Buoyant Capital Spending and Worries over Real Appreciation: Cold Facts from Algeria
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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. 2007/286
Subject:
Capital spending Expenditure Oil prices Real effective exchange rates Real exchange rates
English
Publication Date:
December 1, 2007
ISBN/ISSN:
9781451868494/1018-5941
Stock No:
WPIEA2007286
Pages:
21
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