Revenue Optimism Won’t Replace Lost Aid in Sub-Saharan Africa

Sub-Saharan Africa (SSA) faces a daunting challenge in adapting to the sharp decline in external aid. The IMF has estimated that aid flows fell by 26 percent in 2025, disrupting spending programs across the region. At the same time, governments are grappling with rising debt-service obligations that are further squeezing already limited fiscal space.

As aid declines, countries will increasingly need to rely on domestic revenues to finance development priorities. Realistic revenue projections are therefore critical for sound budgeting and fiscal planning. Yet studies have shown that revenue forecasts in SSA have often been overly optimistic, with actual collections falling short of budget targets.

In this post, we examine the revenue projections of IMF country teams reported in the latest World Economic Outlook and argue that revenue gains projected for 2025–30 are ambitious for many countries. In several cases, projected increases in revenue-to-GDP ratios exceed those achieved during recent periods of favorable economic growth and are larger than would be expected based on countries’ historical revenue buoyancy. If these projections fail to materialize, financing gaps will be larger than currently recognized, increasing the need for external support unless governments implement substantially stronger tax policy and revenue administration reforms than those reflected in existing forecasts.

Revenue increases in comparative perspective

Figure 1 compares the projected increase in the revenue-to-GDP ratio between 2025 and 2030 (vertical axis) with the actual increase achieved during 2015–19 (horizontal axis). Countries that performed well before the pandemic are generally also expected to record strong revenue growth over the next five years. However, there are notable exceptions. In some countries such as Burundi, Central African Republic, and Mozambique, projected revenue gains are smaller than those achieved before the pandemic.

More strikingly, many countries are expected to increase revenues much faster than they did during the pre-pandemic period. Examples include Botswana, Ethiopia, and Liberia. This raises an important question: why should revenue performance be significantly stronger this time around, given the well-documented difficulties these countries have faced in raising tax ratios in the past?

The question is particularly relevant because several of these countries are currently implementing IMF-supported programs or negotiating one. A forthcoming IMF study (“Over-optimism in IMF Teams’ Revenue Projections, 2015-2024”) finds that tax-to-GDP projections in programs for low-income countries have systematically exceeded actual outcomes. This historical tendency toward over-optimism suggests that current revenue projections should be treated with caution.

We also compare projected increases in revenue-to-GDP ratios with countries’ historical ability to generate revenues as economies grow. Tax buoyancy, which captures the response of tax revenues to changes in national income including discretionary changes in tax policy and administration, provides a useful benchmark for this purpose. A buoyancy greater than 1 implies that revenues grow faster than GDP, leading to an increase in the revenue-to-GDP ratio.

Many countries projecting sizable revenue increases during 2025–30 have a relatively strong capacity to raise revenues. Consistent with this, projected revenue increases are positively correlated with estimated buoyancy, shown in Figure 2 (see the buoyancy estimates). However, actual revenue gains achieved during the pre-pandemic period (2015–19) were generally more modest than those suggested by historical buoyancy estimates.

This suggests that revenue systems in many countries have become less responsive to economic growth than in earlier decades (reflecting the rise of the informal digital economy and political resistance to removing tax exemptions). If so, achieving the revenue gains embedded in current projections will require significantly stronger discretionary policy measures—including tax-base broadening, reductions in exemptions, and improvements in tax administration—than have been implemented in recent years.

Finally, we assess how real revenues (revenues adjusted for inflation) are projected to rise relative to the past. The rapid growth of real revenues can reflect improvements in tax policy and administration, or rapid economic growth that expands the tax base. Thus, one source of overoptimism in revenue projections can be the assumption of unrealistically high rates of growth. We find that for the 2025-30 period, real revenue growth is projected to be high relative to historical performance. This is another source of over-optimism in revenues.

Looking ahead

Three pieces of evidence point in the same direction, that projected revenue-to-GDP ratios are not grounded in realism.

This does not mean that revenue targets are unattainable. Many countries have substantial scope to strengthen domestic revenue mobilization through tax policy and administrative reforms. But achieving the projected increases will require sustained reform efforts that go beyond business as usual.

Policymakers and development partners should therefore adopt a more cautious approach to revenue forecasting. More realistic projections would provide a clearer picture of financing needs and help inform discussions on additional aid, concessional financing, and debt relief. Optimistic revenue projections may make budgets appear sustainable on paper, but they cannot substitute for the resources needed to support development and protect essential public services.