The hydrocarbons sector is the backbone of the Algerian economy, accounting for roughly 60% of budget revenues, nearly 40% of GDP, and over 95% of export earnings. Algeria has the fifth-largest reserves of natural gas in the world and is the second-largest gas exporter; it ranks 14th for oil reserves. Its key oil and gas customers are Italy, Spain, France, and the United States. U.S. companies have played a major role in developing Algeria's oil and gas sector; of the $2.5 billion in U.S. investment in Algeria, the vast bulk is in the petroleum sector.

Faced with declining oil revenues and high-debt interest payments at the beginning of the 1990s, Algeria implemented a stringent macroeconomic stabilization program and rescheduled its Paris Club debt in the mid-1990s. The macroeconomic program has been particularly successful, reducing inflation to between 1.4 to 2% and narrowing the budget deficit. Algeria's economy has grown at about 4% annually since 1999 and is expected to reach growth of over 6% in 2003. The country's foreign debt has fallen from a high of $28 billion in 1999 to $23 billion in 2002, and the 2003 estimated level of $22 billion. The spike in oil prices in 1999-2000 and the government's tight fiscal policy and conservative budgeting of oil prices from 2000 to present, as well as a large increase in the trade surplus and the near tripling of foreign exchange reserves has helped the country's finances. The government pledges to continue its efforts to diversify the economy by attracting foreign and domestic investment outside the energy sector. However, it has thus far had little success in reducing high unemployment, officially estimated at 30%, and improving living standards.

Priority areas are banking and judicial reform, improving the investment environment, partial or complete privatization of state enterprises, and reducing government bureaucracy. The government has announced plans to sell off state enterprises: sales of a national cement factory and steel plant have been completed and other industries are up for offer. The government also has begun to partially privatize certain sectors of the economy and embrace joint venture investment opportunities with traditionally state owned and operated entities. In 2001, Algeria signed an Association Agreement with the European Union; it has started accession negotiations for entry into the World Trade Organization.