CAIRO, Nov 23 (Reuters) - The International Monetary Fund (IMF) said on Monday the Algeria economy is gradually recovering from COVID-19 and oil shocks in 2020, after its executive board concluded the 2021 Article IV consultations with the North African country. "The economy is projected to recover in 2021 and 2022, but the outlook remains uncertain and challenging," it said in a statement. After a contraction of 4.9% in 2020, Algeria"s real GDP grew by 2.3% year-on year in the first half of 2021 "driven by a rebound um hydrocarbon prices and production and the relaxation of containment measures", the IMF said. Also, the external current account balance improved "significantly" in the first six months of the year following "a marked deterioration" last year, it added. After conducting the first Article IV consultations with Algeria since 2018, the fund warned in October that the country risks unprecedented financing needs in the medium term if it continues to run high fiscal deficits, and urged big policy changes. A major oil and gas producer, Algeria has suffered years of shrinking energy revenue with both prices and output sliding since 2014, and it has made little progress diversifying its state-centred economy. Algeria has burned through most of its foreign currency reserves over the past seven years, though it has little public debt. "While a gradual recovery is underway, pre-pandemic vulnerabilities remain and risks to the economic outlook are on the downside," the IMF said on Monday. "In this context, (IMF) Directors called for a well-calibrated policy mix to support macroeconomic stability and promote sustainable, resilient and inclusive growth," it added. The government this year proposed a series of reforms aimed at confronting the challenge of falling energy revenue and a weak private sector. Reporting by Mahmoud Mourad; Editing by David Gregorio