Algeria is pursuing a social policy based primarily on broad and direct support for most consumer and service items, starting from energy products and sectors directly related to them, such as transportation and electricity, to water and basic food products, in order to reduce burdens and support the purchasing power of a wide segment of Algerians, in light of the low value of salaries, the fluctuation of the value of the national currency against foreign currencies, as well as rising prices as inflation levels continue to rise. But it appears that government support directed to these goods and services, which has burdened the public treasury for many decades, without anyone noticing them, today constitutes one of the basic pillars of stability and social development.
Speaking of fuel subsidies, with the recent “sudden” increases in several energy products such as gasoline, diesel, and sergas, which sparked a wave of controversy in the Algerian street, it was expected that the level of direct and indirect social support for energy in Algeria (gas, electricity, oil derivatives..), would reach 7.6 trillion Algerian dinars, by the end of the year 2023, representing 55.54 billion US dollars, an expenditure equivalent to 22.58% of the national gross domestic product, according to the government’s general policy statement.
The comprehensive (random) public support in Algeria constitutes additional burdens on the government and the public treasury, despite its adoption of trends aimed at reducing domestic consumption and replacing traditional sources of “natural gas” with available alternatives in renewable energies and green hydrogen.
Water, electricity and gas support
Regarding subsidies for water, electricity, and natural gas, a cubic meter of desalinated water in Algeria, a kilowatt-hour of electricity, and a cubic meter of natural gas are sold in Algeria at prices much lower than their actual cost. What may seem economically inconsequential, in fact constitutes one of the main foundations of the state’s social policy. It is an approved policy, created to protect purchasing power, but its true cost remains invisible to the citizen. Producing water costs a lot of money at a price of a few dinars, consuming electricity that is billed at only about 25% of its real price, or using subsidized gas is considered an established social right, but financing it constitutes a heavy burden on the state’s public finances.
Regarding the cost of desalinated water, the President of the Republic, Abdelmadjid Tebboune, stated in a speech to members of both chambers of Parliament last Wednesday that the cost of a cubic meter of desalinated water amounts to $1.5, which means that producing 1.5 million cubic meters per day costs the state $2.25 million. However, the consumer pays only a small portion of these amounts. When investment, energy, processing and distribution costs are added, the cost of production far exceeds the small amounts billed to households. This huge difference is entirely borne by the state, and is considered one of the pillars of social policy in our country.
In addition to desalinated water, electricity and natural gas also benefit from significant government subsidies, making the prices billed to households much lower than their actual production costs. At the domestic market level, the price of electricity for households is around US$0.04 per kWh, which is well below the global average and well below the prices of many neighboring countries. This difference reflects an implicit subsidy that makes the Algerian consumer pay only about 25% of the real value of his consumption, while the rest is borne by the state.
As for natural gas, citizens pay prices that are much lower than what would be the case if Sonatrach and the state sought to cover all costs of extraction, processing and distribution, let alone if they sought to emulate international prices. Available figures, although extracted from industrial studies and not official data, indicate that the cost of the 50 billion cubic meters consumed annually in the local market is estimated at about $6 billion. The difference between this cost and the price paid by the consumer is so large that calculating this difference may seem worthless, given the amount of government support it shows.
An expected deficit of $40 billion in 2026
This gap between the true cost and the price paid by the consumer is not just a statistic; it has been shaping the structure of the Algerian economy for decades. It has supported purchasing power in the most difficult social circumstances. Therefore, water, electricity and gas are considered the pillars of public support. However, this support policy directly affects public finances, influencing operators’ work and infrastructure investment decisions.
Algeria recently adopted the budget law for 2026, which was described as “historic” after financial allocations amounted to more than 135 billion dollars, despite the criticism it faced, especially regarding the size of the declared deficit, and the government’s bet on internal borrowing to finance it, amid continuous fluctuations in fuel prices, which represent the main resource for the public treasury.
While the law gave positive signals in the context of improving social and economic conditions, especially in the areas of raising wages and continuing support for consumer goods and investment, the project expected a deficit of up to $40 billion in 2026, equivalent to 12.4 percent of the gross domestic product, which the law suggested would rise to about $323 billion, while expectations indicate a gross domestic product outside fuels of about $280 billion.
In the face of a wave of criticism faced by the government, Finance Minister Abdelkarim Bouzard defended the content of the project by saying that the deficit, estimated at about 5 thousand billion dinars, or about 38.335 billion dollars, will be financed through internal borrowing (printing money) without a significant impact on prices or inflation rates, explaining that the total internal debt amounts to 18 thousand billion dinars, equivalent to 138 billion dollars, and this size remains under control, because the majority of it results from the treasury’s financing of the deficit. My budgets and major public projects.
Abdo.H
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