Mohammed Laksaci: Financial system developments in Algeria – resilience and risks in the face of the international financial crisis and its spillover effects Speech by Dr Mohammed Laksaci, Governor of the Bank of Algeria, at a Meeting with the Algerian Bankers Association, Algiers, 22 January 2009. *  *  *  Algeria’s strong macroeconomic performance over the past nine years and the gradual strengthening of the banking sector’s stability have contributed to establishing a relative resilience to external shocks. Key achievements include: •  sound management of international reserves (no investments in risky assets), paying due attention to the strategic objective of safeguarding asset portfolios against any loss of capital;  •  significantly reducing external debt, in 2005 and 2006, after strictly limiting external borrowing since early 2000. By end 2008, total medium and long term debt stood at only $ billion (less than 3% of GDP). Furthermore, banks’ external liabilities represent less than 1% of their total liabilities, and banks are required to deposit their end-of-day foreign exchange balances at the central bank which manages the country’s overall exchange position;  •  saving part of the fiscal revenue windfalls, with an annual budget saving averaging 23% of GDP during the period 2005-2008.
In this regard, a stress testing system, introduced in 2007, already contributes to better assessing banks’ risk management and evaluating adequacy of capital assets to potential risks. In view of the large number of foreign banks presently operating in Algeria, continued efforts are being made to develop bilateral cooperation on their supervision. In conclusion, prudent management of resources and continued strengthening of the financial and banking system stability allow Algeria to consider its medium term economic objectives with a relative confidence. However, the deepening of the international financial crisis and its drastic spillover effects on the world economy is already affecting the country through a number of channels, notably: •  a reduction in its savings capacity. The sharp decline in oil prices is drastically reducing hydrocarbon export receipts and consequently government’s savings capacity. A prolonged weakness of oil prices would inevitably erode the financial wealth accumulated in the stabilization fund with a correlative reduction in international reserves;  •  a reduction in the yields on the investment of international reserves, as a consequence of low interest rates in international markets. 2  BIS Review 21/2009