Algeria entered the 21st century under a cloud of economic uncertainty. For much of the century, state control of the economy and the government's experiment with socialism has left the economy in shambles. The economic reform program waged in the early 1990s has set the stage for partial economic recovery, however. Some progress has been achieved in terms of improving transparency, cutting budget expenditures, updating legislation, and liberalizing the telecommunications market. Wide-ranging structural reforms have also been achieved.
The pace of Algeria's economic reform program, however, has been rather slow. Despite major reform efforts, the public sector continues to be a major force in the economy. Long-term challenges include servicing the country's huge external debt, further privatizing state-owned enterprises, and attracting foreign investment. More importantly, the government is faced with the daunting challenge of improving living standards, which have steadily declined over the last few decades, and creating new job prospects for Algeria's youth, who account for over 50 percent of the population. If left unresolved, the problem of unemployment in particular may potentially become a renewed source of political instability and a credible challenge to the regime. Much work is also needed on the political front. The government will have to improve the unstable security situation in the country to attract foreign investments. To that end, it has to find a way to end the cycle of violence waged by Islamic insurgents since 1991, which has become a major obstacle to foreign investments and economic recovery.