Daniel Prinz

Driven by investment, Algeria’s non-hydrocarbon growth remained dynamic in 2024, while inflation eased. Pressure mounts on fiscal and external balances amid shrinking hydrocarbon exports, robust imports and surging public spending, heightening exposure to volatile oil markets. Continued private-sector-led diversification and public sector modernization, along with gradual fiscal rebalancing, are essential to sustainable, job-creating growth.

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In most countries, social security benefits depend on an individual's earnings history. This contribution-benefit link creates a trade-off between the incentive to report higher earnings to increase the amount of future benefits and the incentive to report lower earnings to decrease the amount of taxes owed. This trade-off is important for both the design of social security systems and approaches to combating tax evasion and encouraging formalization. In this blog, based on our recent working paper we highlight that the design of maternity benefits in Hungary creates incentives for women to report higher earnings and formalize their employment during pregnancy. Prior to pregnancy, many women in Hungary—especially those working in small, domestic, and less-productive firms—underreport earnings. However, during pregnancy, reported earnings increase, particularly in response to a policy change that incentivized reporting higher earnings during pregnancy by moving the earnings reference period to coincide with pregnancy and shortening it.

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During the first half of 2024, robust economic growth continued, supported by non-extractive sectors and dynamic investment. Inflation decelerated markedly in H1-2024 as fresh food prices stabilized, import prices moderated, and the exchange rate remained stable. Lower hydrocarbon exports, combined with higher imports and rising public spending, brought the current account back to balance and increased the fiscal deficit. Growth is expected to slow moderately in 2024, due to stable hydrocarbon output, while fiscal and external financing needs would expand. A recovery in hydrocarbon output would support a rebound in growth in 2025, and hydrocarbon export revenues would rise. Algeria's non-hydrocarbon export growth potential is significant. Productivity growth and a framework of conducive macroeconomic and microeconomic policies are key to boosting exports. Adapting to global decarbonization efforts is also essential to a sustainable export growth strategy.

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Algeria’s growth remained dynamic, and inflation decelerated in early 2024, amid OPEC quota reductions but resilient agricultural output, higher public spending, and strong investment. Declining oil and gas exports and revenues and higher public spending on wages, pension, and subsidies are expected to increase pressures on the fiscal and external balances. Continued modernization of the public sector, improvements to the business environment, and digitalization are critical to diversify the economy and promote more private sector investment and jobs.

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Algeria’s growth was robust in 2023, and inflation started to decelerate. GDP growth accelerated to 4.1 percent, supported by hydrocarbon sector growth, as natural gas production compensated for successive crude oil production quota cuts. Non-extractive GDP growth reached 3.7 percent as investment growth accelerated, supported by a marked recovery in public investment, and leading to a surge in imports. Private consumption remained dynamic, stimulated by growing public sector wages, and pulling sectors serving households. Inflation remained at 9.3 percent over 2023 but moderated to 5.0 percent year-on-year in the first quarter of 2024, amidst a sustained decline in fresh food prices, a strong dinar, and lower import prices. Continuing to strengthen data systems would support investment and public policymaking. In 2023 and 2024, digitalization efforts accelerated, as did efforts from the Bank of Algeria and ONS to strengthen their publications, with notably the first GDP rebasing. The alternative data sources used in this report, such as satellite data on crop development or nighttime lights, represent a useful complement to conventional economic and social statistics. Yet, improving the availability, granularity, and timeliness of official economic data, most notably relating to activity, investment, and the labor market, remains of utmost importance. Enhanced data systems would support the authorities’ pivot towards performance-based budgeting and support evidence-based policymaking. They would also provide accurate and exhaustive economic data to researchers and analysts, potential domestic and international investors, alleviating economic uncertainty and fostering investment.

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Algeria’s growth remained robust in 2023 and, although lower hydrocarbon prices narrowed the current account surplus from its 2022 peak, the rebuilding of official reserves continued. Lower hydrocarbon budget revenues put pressure on the fiscal deficit as the increase in public sector wages continued amid high inflation. With high imports and rigid public spending exposing Algeria to global oil market risk, diversifying the economy, enabling private sector investment, and strengthening the macroeconomic policy framework remain key development priorities. 

