Algeria's economic policy may accelerate inflation: IMF
ALGIERS (Reuters) - OPEC member Algeria's decision to turn to monetary financing to cut budget deficits could cause higher inflation as its non-oil sector remains weak, the International Monetary Fund (IMF) said.
Algeria late last year approved a law allowing the central bank to lend directly to the public treasury to overcome deficits after a fall in energy earnings.
The North African country relies heavily on oil and gas, which account for about 94 percent of total exports and 60 percent of the state budget.
"If not adequately sterilized, the increased liquidity would raise perceived or actual nominal wealth and stimulate demand, causing prices to rise in the short term due to insufficient domestic supply or saving opportunities," the IMF said in a report.
The government has imposed import restrictions for some goods including foodstuffs and home appliances as part of measures to cut spending and offset the fall in energy revenue since 2014.
"The government may then need to further resort to monetary financing in the subsequent years, which would risk plunging the economy into an inflationary spiral," the report said.
Algeria's inflation declined to 5.6 percent in 2017 from 6.4 percent the previous year, according to the government.
(Reporting by Hamid Ould Ahmed; Editing by Ulf Laessing)
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