Maghreb states cannot achieve economic integration if the Moroccan-Algerian border remains closed, the IMF chief says.

By Lyes Aflou for Magharebia in Algiers – 09/02/12

[Lyes Aflou] Finance Minister Karim Djoudi says Algeria intends to diversify the economy to promote growth.

Reopening the Algerian-Moroccan border will boost economic growth in the Maghreb and accelerate integration, International Monetary Fund Managing Director Christine Lagarde said last week.

“I think that the free circulation of people and opening of the borders between Algeria and Morocco will provide a strong contribution to the economic integration between the countries of the UMA and will result in better economic growth in the region,” she told Nessma TV on Friday (February 3rd).

The IMF chief hopes to convey this message to the Algerian authorities during a visit scheduled for the end of this year.

“I shall visit Algeria before the end of the year to discuss a number of matters with the Algerian authorities, chiefly those relating to the Algerian government’s economic programme,” Lagarde added.

In its latest report on the Algerian economy, the IMF concluded that Algeria is doing “relatively well” despite a climate of international economic uncertainty.

The board of directors highlighted solid growth in 2011, bolstered by rising oil prices, which helped the balance between the country’s external expenditures and government receipts.

“The driving effect of the public investment programme should maintain the growth rate excluding hydrocarbons at around 5%, taking growth in GDP overall to around 2.5%”, according to the report released on January 27th.

The country, however, needs to overcome its dependency on oil and gas, which are subject to strong fluctuations, the IMF said. An increase in revenue generated by hydrocarbons has been partially absorbed by rising expenditures due to salary increases and social benefits.

“The budget will remain in deficit to a value of roughly 4% of GDP, with increases in government income being more than made up for by a 32% increase in total expenditure, particularly on higher salaries for public servants and benefits,” said the IMF.

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While prospects look bright over the short term, things could change in the long run since “financial stability depends on the volatility of oil prices”. At the moment, Algeria’s economic growth “continues to be driven by public investment and the Sonatrach company’s development programme”.

In 2012, “GDP excluding hydrocarbons could grow by 5%, but hydrocarbons should continue to fall off due to a low world demand, limiting overall growth to between approximately 3 and 3.5%,” the monetary institution predicted.

Algeria needs to diversify the economy to avoid “serious risks in the case of a downturn in the international economic situation and a prolonged slump in oil prices”, according to Lagarde. Algerian Finance Minister Karim Djoudi echoed her remarks.

The IMF’s comments “highlight the Algerian government’s prime objective, namely the diversification of the economy so that the proportion of resources from economic activities should continue to grow more and more”, he told the Senate on January 30th.