Algeria

Hydrocarbons play a pivotal role in the Algerian economy, with oil and gas revenues making up 96% of all exports and over 60% of government revenue. The disruption of global energy markets following Russia’s invasion of Ukraine has further amplified the importance of hydrocarbons to Algeria’s finances. Since 2022, revenue from hydrocarbons has accounted for around 20% of non-hydrocarbon GDP and over 15% of overall GDP, both significantly higher than pre-invasion levels. At the same time, non-hydrocarbon revenues have declined and are not expected to return to pre-invasion levels this decade.

Despite elevated hydrocarbon revenues, the Algerian government continues to struggle to balance out its budget. With total revenue at 29.2% in 2024, just below Saudi Arabia’s 29.2%, Algeria’s fiscal balance stood at -9.3% in the same year, much larger than the -3% of GDP of its Gulf peer. The non-oil fiscal balance has experienced a moderate improvement to -29.5% in 2024 and should experience further improvement in 2025. Although the fiscal balance has continued to worsen since the pandemic, and it will remain highly dependent on hydrocarbon revenues, the government’s debt profile did return to pre-pandemic levels of 31% in 2022. Since then, the debt burden has moderately increased and is expected to reach 34% in 2025. Algeria’s sovereign wealth fund, the Revenue Regulation Fund, has also seen its buffers increase by more than 5% of GDP since 2020, while government transfers have grown by over 5% compared to pre-pandemic levels.

On the external front, Algeria’s current account is estimated to have reached 3.3% of GDP in 2024, marking the third consecutive year of surplus. However, a return to a deficit is expected by 2025 to -2.5% of GDP, driven by declining non-renewable energy prices. Since joining OPEC in 2023, Algeria has maintained oil exports at 1mn barrels per day, adhering to a self-imposed ceiling as part of efforts to stabilize oil prices even as global prices have softened. The country is working to expand its oil refining capacity, though progress has been slow; a new refinery is expected to become operational by 2027.

Regarding natural gas, as Europe’s second-largest supplier of pipeline gas after Norway, Algeria has gained strategic importance in the EU’s gas market since 2022, primarily through the Medgaz (via Spain) and Transmed (via Tunisia and Italy) pipelines, which deliver gas as far as Germany. Liquefied natural gas (LNG) exports are set to rise in the short to medium term as aging facilities are upgraded. While France and Turkey remain Algeria’s largest gas customers, the country has diversified its European clientele, supplying Croatia for the first time in 2024 and expanding exports to Hungary, Slovakia and the UK. Improved gas prices in 2024, due to supply disruptions in the Eastern Mediterranean, benefited Algeria. Its role as a gas supplier to Europe could grow further if the long-discussed Trans-Saharan gas pipeline becomes a reality, connecting Nigerian gas fields to Europe via Algeria. However, political challenges continue to stall the project despite interest from both African nations and European energy companies.