Algeria's current account slipped into a USD1.8 billion deficit during the second quarter due to the combined effects of slumping hydrocarbon exports and rising consumer imports.
IHS Global Insight perspective | |
Significance | Algeria's current-account balance during the first half of 2013 amounted to a deficit of USD1.26 billion, the first semi-annual deficit since 2009, amid the global financial crisis. For comparison, the current account collected surpluses of USD9.7 billion and USD5.1 billion during the first halves of 2011 and 2012 respectively. |
Implications | The combination of weaker oil exports and rising goods imports is having a larger-than-expected adverse impact on the external balances in 2013. |
Outlook | IHS expects Algeria's current-account balance to have recovered during the second half of 2013 and to post a full-year surplus, albeit considerably smaller than in years past and than previously projected. In our view, the potential for annual balance-of-payments deficits is rising as firm import growth and a lower global oil price outlook during the next two years will keep the external accounts under considerable pressure. |
Algeria's current-account balance slipped into deficit during the second quarter, amounting to 142 billion dinars (USD1.78 billion), recent figures from the country's central bank show. The deficit was sufficiently large to overshadow the first-quarter surplus and produce a current-account deficit of USD1.26 billion for the first half of 2013, according to the data from the Bank of Algeria (BA). This comes in stark contrast to the first quarter of 2012, when Algeria collected a surplus topping USD10 billion.
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Goods exports – dominated by hydrocarbon exports – slumped during the second quarter, declining 16.8% quarter on quarter (q/q) to USD14.6 billion. Goods imports continued higher during the quarter, increasing 5.7% q/q to USD14.6. As a result, the goods balance – typically a sizeable surplus amounting to several billion dollars – dived to a slim surplus of USD380 million, according to the BA. At the same time, the services and income deficits narrowed moderately; however, they remained a combined USD2.93 billion deficit, pulling the overall current account into the red. A current-transfers surplus of USD760 million, which includes worker remittances, mitigated the size of the overall deficit somewhat.
In spite of fairly buoyant global energy prices through 2013, Algeria's hydrocarbon exports – accounting for more than 93% of total goods and services exports last year – have slid substantially lower. Hydrocarbon exports declined 16.8% q/q during April–June, totalling USD14.6 billion, or the lowest quarterly value since late 2010. Together with the first quarter, hydrocarbon exports were USD32.1 billion during the first half of the year, according to the balance-of-payments data, representing a 14.3% year-on-year (y/y) decline. This is lower than was previously reported via trade statistics (see Algeria: 31 July 2013: Algeria's trade surplus plummets 46% during first half of 2013).
The price of Algerian crude oil averaged USD108.6/barrel during the first half of 2013, down 4.2% compared with the same period a year earlier; however, crude oil exports fell by a larger 6.6% y/y, to USD12.7 billion, as the volume exported declined 2.6%. Similarly, for Algeria's second largest hydrocarbon export, natural gas, a combination of lower price and volume resulted in reducing gas exports by 17.9% y/y to USD7.4 billion during the first half of 2013, according to provisional figures. The In Amenas attack in January 2013 is one clear explanation for reduced output. Lower crude oil exports, on the other hand, are the result of weaker external demand and rising domestic consumption. Algerian authorities also noted recently that lower volumes stem from an official decision to slow production as corruption scandals at the national oil company re-emerged in 2013, according to broadcaster Al-Jazeera.
On the import side, goods imports during the first half of the year totalled USD28.4 billion, a 20.0% y/y expansion led by strong demand for non-food consumer goods. Higher foodstuffs imports also played a role, however. Capital goods imports increased 25% y/y, according to the central bank, reversing the declining trend witnessed in 2012. Finally, fuel imports surged during the first half of the year in line with rising automotive imports, the BA stated. Within the non-food consumer goods segment, nearly half of imports were passenger vehicles, which increased more than 30% since the first half of 2012, previously reported trade data show.
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Outside the merchandise account, Algeria's services deficit narrowed moderately during the second quarter due to slightly stronger inflows, which the bank attributes to greater shipping and insurance services receipts. Meanwhile, the income deficit also realised modest improvement, narrowing to a gap of USD1.16 billion, compared with USD2.14 during the first quarter. Income credits rose, although the central bank highlighted "very low global interest rates" as having a negative impact on the balance of payments (BOP).
The central bank reported the foreign exchange reserves at USD189.8 billion at end-June 2013, roughly the same level as the end of the first quarter and slightly lower than the end-December 2013, when reserves topped USD190.7 billion. At these levels, the reserves cover more than three years' worth of imports. External debt, already at exceedingly low levels, was reduced further during the second quarter, amounting to just USD3.44 billion at end-June, compared with USD3.64 billion at the end of 2012. As a percentage of GDP, external liabilities now amount to less than 2%.
Outlook and implications
Algeria's weak first half BOP figures are more severe than expected. Given the magnitude of the goods trade balance and its poor 2013 performance, it was expected that the current-account surplus would decline; however, the deficit was not expected (see Algeria: 29 October 2013: Algeria's trade surplus tops USD8 bil. in Q1–Q3, represents 53% y/y decline). The trends seen in 2013 – lower oil exports and rising imports – were already clearly established in the 2012 (see Algeria: 8 April 2013: Algeria's current-account surplus slides in 2012, though still sizeable). As such, IHS has for some time projected Algeria's external balances to narrow to more modest levels, although our baseline forecast has not envisaged a deficit in the near- or medium-term.
Surpluses will make a comeback in the third and fourth quarter, which will pull up the full-year current account back into a surplus. However, the size of the surplus is now less certain. IHS had expected Algeria to collect a surplus of 2.7% of GDP; however, this forecast now appears too optimistic. In light of these data, IHS expects to lower Algeria's 2013 current-account surplus to 1–2% of GDP in our forthcoming forecast round. The Algerian authorities will be extremely keen to reverse these trends; however, it will be difficult to make changes in the near term given the structural nature of the balances – the dependence on hydrocarbon exports, for instance. As such, the authorities will continue to focus on suppressing import growth in the near term. Overall, the possibility of a full-year current-account deficit in the medium term is now much more tangible.