VZCZCXYZ0000
RR RUEHWEB

DE RUEHAS #1148/01 3621335
ZNR UUUUU ZZH
R 281335Z DEC 09
FM AMEMBASSY ALGIERS
TO RUEHC/SECSTATE WASHDC 8268
INFO RUCNMGH/MAGHREB COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS ALGIERS 001148 
 
SIPDIS 
 
DEPT FOR NEA/MAG 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ELAB PGOV AG
SUBJECT: ALGERIA'S 2010 DRAFT BUDGET 
 
REF: ALGIERS 842 
 
SUMMARY 
------- 
¶1. Algeria's 2010 draft budget, approved by the government 
and parliament, boosts public spending to 1 trillion Algerian 
dinars (about USD 14.1 billion, at the exchange rate of 71 
dinars to USD 1), or to more than 12 percent of GDP.  Falling 
oil prices have depressed revenues and will produce a large 
deficit, which will be covered by payments from a fund 
accumulated from previous budget surpluses.  A luxury tax on 
yachts and a tax on pharmaceutical importers will plus up the 
social security fund, while a tax on oil will finance a 
Renewable Energies Fund.  The budget shows a government 
preference to buy social peace with social spending and 
support for state companies rather than stimulating 
employment-creating private investment.  It also continues 
controversial restrictions on imports and foreign investment 
contained in the 2009 amended budget adopted last July.  The 
analysis below is based on press reports; the figures will 
not be public and final until publication in the Official 
Journal after President Bouteflika signs the bill. End 
summary 
 
ECONOMIC FRAMEWORK OF THE 2010 DRAFT BUDGET 
------------------------------------------- 
 
¶2. The economic background to the 2010 draft budget is the 
50-percent drop in exports, to USD 31.90 billion over the 
first nine months in 2009, compared to USD 62.37 billion 
during the same period in 2008. Imports increased by 1.12 
percent and totaled USD 29.79 billion for the first nine 
months in 2009, compared to USD 29.464 billion for the same 
period in 2008.  In defending the budget before parliament, 
the finance minister projected that Algeria's GDP growth 
would reach 4 percent, with 5.5 percent growth outside of the 
hydrocarbons sector in 2010. The estimated inflation rate 
would be 3.5 percent.  (Note:  Inflation for the first eleven 
months of 2009 has been 5.7 percent on an annualized basis. 
End note) 
 
¶3. The budget uses a USD 37 per barrel reference oil price to 
calculate government revenue.  The 2010 draft budget foresees 
3.081 trillion dinars (USD 43.4 billion) in revenue and 
expenditures of 5.860 trillion (USD 8.25 billion), compared 
to 3.178 trillion dinars in revenue and 5.428 trillion dinars 
in expenditures in the revised 2009 budget (the so-called 
Complementary Finance Law, decreed in July 2009 and ratified 
by parliament in September).  The 2.779Q)trillion-dinar 
deficit will be covered by the 4-trillion-dinar government 
stabilization fund, which was formed by past budget 
surpluses. 
 
¶4. Anticipating the increase of the minimum wage (announced 
December 2 following tripartite talks between government, 
employers, and unions) the operating budget increased to 
2.838 trillion dinars (compared to 2.593 trillion in the 2009 
supplemental budget).  That includes 2.525 trillion dinars 
for salaries for civil servants and other state employees and 
230 trillion dinars for the payment of family allowances and 
subsidies for municipalities. 
 
¶5. In comparison to the 2009 supplemental budget, the 
3.332-trillion-dinar capital budget has been increased by 7 
percent.  It breaks down as follows:  1.5 trillion dinars for 
infrastructure (construction of roads, railway network, 
ports, etc.); 1 trillion dinars for construction related to 
improving living standards (health infrastructure, housing 
and urban development, the water distribution network, gas 
and electricity distribution, improvement of public 
transportation, sports, culture, and environment); 190 
billion dinars for infrastructure related to training and 
scientific research; and 250 billion dinars to encourage job 
creation (within the framework of the National Youth 
Employment Fund, aid for agricultural investment, support for 
industrial investment by adding to the capital of the 
National Investment Fund, and a decrease in banking interest 
rates to encourage business creation and create more jobs). 
 
