External Debt and Payments

External Debt and Payments

Another area of financial concern related to Algeria's external debt and debt-service payments. The country's substantial debt dated back to the 1970s, when the government borrowed heavily to finance development projects and meet rising consumer needs. When the debt mounted to US$16.9 billion in 1980, Benjedid decided to limit borrowing to DA50 million a year, which reduced the debt steadily until 1984. Because payments came under pressure starting in 1985, however, the debt-service ratio more than doubled between 1985 and 1988, increasing from 35 percent to 80 percent. Amortization payments increased by 38 percent until they reached US$6.2 billion in 1990. In spite of falling oil production and prices, the government managed to avoid debt rescheduling by cleverly obtaining soft finance and trade credits.

By the end of 1990, the country's external debt slightly exceeded US$26 billion, of which almost US$2 billion was in short-term loans. To reduce the debt-servicing burden, the government subsequently concentrated on obtaining medium- and long-term loans to repay its financial obligations as soon as they became due. Also, to augment its efforts to obtain more concessional financing, such as bilateral lines of credit, the government has discouraged importers from borrowing from suppliers; such loans are usually of short duration and hence are more expensive than long-term lines of credit. Countries that have bilateral credit lines with Algeria include Belgium, France, Italy, Japan, and Spain.

Algeria viewed debt rescheduling as a politically unacceptable step. The government was obliged, however, to make another politically unpopular move in 1991, by reaching a standby agreement with the International Monetary Fund. The FLN had always opposed such a move as an encroachment on sovereignty. The IMF standby agreement, however, had a positive effect on creditors and potential donors, including the World Bank, which decided to grant Algeria a US$300 million structural adjustment loan. The European Community also agreed in 1991 to provide a loan worth US$470 million. A year earlier, the Banque Nationale de Paris (BNP) had provided a seven-year loan of 1 billion French francs to be used in converting short-term borrowing into longer-term loans. Another positive sign was Algeria's apparent determination not to miss debt-service payments despite a debt service exceeding US$7 billion in 1991.


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