Buoyant Capital Spending and Worries over Real Appreciation: Cold Facts from Algeria

Author/Editor: Loko, Boileau ; Kpodar, Kangni ; Diallo, Oumar
Publication Date: December 01, 2007
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
Summary: The Government of Algeria has pursed a relatively expansionary fiscal policy in recent years, thanks to rising oil prices and revenues. The paper explores the potential effects of such a stance on real exchange rate and uncovers a relatively small appreciating effect of increased government capital expenditure. This is explained by the fact that a significant share of capital spending falls into tradable imported goods. However, the envisaged increase in capital spending, if well designed and implemented, might in the long-run translate into rising operations and maintenance expenditure-mostly nontradable goods-thereby causing a higher real appreciation. This implies that Algeria should carefully consider the implications of its public investment program on recurrent expenditure.
Series: Working Paper No. 07/286
Subject(s): Government expenditures | Algeria | Oil | Real effective exchange rates

Author's Keyword(s): Government capital expenditure | real exchange rate | oil
Publication Date: December 01, 2007
Format: Paper
Stock No: WPIEA2007286 Pages: 21
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