The value of the national currency will continue to make significant downward movements starting in 2021, according to 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 resumed since the beginning of the current year, is continuing; the value of the national currency will continue to show significant downward movements starting in 2021, at an average rate of 142.20 dinars/dollar next year, 149.31 dinars/dollar in 2022 and 156.78 dinars/dollar

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 prices on the economy. This is a loss of around 16% compared to the current exchange rate of the Dinar against the dollar.

The value of the Dinar 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 growth of the American shale industry.

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

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

In this tight budgetary context, an appreciation of the Dinar against the main trading currencies could worsen imbalances, which puts the Central Bank in the forefront of these attempts to cushion the external shock.

The depreciation of the Dinar during these years of low profitability of Brent oil was also used to raise the cost of imports and to increase, technically, dinar-denominated revenues from oil taxation.

This depreciation, which began in mid-2014, resumed this year after a temporary 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 the Bank of Algeria in 2013.

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

In its latest economic note, the Bank of Algeria wrote that the adjustment of the exchange rate “should not constitute the main, if not the only, lever for 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 on a sustainable basis, and structural reforms in order to establish effective diversification of the economy and ultimately an increase in the domestic supply of goods and services,” the Central Bank stressed in the same economic note.

The Dinar has never been as weak as it has been since the last oil crisis. The pessimistic projections about the evolution of oil prices in the short term 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 exchange rate of the

Its twin 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 warned of a depreciation that would bring risks.

“The stronger depreciation of the Dinar against the euro and the yuan than against the dollar will cause Algeria's terms of trade to deteriorate and accelerate the exhaustion of reserves, as imports could rise more rapidly than oil exports,” said the World Bank report.

That said, these major adjustments to the Dinar in recent years are a false solution to the crisis the country is going through; on the contrary, it requires fundamental budgetary adjustments and disruptive structural reforms.

The Central Bank has constantly pointed out that monetary solutions are of short duration and should by no means be the sole lever for macroeconomic adjustment.