The  value  of  the  national  currency  will continue  to chain significant downward movements   from  2021,  reads  the   macroeconomic frameworks for the period 2021-2023.

Businesses and households should expect further depreciations of the dinar expected over the period 2021-2023. The downward trend, which began in mid-2014 and has been resumed since the beginning of the current year, continues unabated; the value of the national currency will continue to chain significant bearish movements from 2021, at a rate of 142.20 DA to the dollar on average next year, 149.31 dinars/dollar in 2022 and 156.78 dinars/dollar in 2023.

The value of the dinar will thus fall sharply against the greenback and should help, once again, if another one were needed, to cushion the effect of the fall in crude oil prices on the economy. This is a loss of about 16% compared to the current exchange rate of the dinar against the dollar.

The value of the dinar has depreciated by 71% compared to the exchange rate applied in mid-2014, when the price of Brent fell on the world market, penalized by an oversupply linked in part to the boom in the US shale industry.

At the end of 2023, the exchange rate of the dinar against the dollar will depreciate by 100% compared to the June 2014 average. Faced with the single currency, the dinar has suffered the same fate unscrewing by more than 32% from June 2014 to today. The dinar has been weakened indirectly by the effect of falling crude oil prices on the fundamentals of the economy. 

In other words, the dinar exchange rate has acted as a buffer against the effects of the external shock of mid-2014 on the economy and will have to continue to do so for at least the next three years given the deteriorating state of public finances.

In this tense fiscal context, an appreciation of the dinar against the main currencies could aggravate imbalances, putting the Central Bank at the forefront of these attempts to cushion the external shock.

The depreciation of the dinar during these years of low profitability of the barrel of Brent also served to increase the cost of imports and to increase, technically, the dinar-denominated revenues of oil taxation.

This depreciation, which began in mid-2014, resumed this year after an ephemeral stabilization of the exchange rate in 2019, was helped by low-threat inflation, reduced to its simplest expression following the disinflation operations carried out by banque d'Algé rie from 2013. 

Foreseeable depreciations
The new depreciations announced by the government in its fiscal frameworks for the period 2021-2023 were predictable to say the least, in the absence of sustained adjustment efforts likely to loosen the stranglehold on public finances.

The Bank of Algeria had written in its last economic note that the adjustment of the exchange rate "must not constitute the main, if not the only lever of macroeconomic adjustment".

"To be effective, it must accompany the effective implementation of other macroeconomic adjustment measures and policies, in particular fiscal adjustment, in order to restore macroeconomic balances in the long term, and structural reforms to establish an effective diversification of the economy and ultimately an increase in the domestic supply of goods and services," the Central Bank said in the same economic note.

The dinar has never been as weak as it has been since the last oil shock. Pessimistic projections of short-term oil price developments are expected to exacerbate the suffering of the national currency. In its latest forecasts, the International Monetary Fund (IMF) recommended a gradual depreciation of the dinar exchange rate.

Its sister institution, the World Bank, wrote in April that a depreciation of the exchange rate "could bring a new breath of fresh air." However, in its report monitoring the economic situation in Algeria, published yesterday, the Bretton Woods institution warns of a depreciation that would carry risks.

"The sharper depreciation of the dinar against the euro and the yuan than against the dollar will lead to a deterioration in Algeria's terms of trade and accelerate the depletion of reserves, because imports could rise faster than oil exports," the World Bank report reads.

That said, these important adjustments that the dinar has experienced in recent years are a false solution to the crisis that the country is going through; this one requiring a contrario fundamental budgetary adjustments and structural reforms of rupture.

The Central Bank has repeatedly made it clear that monetary solutions are short-lived and should by no means be the only lever for macroeconomic adjustment.