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Algeria’s GDP recovered to its pre-pandemic level in 2022, while high oil and gas prices allowed for marked improvements in its external and fiscal balances. The recovery continued during the first half of 2023, albeit at a slower pace, supported by nonhydrocarbon activity and investment. Oil and natural gas prices and exports declined in H1–2023, adding pressure on external and fiscal balances. Inflation remained elevated, reaching 9.7 percent in H1–2023, now driven by fresh food prices, mostly produced domestically. Growth is expected to recover in 2024 and 2025, while the fiscal and external balances would stabilize after an initial drop. The macroeconomic outlook hinges on volatile hydrocarbon prices, and the regional context underscores the reality of the climate risks to which Algeria is also exposed. These risks underscore the importance of sustainably improving macroeconomic balances, while continuing efforts to foster private sector-led investment, growth, and diversification.

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Despite continued nonhydrocarbon dynamism, Algeria’s GDP growth moderated in early 2023, while high inflation persisted. Recent swings in oil and gas prices highlight the challenges that hydrocarbon dependence poses for macroeconomic stability. Amid declining oil and gas export prices, the current account surplus is shrinking after peaking in 2022, and the fiscal deficit is expected to widen. Priority reforms include strengthening the macroeconomic policy framework, opening more space for the private sector, and improving public service delivery.

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Market concentration has increased over recent decades in many industries in the United States. Increased product market concentration can hurt consumers via higher prices, while increased labor market concentration can lower wages for workers. At the same time, firms often argue that mergers can increase efficiency and allow them to deliver cheaper products, increasing consumer welfare. Part of this increased efficiency may come from more efficient organization of their workforces. How these effects play out is ultimately an empirical question with important implications for both competition and labor market policies. In a recent paper, we examine the impact of firm takeovers on their employees’ labor market outcomes using comprehensive information on all firm takeovers in the Netherlands from 2011-2015 combined with detailed administrative data. We find that the workers of the firms that are taken over are negatively impacted: some of them lose their jobs and their earnings don’t recover for several years. However, our analysis suggests that these negative consequences are more likely to be driven by the restructuring of the labor forces of these firms than by increases in market power. 

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The objective of this Public Expenditure Review (PER) is to help the government identify means for improving the structure and quality of public services, enhance the equity of government spending, and take a holistic view of policies that will affect financing needs over time. To do so, the PER has analyzed fiscal issues that have not been explicitly detailed in, or are in the process of being incorporated into, the medium-term expenditure framework and the economic reform program. The most notable issues include the urgently needed energy investments, the ramifications of the new law on public salaries on the budget, the sustainability of the untargeted social protection system, and possible pathways of the cost of pensions in light of expected changes to eligibility criteria, and the health spending and health financing conundrum. The PER also looks back at past World Bank PER recommendations and their implementation record, in the attempt to shine a light on measures that remain valid and could still be implemented.

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Increasing corporate market power and merger and acquisition activity represent an important phenomenon in many countries. These activities have far-reaching implications for macroeconomics, competition policy and labor markets for both advanced economies and emerging markets. Although most research and policy discussions focus on the impact of mergers and acquisitions on competition and consumer welfare in product markets, firm consolidations can also be consequential for workers. Understanding the short- and long-term impacts of consolidations on worker outcomes is important for effective regulation of consolidations and the design of labor market, social insurance, and safety net policies. In our recent study, we examined the consequences of firm takeovers using comprehensive administrative data from the Netherlands. We found that the workers of companies acquired by other firms are more likely to lose their jobs and experience longer-term negative consequences for their earnings in the labor market and overall income . These negative consequences are pervasive across many types of workers, firms, and takeovers and appear to be driven by the restructuring of firms’ labor forces, rather than by changes in the structure of local labor markets or product markets.

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The purpose of this note is to provide policy makers with an overview of relevant issues and feasible policy choices in setting tobacco excise taxes, with a specific focus on how tobacco excises impact factors such as growth and domestic demand for tobacco leaf

Knowledge Note

Boosted by the mining sector, Namibia’s economy expanded by 3.5 percent in 2022. In 2023, the economic recovery is expected to continue at a slower pace amid negative spillovers from Russia’s invasion of Ukraine and uncertainty about commodity prices. Planned investments in green hydrogen and mining could boost growth in the coming years. The population living on less than US$2.15 per day is estimated at 19 percent for 2023.

