Algeria’s 2023 budget: President Tebboune’s make-or-break first-term project

On Dec. 25, 2022, Algerian President Abdelmadjid Tebboune signed the 2023 budget bill into law. The new finance law lays out unprecedented government spending of $98 billion, the largest state budget in Algeria’s history and a 25% increase from 2022 levels. The finance law provides clear insight into the Algerian authorities’ vision for the future and potential scenarios for the country’s direction on the economy and international relations. According to Algeria’s official gazette, the budget will essentially be divided between military needs, social welfare policies, and the rehabilitation of outdated sectors, such as education, health care, and agriculture. Unlike in previous years when post-Hirak movement dynamics and the COVID-19 pandemic imposed other political and public health priorities, the government’s financial plans will now be under particular scrutiny, especially as the Tebboune administration embarks on a crucial test ahead of the 2024 presidential elections.

Buoyed by the recent rise in energy revenues, estimated at $50 billion in 2022, the current Algerian leadership is also benefitting from greater diplomatic attention from Europe and the United States due to its gas resources and potential security role in the Sahel. However, Algiers faces complex geopolitical and domestic circumstances related to its defense requirements and development efforts that make navigating military and economic concerns especially challenging. Policymakers now have the difficult mission of translating strong macroeconomic indicators like its $60 billion in foreign exchange reserves into a socioeconomic relief package that will help average Algerians, especially if a second-term bid for the incumbent head of state becomes an option to preserve political stability.

Military shifts

For decades, the Algerian military benefited from significant increases in its budget, which rose from $2 billion in 2000 to $10 billion in 2022. The new budget for 2023 continued this trend and the military is set to spend about $18 billion this year to shore up its overall power and influence — a substantial sum equivalent to around 10% of Algeria’s GDP in 2022. Yet, it also represents a downgrade from the first draft budget, which initially gave the military an allocation of $23 billion. A total of $5 billion in funding, reportedly set to be used for arms deals, especially with Russia, was removed from the final version of the budget. Algeria’s armed forces have long been a leading customer for Russian defense contractors and the two sides were negotiating another major deal for 2023 that currently seems to be on hold due to the military and strategic fallout from the Ukraine war.

But these spending cuts are only one piece of the overall puzzle when it comes to potential governmental priorities. In November, an official communiqué from the Ministry of Defense announced that the “Desert Shield” joint counter-terrorism exercises, previously scheduled to be held with Russian troops on Algerian soil, did not take place. Although official reports did not elaborate on why the exercises were canceled or if they would be rescheduled, Western pressure following Russia’s invasion of Ukraine may have played a key role in the last-minute change. At the same time, Algiers also applied to join the BRICS group of leading emerging economies — encompassing Brazil, Russia, India, China, and South Africa — suggesting that economic incentives may be driving the agenda rather than Algeria’s historic ties and military partnership with Russia. Furthermore, recent disapproving statements by President Tebboune regarding the Wagner Group’s presence in the Sahel region have emphasized Algiers’ prioritization of economic and industrial development at home and abroad to encourage greater independence by Algeria’s military command.

Previous Algerian leaders understood the importance of ensuring the country has a strong and well-equipped military to face the region’s turbulent geopolitical environment. The Tebboune administration is no different and it may even double down on that strategy by facilitating the development of a local arms industry, as alluded to in the October issue of the military gazette. Algiers is also actively looking to diversify its defense partners. The current leadership could be interested in using its substantial energy revenues to reduce its heavy dependence on Russian contractors, before the benefits of strong Russo-Algerian military ties turn into a serious liability. Sources have reported that negotiations are ongoing with Chinese and Italian public and private defense firms regarding new purchases and potential joint ventures. All of these dynamics hint at a political decision to shift defense spending from buying arms abroad to building up a defense industry at home, with the aim of making Algeria more independent and boosting its economy in the process.

