Mohamed Loukal, Governor, Bank of Algeria (BoA): Viewpoint

Since the oil price drop in 2014, Algeria has faced the challenge of maintaining the essentials of its economic and social systems in the context of drying liquidity. Our strategy is to boost resilience against external shocks, with a key focus of 2017 being to stabilise the Algerian dinar. A flexible currency rate has enabled us to absorb the shock of the oil price drop. In July the country’s central bank, BoA, devalued the dinar by 20% against the US dollar, which remains our first line of defence. This measure was in line with prior actions taken, such as the Revenue Regulation Fund financing the deficits of 2014, 2015 and part of 2016, or the foreign exchange accumulation reserves, which are still above $100bn as of November 2017, and the accumulated foreign exchange reserves, which are still at a comfortable level.

Regarding the role of banks in financing the economy, we note that their capacities remain strong, with credit growth in 2017 staying at around 10%. The BoA has continuously supported this trend by reducing mandatory thresholds, suspending liquidity injection operations when necessary, as well as maintaining obligatory reserve rates. In addition, we are working on reactivating refinancing instruments through the rediscount rate, open market operations and marginal lending facility instruments that ensure monitoring of effective interest rates and liquidity management.

Non-conventional financing, which was born as a project in mid-November 2017, will enable the state to maintain its objectives in terms of infrastructure investments, social transfers and public services without borrowing capital from foreign financing markets. This will benefit from a very strict framework in order for the Treasury to finance both its debt and deficit without generating inflation. The Ministry of Finance (MoF) and the BoA own the tools to master any inflationary drift, and the two entities will use all the tools available to prevent any inflationary pressures to materialise.

Technically, the BoA will be able to grant bank overdrafts to the Treasury for a length of up to 240 days, consecutive or otherwise. These will be granted through a management commission that is fixed in agreement with the MoF. In addition, the BoA can grant the Treasury an exceptional advance to manage its external public deb of $3.96bn. A convention between the BoA, the Public Treasury, the Council on Money and Credit, and the president of the republic was responsible for devising the conditions for the use of these tools. In that regard, we issued significant modernisation measures in late 2017 to provide the currency inter-banking market with innovative risk coverage tools. To this end, important steps have been taken, including further developing the inter-bank currency market through the introduction of a forward segment.

As we work on these adjustments, our main objective remains to boost economic diversification. Strengthening tax revenue flows, rationalising public spending and gradually introducing structural reforms to ensure sustained and inclusive growth are at the top of the government’s agenda. The BoA is taking an active part in this process. To this end, we issued significant modernisation measures in late 2017 to provide the interbank currency market with innovative risk management tools.

Within a floating exchange rate system, these adjustments will offer economic operators and investors the opportunity to prevent risk to exchange rates in cases of transactions that involve both foreign currencies and the dinar. It will also enable licensed intermediaries to collect deposits in foreign currencies from customers and grant them loans in foreign currencies as well. In order to better control the balancing act between imports and internal demand while limiting overbilling, the BoA will request that importers proceed with banking domiciliation to better allocate foreign currency resources to import needs. Moving ahead, the BoA is strengthening its monetary policy to support growth, especially in non-hydrocarbon sectors and private market services, while at the same time fulfilling its mission of preserving both prices and public finances stabilities.