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

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  • Kangni Kpodar

    (CERDI - Centre d'Études et de Recherches sur le Développement International - UdA - Université d'Auvergne - Clermont-Ferrand I - CNRS - Centre National de la Recherche Scientifique)

  • Boileau Loko

    (CERDI - Centre d'Études et de Recherches sur le Développement International - UdA - Université d'Auvergne - Clermont-Ferrand I - CNRS - Centre National de la Recherche Scientifique)

  • Oumar Diallo

    (CERDI - Centre d'Études et de Recherches sur le Développement International - UdA - Université d'Auvergne - Clermont-Ferrand I - CNRS - Centre National de la Recherche Scientifique)

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.

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  • Kangni Kpodar & Boileau Loko & Oumar Diallo, 2011. "Buoyant Capital Spending and Worries over Real Appreciation: Cold Facts from Algeria," Working Papers halshs-00556935, HAL.
    • Handle: RePEc:hal:wpaper:halshs-00556935
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00556935
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    References listed on IDEAS

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    Keywords

    Government capital expenditure; real exchange rate; oil;
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