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

Kangni Kpodar (1) , Boileau Loko (1) , Oumar Diallo (1)

1 CERDI - Centre d'Études et de Recherches sur le Développement International

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.

Mots clés: Government capital expenditure; real exchange rate; oil

Domaines: Economies et finances

Kangni Kpodar, Boileau Loko, Oumar Diallo. Buoyant Capital Spending and Worries over Real Appreciation: Cold Facts from Algeria. 2011. ⟨halshs-00556935⟩