Fiscal policy in the forecast period will be led by the state's ambitious five-year, US$286bn investment plan. This spending will focus on developing the non-hydrocarbons sector, improving infrastructure, expanding the local skills base and supporting small- and medium-sized enterprises. In light of recent protests, further ad hoc spending has been announced; expanding credit available for the agriculture sector, increasing social security and wages and granting more funding to localities to involve young people in the economy will all add to the government's expenditure bill. The government's patchy record of completing projects on budget (an earlier five-year plan was not fully spent) does not instil much confidence that this new, larger programme will be implemented fully.

According to the government, these expansionary budgets will be funded exclusively from domestic sources. The government is committed to avoiding borrowing on international markets and will be able to cover the costs by drawing on the reserves in its oil stabilisation fund, which are around AD4trn (US$52bn). Revenue from oil and gas exports will help to offset the shortfalls, although production, particularly of gas, remains below potential. We now expect oil prices to be around US$101/b in 2011 and have adjusted our forecast for Algeria's fiscal deficit to 2% of GDP. The fiscal account will record annual average deficits of around 2.1% of GDP in 2012-15 as high oil revenue is offset by increases in expenditure as the government turns its spending programme towards capital projects.