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Algeria and Libya Country Risk Report Q3 2017

Core Views

Algeria's economic growth will slow down in the quarters ahead asfiscal consolidation, elevated inflation and unemployment weighon investment and consumption. The government's reluctance toimplement politically sensitive spending cuts will prevent a moredrastic adjustment.

Fiscal deficits will remain wide over the coming quarters as weakenergy prices and political sensitivities limit efforts to raise governmentrevenues and cut spending. Foreign reserves will continue to declinerapidly and Algeria's reliance on borrowing will grow. Nevertheless,public debt levels are still low and will stay manageable.

Algeria will remain relatively politically stable over the medium term,as the government avoids drastic austerity measures, appetite forviolence stays low, and security forces continue to crack down onprotesters. Beyond this time frame, potential for unrest is significantlyhigher, as difficult economic conditions may eventually force authoritiesto remove subsidies and public sector jobs. 0
Although the Algerian government has called for more foreign investmentinto the country, we expect FDI inflows to remain sparsein the years ahead. Foreign investors will continue to be deterredby numerous restrictions and a weak business climate, and we donot anticipate any comprehensive liberalisation of the economy.

Core Views

General Khalifa Haftar's apparent strategy shift towards politicalcooperation with the Government of National Accord creates roomfor progress in the national reconciliation process, and we expect are-negotiation of the country's existing peace deal over the comingmonths. Risks of any such deal collapsing will nevertheless remainhigh for years to come – especially given various Western militias'persistent opposition to placing Haftar in a position of power.

Political instability, soaring inflation, currency weakness and highunemployment will continue to weigh on consumption and investmentover the quarters ahead, preventing a sustained economic recovery.

We maintain our view that the Libyan economy will not surpass itsnominal 2012 levels for at least another six to seven years.

Libya's budget balance will remain in deficit over the years ahead,as elevated instability prevent oil output from reaching the levelsneeded to cover still-large public sector wage and subsidy bills. Withfew other options available, authorities will continue to fund fiscalshortfalls through the issuance of domestic debt and depletion ofinternational reserves.

As a result of the ongoing conflict, a significant degree of productivecapacity (both physical and human) throughout the Libyan economyhas been lost. Road, housing and utility infrastructure have sufferedconsiderable damage and will take years to repair under even themost stable of political environments.


BMI Indices – Brief Methodology
BMI Index
BMI Risk Index – Algeria
BMI Risk Index – Libya
BMI Index League Tables
Executive Summary – Algeria
Core Views
Key Risk
Chapter 1.1: Economic Outlook – Algeria
SWOT Analysis
Economic Growth Outlook
Slow Response To Structural Slowdown
Algeria is facing several years of subdued growth and rising macroeconomic challenges in part as the government turns to austerity in
response to much lower oil revenues.
GDP By Expenditure Outlook
TABLE: COMPONENTS OF GDP (% OF TOTAL)
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
Fiscal Policy And Public Debt Outlook
Political Considerations To Prevent Austerity
Algeria 's movement towards relative austerity will be severely limited by political considerations.
Chapter 1.2: 10-Year Forecast – Algeria
The Algerian Economy To 2026
Reforms Crucial For Long-Term Growth
Achieving Algeria's long-term economic potential is far from certain, given Algiers' position towards foreign investment and the country's
vulnerability to low energy prices.
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Chapter 1.3: Political Outlook – Algeria
SWOT Analysis
Domestic Politics
Very Small Steps Towards Engagement
Relations between Algeria and Morocco will, at best, only improve very gradually over the coming quarters, following the latter's
re-admission to the African Union. Any improvement in relations will be limit ed to intelligence sharing and cooperation over Islamist
militants.
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Stagnation Or Upheaval: Government's Unpalatable Choice
Algeria's political stability faces challenges from Islamist radicalism, high unemployment and an uncertain leadership future. While we
believe that economic reform is vital for future growth, the political consequences are unclear.
Executive Summary – Libya
Core Views
Key Risk
Chapter 2.1: Economic Outlook – Libya
SWOT Analysis
Economic Growth Outlook
Rapid Economic Recovery Off The Cards
Political instability, soaring inflation, currency weakness and high unemployment will continue to weigh on consumption and investment
in Libya over the quarters ahead, preventing a sustained economic recovery.
GDP By Expenditure Outlook
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
Fiscal Policy And Public Debt Outlook
Persistent Shortfalls To Be Covered By Domestic Borrowing, Foreign Reserves
Libya's budget balance will remain in deficit over the years ahead, as elevated instability prevent oil output from reaching the levels
needed to cover still large public sector wage and subsidy bills.
Chapter 2.2: 10-Year Forecast – Libya
The Libyan Economy To 2026
Protracted Crisis As Political Instability Is Elevated
Relatively rapid real GDP growth rates in Libya over the coming decade will mask key structural weaknesses in the economy.
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Chapter 2.3: Political Outlook – Libya
SWOT Analysis
Domestic Politics
Major Obstacles To Lasting Peace Still Persist
General Khalifa Haftar's apparent strategy shift towards political cooperation with the Government of National Accord creates room
for progress in the national reconciliation process, and we expect a re-negotiation of Libya's existing peace deal over the coming
months.
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Fragile Federalised State To Emerge
We expect a fragile federalised state to emerge in Libya over the coming decade, following a difficult transition period. The country will
face multiple challenges to fundamental stability, and risks of a de facto partition of the state are elevated.
Chapter 3: BMI Global Macro Outlook
From Reflation To Disappointment
TABLE: GLOBAL MACROECONOMIC FORECASTS
TABLE: DEVELOPED STATES – REAL GDP GROWTH, % y-o-y
TABLE: EMERGING MARKETS – REAL GDP GROWTH, % y-o-y
TABLE: ALGERIA – MACROECONOMIC DATA & FORECASTS
TABLE: LIBYA – MACROECONOMIC DATA & FORECASTS

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