Abstract

The transformation of Algeria from a centrally planned economy to a market economy was accompanied by a major reorientation of the government’s fiscal policy. Under the central planning system, fiscal policy focused mainly on allocating the rent extracted from hydrocarbon exports to maintain a large civil service, provide generalized transfers and subsidies, for both consumption and production, and undertake large nonpriority public investment projects. With the emergence of a market economy, the government endeavored to limit its role to the provision of public goods and services. In addition, the budget assumed a major role in the stabilization process by bringing about macroeconomic stability and releasing resources to the private sector through fiscal consolidation. On the structural side, the budget was strengthened by recasting the tax system to gradually reduce the dependence on hydrocarbon revenue and by reorienting expenditures to growth-promoting areas such as education and health, while improving the targeting of social safety nets to protect the most vulnerable groups from the costs of adjustment.

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