Social Policy in Algeria: Sociopolitical Challenges and Economic Costs

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Since the outbreak of the COVID-19 pandemic and the severe socioeconomic impacts it had worldwide, social policy and the role of the state during crises have been brought to the forefront of the political, legal, and development debates. The pandemic exposed the free economies' limited capacities to face such crises, especially in mitigating the toll on the livelihood of the poorest and most vulnerable. However, in Algeria, the discussion about the state’s social policy was not solely driven by the pandemic, it was also triggered by the economic crisis which has intensified with the gradual fall in oil prices since  2014. Accounting for more than 95% of the state budget, oil prices reached less than $40 a barrel in 2021, thereby dropping Algeria’s foreign exchange reserves from $200 billion in 2012 to less than $40 billion in 2021. Despite the recovery in oil prices at the beginning of 2022, people’s purchasing power continued to decline due to severe worldwide inflation and the failure of consecutive economic programs to ensure the Algerian economy’s relative independence from the fluctuating and crisis-sensitive global market.

Following Covid-19, the international community and the Arab region shifted gears and called for further state intervention in the economy to protect vulnerable groups and the working classes whose jobs and livelihoods are in jeopardy. However, in Algeria, the debate took an entirely different direction, calling for reforms in the subsidy system by reducing the funds allocated for social welfare and replacing the current universal subsidy policies with state-led social assistance targeting the more deserving groups. Thus, at the end of each year, Algerian families await the publication of the general budget law or the complementary budget law mid-year (in July), where the government determines the size of state social policy commitments and the seriousness of its discourse on reforming the social subsidy system. Nonetheless, the process invariably concludes with two outcomes:

  1. Raised prices of certain subsidized commodities, such as energy and fuel, and increased fees on imported goods, which affects mainly the most vulnerable and those with fixed income due to the reduction of subsidies on these commodities.
  2. Introducing new taxes and fees on goods and services. In case of fuel price recovery or social unrest due to new taxes, the President of the Republic intervenes to cancel or suspend the taxes and fees imposed by his government.

The state discourse on reforming the subsidy system has been stalled for years, fluctuating with the rise and fall of fuel prices on the global market. This discourse subsides with the rise in fuel prices just to emerge again when fuel prices drop. Thus, the reforms are at a standstill – with no step forward, except to reduce subsidies on certain commodities. Why have successive governments in Algeria failed to reform the social subsidy system despite acknowledging its flaws and negative consequences? Why does the government abandon its social subsidy reform program as soon as fuel prices rise? What are the potential limits of reform and what are the obstacles that prevent its implementation? What are the hidden (and specifically political) functions the social subsidy system plays in Algeria?

Each of the following four papers will address one of these questions. The views offered do not completely align and they sometimes disagree on some details, but they all tackle the issue from various angles to allow readers the space to form their own opinion.

Nouri Dris’s paper, “Social Policy in Algeria: A Historical and Ideological Background”, starts from the assumption that the Algerian state’s social character is rooted in the historical circumstances surrounding its establishment, and that its continuity beyond pluralism and liberalism is greater than a political tool wielded by the authorities. Social subsidy is a pillar of the Algerian state’s political culture. It would be difficult for any political system – whether democratic or totalitarian, liberal or leftist – to completely abolish or reduce this form of social policy interventions. This is not to mention that the government cannot or would not use this issue as a political tool, especially given the crisis of political legitimacy that has haunted it since October 1988. Indeed, at the time, political pluralism was consecrated in the February 1989 Constitution, but without resulting in a real transfer of power.

In “Qualitative Elements for a Socio-political Approach to Algeria's Social Subsidy System,” ‪ Zaineddine Kharchi tries to establish several hypotheses to examine the issue of social subsidy policy from the perspective of political sociology, based on the “exaggerated public debate about these policies and procedures in Algeria from the economic and technical perspective, while neglecting the sociological dimension, and patently disregarding – in the media and academia – the political function of all subsidy measures and policies in the Algerian context.” He argues that, whether in Algeria or elsewhere, the social subsidy system cannot be tackled without considering the form of political power, the nature of the state and its political economy, and the prevailing economic model.  Kharchi affirms that as generous as the policy may be in Algeria and despite its gains, it can never conceal the political function it fulfills. This is a byproduct of the rentier Algerian economy and the current neo-patrimonial and clientelistic political system, which are characteristic of the political history of modern Algeria.

Based on a quantitative and qualitative analysis of financial statistics and data, banking expert Salah Boukenia, tries in his paper Algeria's Social Subsidy Policies: Financial Thresholds and Accounting Budgets” to show the difficulty of maintaining the social subsidy policy in its current form because of the structural distortions it inflicts on the Algerian economy – especially in terms of financial balances. He argues that a review and reform of the current subsidy system is imperative, but reform in itself will be confined by two elements: budgetary constraints and available fiscal ceilings. Bouqne'ah offers a set of proposals that could be implemented if the government is serious about reviewing the current subsidy system.

Hassan Hami points out that the government's annual rhetoric on reforming the social subsidy system while preserving the state’s social character has turned into a "recurrent and necessary phrase" in the political discourse, but has not been translated into any clear program of action. He argues that the current circumstances prevent the authorities from reviewing subsidy policies for several reasons, including the sensitivity of the issue amidst the current social and political conditions (the post-Hirak phase), as well as other technical difficulties in implementing a targeted social protection system. After reviewing the historical context of the social state in Algeria and its relationship to the rentier system and the structuring of social subsidies, he concludes that the current social subsidy system can only be reformed by shifting from the rentier and bureaucratic model entrenched in the economic sector to a competitive market model with clear plans rooted in data and deadlines – away from discretionary and populist measures.

On the whole, this publication seeks to engage with the discussion on social subsidies in Algeria by highlighting relevant knowledge-based as well as practical elements. We hope it will contribute to assisting public policies in Algeria to expand their thinking on this socially, politically, and economically costly issue.

The views represented in this paper are those of the author(s) and do not necessarily reflect the views of the Arab Reform Initiative, its staff, or its board.