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One way that policy makers try to limit DI take-up and incentivize work is setting earnings limits: if a beneficiary earns above a certain level, she loses part or all of her benefits. Earnings limits are meant to ensure that only workers who are unable to earn above a certain level will apply for benefits, while potential applicants with higher working capacity will find it more advantageous to forego benefits and remain employed instead. Benefit designs based on a cash-cliff, where workers lose all their benefits if they earn above a threshold, essentially assume that if an applicant can earn more than the threshold amount in the labor market, they do not need to receive any DI benefits. Policy makers and researchers have recognized that cash-cliff style earnings limits create strong work disincentives and have potentially negative welfare impacts.  Alternative policy approaches adopted in other countries avoid a notch in the benefit schedule by introducing a gradual phaseout of benefits above an earnings threshold. But even under these policy designs, the implicit tax rate may still inefficiently distort labor supply. Our recent study provides evidence on the impact of decreasing the earnings limit for moderately disabled individuals in Hungary, who selects to participate in the DI program and how much they work once they start receiving benefits.

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The purpose of this note is to provide policy makers an overview of relevant issues and feasible policy choices in setting health taxes, with a specific focus on taxing tobacco, alcoholic drinks, and sugar-sweetened beverages (SSBs) in the context of rising inflation.

Knowledge Note

The purpose of this note is to provide policy makers an overview of an economic framework for setting health taxes, with a specific focus on taxing tobacco, alcoholic drinks, and sugar-sweetened beverages (SSBs).

Knowledge Note

Payroll taxes and employer social security contributions account for just under 40 percent of the tax wedge—the difference between before-tax and after-tax wages—in developed countries. Their importance is also increasing in developing countries but there is still untapped potential for revenue-raising efforts. There is a longstanding interest in understanding the impact of payroll tax policies on employment and wages. The standard approach in public finance suggests that the market-level responsiveness of labor supply and demand determine the employment and wage impacts and the incidence of payroll taxes. This approach typically assumes that firms passively accept market-level wages and so the incidence of the payroll tax will be homogeneous across firms and workers. Nevertheless, a growing number of studies highlight the role of firms in wage determination. This suggests that the incidence of tax policies can also vary between different firm types, which influences their welfare implications. Our recent study provides evidence that firms play an important role in the impact of payroll taxes on their workers and that different firms respond differently to payroll tax cuts. 

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Firm consolidations can have long-lasting impacts on workers' labour market outcomes. This column examines the consequences of firm takeovers for workers in the Netherlands. The results show that workers of firms targeted by takeovers experience heightened job loss, as well as reductions in employment and income. Takeover-induced job loss is driven by labour restructuring at consolidating firms. Over-placed workers who are paid more than expected based on their human capital and duplicative workers who have skills similar to the workers of the acquiring firm are especially impacted.

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Understanding, estimating and reporting on tax expenditures is an important exercise in public financial management. Tax expenditures – cases in which the tax liability of an individual, a firm or other entity is reduced below the liability under a benchmark tax system – use limited public financial resources. Ethiopia, like other countries, incurs significant tax expenditures each year. To understand whether these tax expenditures serve the government’s development agenda, tax expenditures must first be measured. This report uses shipment-level microdata from the Ethiopian Customs Commission to estimate import tax expenditures for fiscal years 2018/19, 2019/20 and 2020/21. It covers the four taxes levied on imports: customs duty, excise duty, VAT and surtax.

Report

Given the massive impact of the COVID-19 pandemic on public finances globally, it is little surprise that the IMF’s October 2021 forecasts of debt and debt servicing costs in sub-Saharan Africa are substantially higher than was projected in October 2019 (Figure 1). Many countries in sub-Saharan Africa may need to impose fiscal consolidation measures to enhance the sustainability of their public finances even before their economies have fully recovered from the pandemic. The need for higher public revenues is an opportunity for countries to make their tax systems more efficient and equitable, particularly through well-designed green taxes, property taxes and rationalised tax expenditures. Getting these reforms right will be essential to ensure they do not slow the recovery and that they are socially and politically acceptable.

