Crisis shows Algeria needs to diversify economy:IMF

ALGIERS (Reuters) - Algeria's non-oil economy is seen growing 9 percent this year thanks to a strong grain harvest and public works programmes but the private sector is still too weak to take over fully as a growth engine, the IMF said.

The overall economy, dominated by oil and gas exports, is likely to grow by only 2 percent in 2009 due to a fall in output of hydrocarbons, the International Monetary Fund said at the end of a mission to the north African country.

Growth was 3 percent last year, according to IMF figures published in June. It forecasts 3.7 percent growth in 2010 when it expects the hydrocarbon sector to contribute positively for the first time in several years.

"The current international economic crisis underscores the need to diversify the economy, including a reduction in the fiscal dependence on hydrocarbon resources," the IMF said in a statement.

Algeria, an OPEC member and the world's number-four gas exporter, has drawn billions of dollars of investment in its energy sector but has few competitive manufacturers and unemployment is high, especially among the young.

The government has rolled out ambitious infrastructure upgrades and housing programmes to improve the economic climate and overcome a lingering national malaise that set in during a decade of civil conflict in the 1990s.

The IMF said Algeria should draw on money set aside in its National Stabilization Fund over years of high energy prices.

"The time has come to use these resources to finance the public investment programme, thereby driving growth in the non-hydrocarbon sector and preserving employment," it said.

It said the government should also refine the rules for spending state hydrocarbon revenue and should focus next year on controlling excess liquidity and inflationary pressure.