Algerian dinar hits record low as central bank seeks to curb imports
Algeria’s central bank has let the country’s currency depreciate to a historic low against the U.S. dollar, a central bank source said Monday, seeking to lower a soaring import bill after vital oil revenues dropped by half.
The dinar’s weakness risks fuelling inflation in the North African country, where the government fended off protests in 2011 for better living conditions by offering free loans to young people, social housing and public pay increases.
The central bank, which keeps the dinar in a managed float against major currencies, hope the move will curb imports, which are expected to reach $57.3 billion in 2015, exceeding exports by their widest margin ever, a financial source told Reuters.
But ordinary Algerians in the country of 40 million people have already felt the impact of a gradual depreciation in the past few weeks, facing difficulties in buying some products as shelves in shops have offered fewer foreign products.
Annual inflation accelerated to 4.5 percent in April from 4.1 percent in March, official data shows.
“When the dinar falls, the prices of imported products go up and will not be affordable to everyone,” said Abdelkader Gasmi, head of a local consulting firm.
The dinar slumped to 105.84 to the dollar and 117.48 to the euro, the central bank source said. The dinar was estimated at 79.6 to the dollar in 2014.
“A poor dinar reflects Algeria’s economic and financial weakness and extreme fragility to external shocks such as falling oil prices,” a consultant working for the government said.
To cushion the dinar’s weakness, the International Monetary Fund has urged the government to reduce spending. Basic food items and petrol are heavily subsidized.
The government is urging people to buy local products, but analysts say the private sector outside the dominating oil and gas industry is still small after decades of a state economy.
The OPEC member has already frozen a series of development programs to cope with falling oil and gas exports, which made up as much as 98 percent of Algeria’s revenues in recent years. Government officials expect them to bring in $34 billion this year, down from $68 billion in 2014.
Algeria recorded a trade deficit of $6.3 billion for the first five months of 2015, compared with a $3.44 billion surplus a year earlier, pushing down the coverage of imports by exports to 71 percent, from 114 percent in the first five months of 2014.
The state has around $180 billion in foreign currency reserves to ward off any crisis, but a long-term slide in oil prices may weaken Algeria’s financial stability, analysts say.