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Carbon taxes have a number of desirable features for developing country governments. They would provide a price signal which would incentivise more sustainable investments, and would also raise tax revenues which are much-needed in many contexts. Crucially, these revenues would be administratively feasible to collect, and unlike in high-income countries, carbon taxes would be progressive too. Nonetheless, policymakers also need to grapple with risks that are more specific to developing economies, including more limited options for redistribution to compensate households and the possibility of substitution to traditional fuel sources that also bring environmental costs.

Observation

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Taxes can be used to better align the private costs and benefits of motoring with the social costs and benefits. This report sets out some key issues and policy options for ‘green’ motor taxes in SSA. It provides an overview of the principles of motor taxation, describes the policy context in SSA, and discusses the potential for policy options that could improve existing tax systems in the region.

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IFS Report R197 | Presentation Video | Twitter Thread

Since Spring 2020, the COVID-19 pandemic has had significant impacts on the public finances of both developed and developing countries. Falls in revenues and increases in public expenditure have pushed up deficits and debts, posing a particular challenge for many countries in sub-Saharan Africa (SSA). After the debt relief of the 2000s, the 2010s saw public debt and debt-servicing costs grow substantially across the region, with the fiscal situation looking increasingly unsustainable in some countries even prior to the pandemic. This difficult context may be one reason why the scale of discretionary tax and spending policy measures undertaken in response to the pandemic has generally been much smaller than in high-income countries. This report sets out the trends and forecasts for budget deficits, debts and debt-servicing costs in SSA, and provides an overview of the issues and options for potential post-COVID-19 fiscal consolidation efforts.

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IFS Report R193 | Presentation Video | OECD Development Matters Blog | Twitter Thread 1 | Twitter Thread 2

The early labor market impacts of the COVID-19 pandemic resulted in widespread disruption to livelihoods. Previous analysis showed that between April and July 2020, across a sample of 39 countries, an average of 34 percent of workers stopped work, 20 percent of employees experienced partial or no payments for work performed, and 9 percent changed jobs during the early part of the pandemic. This brief discusses how labor markets have evolved since the initial phase of the crisis in the spring and early summer of 2020. It uses harmonized data from high-frequency phone surveys (HFPS) conducted in 33 developing countries and provides information on the changing labor market impacts of the crisis in these countries from the initial phase of the pandemic in April 2020 through December 2020. 

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World Bank JobsWatch Covid-19 Brief | World Bank Jobs Group Blog | World Bank Covid-19 High-Frequency Monitoring Dashboard

The economic crisis caused by the COVID-19 pandemic sharply reduced mobility and economic activity, disrupting the lives of people around the globe. This brief presents estimates on the crisis’ impact on labor markets in 39 countries based on high-frequency phone survey (HFPS) data collected between April and July 2020. Workers in these countries experienced severe labor market disruptions following the COVID-19 outbreak. 34 percent of respondents reported stopping work, 20 percent of wage workers reported lack of payment for work performed, 9 percent reported job changes due to the pandemic, and 62 percent reported income loss in their household. Measures of work stoppage and income loss in the HFPS are generally consistent with GDP growth projections in Latin America and the Caribbean but not in Sub-Saharan Africa, indicating that the phone survey data contributes valuable new information about the impacts of the crisis. Ensuring availability of such critical data in the future will require investments into statistical and physical infrastructure as well as human capital to set up Emergency Observatories, which can rapidly deploy phone surveys to inform decision makers.

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World Bank JobsWatch Covid-19 Brief | World Bank Jobs Group Blog | World Bank Covid-19 High-Frequency Monitoring Dashboard

There is much debate, and nowhere more than in the US, about whether public services such as healthcare should be provided by private companies, which may offer greater efficiencies but which are more susceptible to moral hazard and adverse selection of consumers. This column uses evidence from a provision change in Texas to show that contracting healthcare provision out to private companies increased the level of care patients received, but increased overall costs for the government.

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With so much attention in recent months on potential changes to the ACA’s provisions for Medicaid and consumer subsidies, it is easy to overlook some of the most important innovations introduced into the individual markets by the ACA: risk adjustment and reinsurance. The functioning of risk adjustment and reinsurance are un-sexy, behind the scenes, technical matters, but these regulations are crucial to protecting consumers with pre-existing conditions in a competitive insurance market. Premium discrimination and guaranteed renewability tend to attract the most popular attention in terms of non-discrimination, but enforcing a policy of non-discrimination against the chronically ill would be difficult or impossible without risk adjustment.

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