The fiscal stimulus in Algeria between 2005 and 2014: A predictable failure

Abstract

This paper tries to show that the massive public expenditures incurred in Algeria, during successive growth programs since the early 2000s, didn’t give rise to the economic growth rates that could justify such a vast amount of expenditures. This situation poses a problem of rares wasted resources and poor performances. With little effect on economic growth, increased income distributed during these programs have given rise, however, to an unprecedented increase in imports of goods and services. From a purely theoretical point of view, this situation is paradoxical but not impossible. A simple IS-LM model made it possible to predict this outcome. The structural and institutional constraints of the Algerian economy, clearly indicated the likelihood of such an outcome. From the beginning, the instigators of this economic policy should know its limits and choose another one. That is very important for a country like Algeria whose economy is weak and dependent. Ultimately, it is the strategy of insertion of the Algerian economy into the global economy that, finally, will determine the outcome of any growth policy.