Financial Crime World

ALGERIA: FINANCIAL INSTITUTION RISK ASSESSMENT

The Algerian economy is facing significant challenges, with a high dependence on hydrocarbon revenues and a constrained recovery despite high energy prices. The country’s business environment is difficult, with many weaknesses including poor infrastructure, bureaucratic red tape, corruption, and financial sector vulnerabilities.

Strengths and Weaknesses

  • Strengths:
    • Large oil and gas reserves
    • Significant potential for shale gas development
    • Opportunities in agriculture, renewable energy, and tourism
  • Weaknesses:
    • High dependence on hydrocarbon revenues
    • High youth unemployment
    • Excessive weight of the public sector

The Algerian economy rebounded in 2021 driven by higher energy prices and increased OPEC+ production quotas. However, growth is expected to slow in 2022 due to base effects and under-investment in the oil sector.

  • Substantial deficits: Public deficit widened further in 2021 and is projected to decrease in 2022 but remain significant due to government spending and large social transfers.
  • Current account deficit: Narrowed in 2021, but expected to continue shrinking in 2022 due to import control policies. Foreign direct investment (FDI) will increase but remain low.
  • Foreign exchange reserves: Have been falling since 2014.

Political Risks

Persistent domestic instability has heightened tensions with Morocco, which broke diplomatic ties at the end of August 2021. Algeria shut its airspace to French military aircraft in October 2021 over comments by President Emmanuel Macron about the country’s history.

Financial Institution Risk Assessment

Overall, Algeria’s financial institution risk assessment is high due to the country’s uncertain political and economic outlook, difficult business environment, and significant vulnerabilities in the financial sector. Banks operating in Algeria must be prepared for a challenging environment with potential risks including:

  • Corporate default: High corporate default probability due to uncertain political and economic outlook.
  • Exchange rate volatility: Exchange rate fluctuations pose a risk to banks’ foreign exchange positions.
  • Government intervention: Government intervention in the economy poses a risk to banks’ business operations.

In conclusion, Algeria’s financial institution risk assessment is high due to the country’s challenging business environment, significant vulnerabilities in the financial sector, and uncertain political and economic outlook. Banks operating in Algeria must be prepared for potential risks including corporate default, exchange rate volatility, and government intervention in the economy.