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

By Oumar Diallo, Boileau Loko, Kangni R Kpodar

December 1, 2007

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Format: Chicago

Oumar Diallo, Boileau Loko, and Kangni R Kpodar. Buoyant Capital Spending and Worries over Real Appreciation: Cold Facts from Algeria, (USA: International Monetary Fund, 2007) accessed November 23, 2024

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.

Subject: Capital spending, Expenditure, Oil prices, Real effective exchange rates, Real exchange rates

Keywords: Exchange rate, WP

Publication Details

Pages:

21
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2007/286
Stock No:

WPIEA2007286
ISBN:

9781451868494
ISSN:

1018-5941

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