(Refiles to insert dropped word in headline)
* Algeria's $45 billion subsidy system unsustainable
* Algeria needs to increase oil and gas output
* Foreign debt possible, but FDI better
By Lamine Chikhi
ALGIERS, April 4 Even if world oil prices go
back up, Algeria will be obliged to reform its oil-reliant
economy and adjust a subsidy system that is unsustainable, a
former finance minister and influential adviser to President
Abdelaziz Bouteflika said.
Algeria, a major gas supplier to Europe, still has nearly
$143 billion in foreign reserves officials say will cushion it
from the oil price drop. But it has seen its energy earnings
fall by nearly 50 percent in 2015, and has already cut spending
and taken steps to reduce its import bill.
Algeria's foreign exchange reserves fell $35 billion in 2015
because of lower global oil prices, an IMF representative said
on March, suggesting foreign debt may be one way to address the
crash in revenues.
The North African OPEC member is also trying to increase oil
and gas production that has stagnated for a decade, but foreign
oil companies remain nervous because of Algeria's contract terms
and low world oil prices.
Abdelatif Benachenhou, once a long-serving economic adviser
to Bouteflika and an ex-finance minister who many believe might
return to a position of power, told Reuters he estimates Algeria
allocated 22 percent of its GDP to its vast system of social
"This social model is unsustainable even if oil prices go up
because we have a problem of price, but also a problem of
volume," Benachenhou said at the weekend, referring to energy
Algeria has already started to trim back on some subsidies,
including in January increasing the price of gasoline and other
products for the first time in more than a decade. It has also
suspended some infrastructure projects.
But tackling a vast welfare system is sensitive after years
in which the government provided basically free services and
products financed by oil and gas exports. Heavy social spending
helped Algeria calm protests during the Arab Spring uprisings in
The government is expected in April to announce a new
package of measures to help shore up the economy and reduce the
impact of the oil price fall.
"It has not been enough, 2015 has been a lost year because
we did nothing to tackle the crisis," Benachenhou said. "Yes in
2016 we took a series of measures but they are not enough."
Reliant on its mature fields, Algeria's energy output has
been stagnating for a decade. It peaked at 233 million tonnes of
oil equivalent in 2007, before dipping to 187 million toe by
2012. Last year it was estimated at 190 million toe, but the
government sees it at 224 million toe by 2019.
Benachenhou estimated the total amount of subsidies at $45
billion per year, but added the amount has been reduced in the
past year because of the fall in oil prices, which cut the cost
of some fuel products.
He said Algeria had no alternative but to move ahead with
more structural reforms, but foreign debt was not a solution for
the North African state. Algeria has very little foreign debt
which along with its reserves puts it in a better position to
weather the oil price drop than other producers.
But potential foreign investors complain about Algeria's
unfriendly business environment citing bureaucracy, arcane
banking, red tape and corruption as the main hurdles to
"It is key for the business climate to improve so that
foreign direct investment can come here," Benachenhou said.
"Better to have FDI (foreign direct investment) than to go for
(Reporting By Lamine Chikhi; Editing by Patrick Markey and