emergence of a diversified economy within the context of globalization. But this without deeper structural reforms, assuming a minimum of political and social consensus and a visibility and coherence in the approach of the reforms, would not make any difference. Otherwise, delayed reforms could lead inevitably to the cessation of payments by 2020.

In this instance, I would propose the following ten strategic actions as a matter of national recovery.


10 strategic objectives for 2016 through 2025

  1. Good governance must first take into account the anthropological and cultural reality and reconciling modernity and the preservation of our authenticity in the knowledge that Algerian society is currently slow changing with the emergence of new social and economic actors.
  2. Then it will be to establish the rule of Law. Implementation of this must fit into the overall framework of the realization of good governance, democracy and development through the implementation of the legal-political-economic-social regulatory mechanisms. It will be to adapt to the on-going planetary changes. Foreign policy must be characterised by a rehabilitation of a more active, coordinated with non-governmental organizations and geared towards encouraging business investments.  Internally, it will be to restore confidence through the rule of law, thus putting a definite end to the divorce between the State and the citizen.
  3. An independent judiciary in order for instance to effectively eradicate corruption. The reform of the justice system must reconcile a better functioning taking into account respect for international law with the insertion of Algerian society into the globalization.
  4. Linked to the previous conditions, bureaucracy control aims to put an end to the crippling generalised red-tape. Safety improving, the weakness of national and international investment according to observers, is due for more than 60% to red-tape obstacles that affect the development of the creative energies. Optimization of the effect of public service has some repercussions on the level of services provided by improving the public service while reducing costs. Because utilities, although having had access to large finance, have undergone little change since political independence: central and local administrations, customs, internal revenue, are areas that tend to work in isolation, thus allowing a bureaucratic power while the symbiosis with the national and international environment is required.
  5. The fifth objective is the overhaul of the educational system. It is the priority of priorities, because of the current lower levels, school losses, and the vital necessity to adapt to the changing world. The experience of countries that have managed their development shows that education is at the base of their prosperity.
  6. The sixth goal, would be the urgency of a strategic vision with the status of a new organization of the national economy. For a coherent vision and efficiency, it would be desirable for the set up of a large Ministry of Economy that is split into several Secretariats of State. These would include say, banking, trade reform, participations and privatization in addition to conventional missions such as those of customs, taxation, land and real estate management.
  7. The seventh would be the rearrangement of the financial system. Through the mobilization of all savings and efficiency of the financial intermediation and the optimal allocation of resources, avoiding repetitive reorganizations due mainly to the public sector deficit (payment of wages without productive counterparties paradoxically increases unemployment).
  8. The eighth goal, is to reconcile efficiency and social justice. There is no Algerian-specific market economy but universal laws with social specificities, source of enrichment at the global level in order to promote the dialogue of cultures. Social liberalism is not in contradiction with the robust role of regulator of the State (robust only by democratization of society). As such, transparent mechanisms of redistribution during this difficult phase of structural adjustment should be put in place, away from any bureaucratic guardianship, by targeting the poorest by practical acts of solidarity through flexible decentralized networks, including involving civil society. But never forgetting that a Nation can only distribute what it previously produced if it wants to avoid negative growth, unemployment, inflation, etc.
  9. The ninth goal would be a more participative and citizen oriented society through the involvement of local actors. To avoid any future dysfunctions, it is about reviewing and adapting all legislative texts including the codes to achieve economic decisions, notably decentralization, basis for the market interdependent tiered economy; to rethink the inadequate local tax system within the new economic reality; to promote real local decentralization, if appropriate, by the removal of intermediate administrative structures, while taking into account the specificities of the South. It will be to create regional economic councils, opening the folder of economic regionalization not to be confused with regionalism. It is understood that regional councils will act, as part of the comparative advantages of the regions, by selective orientations, and with the Governor as the State’s representative in charge of all administrative structures favouring initiatives.
  10. The tenth objective, as overall synthesis of all the above actions is a strategic vision, the State as regulator plays a strategic role in balancing the social and private costs. It will be to have a strategic vision, including other areas such as adaptation to new technologies, the revitalization of agriculture, tourism, water, new energy policy based on energy efficiency and a new Energy Mix, that some industry segments, in being realistic, whilst taking into account the fourth industrial revolution (2020/2030) avoiding this vision of the mechanical era of the past) short which reduction costs take a worrying dimension, targeting the sector allocation combined with more budgetary rigour.

Also, the economic changes in recent years in the country, as well as those who are expected to occur in the near future, must necessarily find their translation in systemic changes for support and organize their insertion in a social order which is in the making. The full success of this undertaking will depend on a number of conditions: the production of a participatory political culture, efficient institutional communications, a new consensus policy to achieve a significant majority in the social body around a real company project. It is a major undertaking of mainly review the functional development of State power; restructure the party system; reorganize the information and communication fields and reorganize the trade unions movement and associative basis for good governance.  The central objective is to adapt to the global changes with democratization and sustainable growth based on knowledge, only condition of resorption of unemployment, and by organizing both occupational as inter-governorates solidarity for social cohesion. Short-term actions (policies) must be cast within the overall strategic objective function.

Dr. Abderrahmane Mebtoul, University Professor, International Expert,

Translation from French by Microsoft / FaroL