Algeria will introduce Islamic financial services before 2018 as a way to cope with its financial crisis, announced Prime Minister Ahmed Ouyahia on Thursday. The services will be available at two state banks before the end of the year. Four others will adopt the measures in 2018. he added.
The first sukuk, or Islamic bond, will also be adopted in 2018 as Algeria seeks new funding sources after a fall in energy earnings hit state finances, Ouyahia told parliament. The steps are part of wider reforms planned by the government after the OPEC member’s finances were hit by the more-than-50-percent drop in crude oil prices since mid-2014.
The North African country had rejected sharia-based financing options in the 1990s. But financial difficulties have prompted the government to speed up implementation of long-delayed reforms aimed at weaning the economy off its reliance on oil. “This will help us cope with the situation,” Ouyahia told parliament, referring to the plan to sell sukuk, which he said would be in the finance law for 2018. He gave no details.
Algerian firms rely heavily on state spending, which in turn depends on the hydrocarbons sector, with oil and gas exports accounting for 60 percent of the state budget and 95 percent of total sales abroad. The government also aims to modernize the stock market, which is now smaller than those in neighboring Morocco and Tunisia and has a very low level of liquidity.
The measures follow public spending cuts and new taxes on some subsidized products including electricity, gasoline and diesel. But Ouyhia said subsidies for basic products will be maintained for now, pending the launch of talks with political parties and civil society. “We are still studying how to rationalize subsidies,” he said.
Ouyahia’s return to the premiership was met with skepticism in Algeria. He had already served four terms since 1995. He is usually the man the country turns to in times of crisis and after the role of the presidency has been left idle after the chronic illness of President Abdelaziz Bouteflika, who has been away from political life for years.
Ouyahia came under fire from the opposition when he spoke of Algeria’s “gloomy financial and economic future”. The opposition asked him about the fate of some 1 billion dollars the state had earned from oil revenues between 2000 and 2014. They wondered why Bouteflika’s subsequent governments did not employ these funds to achieve economic growth.
Ouyahia said the funds went to building schools and hospitals, paving roads and improving electricity supplies in distant regions. His claims were however rejected by lawmakers and the Algerian people, who condemned his statements on social media and said that officials abused the funds for their own personal gain.