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

Author

Listed:
  • Oumar Diallo
  • Mr. Boileau Loko
  • Mr. Kangni R Kpodar

Abstract

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.

Suggested Citation

  • Oumar Diallo & Mr. Boileau Loko & Mr. Kangni R Kpodar, 2007. "Buoyant Capital Spending and Worries over Real Appreciation: Cold Facts from Algeria," IMF Working Papers 2007/286, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2007/286
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