Economic vision

During an interview with local media in December, President Tebboune reiterated his plan to increase wages and unemployment allowances and maintain popular social welfare policies, including subsidies. These policies were reflected in the finance bill across a number of different ministries, with a total cost amounting to around $43 billion. In that sense, the state’s treasury will once again assume the burden of ensuring social peace through traditional rentier strategies that are likely to lead to the formation of new clientele networks. Such an approach is inefficient and ineffective, however. The government lacks the right tools to identify the most vulnerable sectors of society because of the scale of the informal market and the use of outdated taxation mechanisms, resulting in a broad-reaching but untargeted subsidy system that benefits everyone to the same extent regardless of income level. The Algerian authorities are deeply entrenched in an unsustainable governance framework that offers no long-term vision to create added value, facilitate growth, or shift the economy to a more dynamic footing.

Beyond these attempts to appease the local population, the country’s economic model, which protects debt-ridden and failing public companies and funds, remains unchanged. In its 2022 report, the National Accountability Council highlighted the negative financial indicators of almost all public institutions and the limited success of public-private partnerships. This reveals a deeper problem with Algeria’s protectionist, socialist economic philosophy: Not only does it come at great financial cost — the budget deficit in 2023 is estimated at $30 billion — but it also provokes considerable political disagreement. The Islamist Movement of Society and Peace, an opposition bloc in Algeria’s parliament, voted against the finance bill and raised its concerns about the level of government spending, the budget deficit, and the lack of a clear economic roadmap. In fact, Prime Minister Aymen Benabderrahmane was about to face a no-confidence motion a few days before the Arab League summit last November. The survival of his government going forward is contingent upon providing real solutions to Algerians’ daily struggles as Ramadan approaches.

Socioeconomic grievances are a major concern for the Tebboune administration. The local population is starting to feel the impact of inflation, which has been growing over the past five years to peak at a worrying 9%. Meanwhile, the administration’s efforts to increase wages throughout 2022-24 by 47% may not be sufficient to protect the purchasing power of citizens, who can hardly make ends meet as the economic situation continues to deteriorate dangerously compared to just a few years ago. Piecemeal efforts to address these growing domestic concerns will be fruitless unless they involve new economic thinking that truly prioritizes the needs of Algerian youth, rather than simply dusting off well-known practices aimed at buying time and social peace.

Hard choices

It is true that the current Algerian leadership got a major boost following the Russian invasion of Ukraine, as rising energy prices pumped an unexpected surge of cash into the state’s depleted coffers. But so far, it seems as though Algiers is repeating the mistakes of the past, pushing ahead with extravagant spending while making cosmetic reforms that will do little to ensure viable, sustainable economic development in the long term. Despite the intention to pay greater attention to education, health care, and agriculture, Algeria’s bureaucratic structures and technological limitations could hinder attempts to make good use of recent allocations. Moreover, the government is still timid when it comes to investing beyond the hydrocarbons sector, which is expected to undergo a state-led $40 billion upgrade and expansion plan. Although Algeria’s youth could do much to help break the country’s old and bad habits of relying on fossil fuels to power the economy, such reforms would first require adopting a risk-taking mindset. For now, the new budget bill appears too reluctant to embrace or contemplate meaningful change because of barriers imposed by the country’s governance model.

This year could make or break Tebboune’s tenure in office, and the 2023 budget comes as his most notable first-term project to ensure the domestic and international landscape is favorable for a potential re-election bid in 2024. In the eyes of some local actors, the current commander-in-chief projects a relatively popular image domestically for his sovereigntist rhetoric and socialist policies. Nonetheless, the upcoming presidential elections will involve complex calculations and will require a new and more pragmatic financial approach that is, at present, nowhere to be seen in the budget. The current administration may seek to revive economic growth, but the success of that endeavor will largely depend on its ability to make hard choices that veer outside the comfort zone of the state’s typical rentier mentality and expensive welfare habits. As long as Algeria’s energy revenues are spent in an ad hoc, short-term manner merely to maintain the status quo, the vicious cycle of deficits and clientelism seems destined to continue.

Zine Labidine Ghebouli is a political analyst and postgraduate scholar at the University of Glasgow. His work focuses on Euro-Mediterranean cooperation and Algeria’s political and security dynamics.

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