Abstract
<title>Abstract</title> <p>This paper develops and applies a multi-sectoral Stock-Flow Consistent (SFC) macroeconomic model to examine the nexus between banking fragility, credit misallocation, and private-sector underdevelopment in Algeria over the period 2000–2023. Embedding five institutional sectors— households, private firms, public banks, the central bank, and the government—within a rigorous double-entry accounting framework, the model captures the endogenous balance-sheet interactions that underpin Algeria’s hydrocarbon-dominated financial system. The analysis reveals three interrelated structural pathologies: (i) persistent crowding-out of private credit by directed lending to state-owned enterprises, (ii) excess bank liquidity coexisting with investment scarcity—a manifestation of financial repression amplified by oil-revenue volatility, and (iii) balance-sheet fragility arising from elevated non-performing loans and capital misallocation. Four counterfactual policy simulations—credit liberalisation, interest-rate reform, fiscal-dominance continuation, and public-bank restructuring—yield quantitatively distinct dynamic trajectories for growth, investment, and financial stability. The results suggest that credit liberalisation and interest-rate reform could raise private-credit-to-GDP by 6.8 percentage points and private investment by 5.5 percentage points over five years relative to the baseline, whereas sustained fiscal dominance amplifies NPL accumulation and reduces economic diversification. The paper contributes an SFC application to a North African rentier economy and provides a unified analytical framework that endogenises both the supply-side constraints of public banking and the demand-side implications of resource driven fiscal policy. Robustness checks using VAR analysis, Granger causality tests, and Johansen cointegration confirm the model’s empirical grounding. JEL Classification: E12; E44; G21; O16; O55; Q32.</p>