Algeria, one of the largest countries in North Africa, which maintains a large standing army and has significant energy potential, has long punched below its weight in international politics. However, since 2019, the country has sought to make a name for itself by increasing its diplomatic outreach, attracting foreign investment and increasing social spending at home.
None of this has come cheap. State spending has nearly doubled under President Abdelmadjid Tebboune, but the economy has not diversified enough to give the state new sources of revenue.
Backing down would jeopardise the government’s wider domestic and international agenda, so Algiers is instead turning to the 2027 draft budget to raise more non-hydrocarbon revenue. That means taking risks it has long avoided, while trying not to break the social contract it has rebuilt since the Hirak protest movement.
Drafting a budget
In early October, Algeria's Council of Ministers, chaired by Tebboune, officially adopted the $133 billion draft budget law for 2027. While this is slightly lower than the $135 billion budget for 2026, it is still nearly double the size of the state budgets before Tebboune's rise to the presidency.
In 2019, the year he became president, the Algerian state's budget stood at $70 billion. 2023 was the first year in which the budget surpassed $100 billion, with Tebboune significantly increasing it year on year.
Much of the new budget bill focuses on military spending, funding large infrastructure projects and social welfare allowances. Military spending has hovered around 18% of the state budget in recent years, standing at around $24 billion in 2027 and giving Algeria by far the largest defence budget in the Maghreb. In 2019, by comparison, military spending stood at around $10 billion.
Social transfers account for 35% of the upcoming budget, covering all government social spending, including $5 billion in subsidies for basic goods alone. A further 21% of the budget is allocated to public investment, focusing on projects such as railways, roads and public works. This reveals the state's increasing focus on improving quality of life in the post-Hirak era, with Tebboune also ordering a fourth round of salary increases in an effort to protect purchasing power.
The economy, however, has not diversified enough to pay for this new spending, leaving a projected deficit of around $64 billion in 2027. That is roughly 16% of GDP on the draft law’s own figures, a level few countries anywhere reach, with revenue covering barely half of expenditure. To bridge the gap, Tebboune’s government has turned to unconventional financing, borrowing via the Central Bank and issuing sovereign Islamic bonds to avoid high interest rates.
The draft law assumes inflation of 4%, growth of 4.2% and an oil price of $60 a barrel, a conservative benchmark that, with Brent now above $100 a barrel, gives Algiers some breathing room for as long as prices stay high.
While the current calculations underlying the budget appear to hold, potential issues lie ahead. The Central Bank underwent a change in leadership in September and has yet to announce the level of its foreign currency reserves. Vague presidential statements and an official IMF estimate have put reserves at around $46 billion for 2026, but this is the only estimate on which observers have been able to base their assessments.
New measures in search of revenues
The years of fiscal balance before Tebboune took office demonstrated the caution exercised by the Algerian state regarding spending and deficits. With recent budget increases, Algiers has been looking for ways to sustain this spending without allowing the deficit to spiral out of control.