TAX MEASURES INCLUDED IN THE 2010 DRAFT BUDGET 
--------------------------------------------- - 
 
¶6. Simplifications to the tax system will create a flat tax 
("Impot forfaitaire unique") of 25 percent on the income of 
independent professionals and small enterprises with incomes 
between  5 and 10 million dinars.  This system replaces the 
previous progressive tax system that applied a sliding scale. 
 The flat rate tax will also apply to corporate incomes that 
exceed  5 million dinars. 
 
¶7. The final tax measure in the budget has new provisions for 
social protection, promotion of renewable energies, and 
reducing mortgage loan costs.  The state will take charge of 
the social security contributions (covering health insurance, 
pensions, and disability) of employees hired within the 
framework of the Professional Insertion Plan, which assists 
individuals in finding jobs.  Two new taxes will be 
instituted to plus up the National Social Security Fund:  a 
250,000-dinar tax on the sale of yachts, and a 5-percent tax 
on the profits of pharmaceutical importers and wholesale 
distributors.  The budget will create a National Renewable 
Energies Fund, financed by a 0.5 percent oil tax (it is not 
clear on which product or unit), and a fund to reduce 
mortgage loan interest.  Finally, there will be a  2-dinar 
tax on tobacco products (half goes to the social security 
fund and the rest to the National Solidarity Fund), and an 
increase from  500 to 3,000 dinars in fees for issuing 
residence cards to foreigners working in Algeria.  (Note: 
Established in September 2001, the National Solidarity Fund 
is a public entity that accepts voluntary contributions from 
citizens and companies in order to implement programs and 
projects for economically disadvantaged social groups.) 
 
BUDGET IMPACT ANALYSIS 
---------------------- 
 
¶8. The housing-related measure to push down mortgage rates 
was expected.  However, domestic economic experts doubt it 
will have much impact on Algeria's longstanding housing 
shortage and high housing prices.  However, real estate 
developers may benefit from the interest rate reduction in 
the construction of public housing projects. 
 
¶9. In their aim to boost investments by "strategic" public 
companies, the GOA has allocated a portion of the 2009 budget 
for debt relief for public enterprises in financial 
difficulty.  This money, whose amount remains unspecified, 
will also be used to fund the creation of 13 new companies by 
the Ministry of Industry and Investment Promotion. 
 
¶10. The 2009 revised budget (Complementary Finance Law) 
contained several tax measures to encourage the growth of 
small- and medium-sized enterprises (SMEs), the development 
of the agricultural and tourism sectors, and domestic job 
creation programs (reftel).  The 2010 budget retains all 
these measures.  It also retains the provision making the 
letter of credit the only legal instrument to pay for 
imports, as well as the provision requiring 51-percent 
Algerian ownership of any new foreign investment (reftel). 
However, the December 2 tripartite negotiations agreed to 
establish a commission to examine possible modifications to 
the letter of credit requirement.  Several Embassy business 
contacts say this requirement is slowly strangling their 
enterprises, since they must now pay for imports up front, 
but often wait up to 24 months for payment for goods and 
services they provide for the Algerian market. 
 
¶11. The increase in the minimum wage from 12,000 to 15,000 
dinars, agreed to in tripartite negotiations December 2, 
becomes effective January 1 and will directly affect 
200,000-300,000 employees.  Autonomous trade unions, which 
were not included in the tripartite talks, complained that 
the increase is inadequate in the face of inflation 
(estimated at 5.5-5.7 percent) and that the increase will not 
help the great majority of workers, who earn more than the 
new minimum wage.  The wage rise could well provoke higher 
inflation, as the increased demand for consumer goods from 
higher wages will collide with the 2009 budget measures 
designed to reduce imports (reftel).  This could lead to 
inflation exceeding the 3.5 percent predicted by the Minister 
of Finance during 2010. 
 
FINAL STEPS 
---------- 
 
¶12. On December 16, the Algerian Senate passed the 2010 
Finance Law, after the lower chamber did so in November. 
President Bouteflika has the authority to change provisions 
in the law but will not likely do so.  He is expected to 
approve it before December 31, at which time the full text 
(including exact figures) of the 2010 budget will be 
published in the Official Journal. 
JORDAN