Ideas to Action:

Independent research for global prosperity

CGD in the News

March 21, 2019

IMF loan conditions detrimental to local policies in poor countries, says report

From the article:

Structural reforms enforced by the IMF prevented state bureaucrats from implementing essential policies in service such as health, education, and national security, according to a report by social scientists from universities including Oxford and Cambridge.

The IMF rejected the findings, pointing to other research that found the implementation of structural reform conditions had in fact helped spur public investment.

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Sanjeev Gupta, a senior policy fellow at the Centre for Global Development thinktank and a former IMF official, recently published research based on conditions covering 115 countries between 1992 and 2016. It found that conditions relating to structural public financial management, such as on budget execution and control, had proven to be effective in boosting the long-term level of education, health and public investment expenditures.

Implementation of structural conditionality helped spur public investment by 10%-19%, the research found. “In fact, the conclusion is that it helps countries build capacity over time and, for somebody who has spent 30 years in the business, I have seen the capacity of countries improving,” he said.

Gupta, who was deputy director of fiscal affairs at the IMF, said he did not find the AJS paper’s conclusions “tenable” and that he had written rebuttals to similar papers the same authors had produced recently.

“You cannot have stabilization without structural reform. You don’t just say ‘cut spending and raise revenue’ and that’s it. You have to go deeper into the analysis and see what policies to implement,” he said.

“All stakeholders, whether countries or financial institutions, have to ensure that critical spending, whether social spending or public investment, is taken care of and doesn’t get slashed.”

 

October 12, 2018

Opinion: Achieving the SDGs will require more than domestic resource mobilization (Devex)

By Sanjeev Gupta 

From the article: 

According to a recent IMF analysis, low-income developing countries will need resources equal to 14.4 percent of their gross domestic product on average to meet the Sustainable Development Goals in five areas: education, electricity, health, roads, and water.

One way to bridge this gap is by strengthening the domestic tax capacity of LIDCs, which could mobilize roughly 40 percent of the needed resources, or 5 percent of GDP, with official development assistance and flows from the private sector and civil society providing the remaining. The International Monetary Fund analysis further indicates that fewer resources would be required if LIDCs were to grow at exceptionally high rates through 2030 and if this money was well spent.

However, generating additional revenue equal to 5 percent of GDP in LIDCs will be challenging, given past trends in revenue performance and the political opposition that tax reforms are likely to face in these countries. This makes it imperative for policymakers to improve the efficiency of existing spending, which could potentially generate as much incremental resources as domestic taxation. 

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Past trends and the Addis Tax Initiative

In recent years, LIDCs have overall been collecting more taxes domestically. Between 2002 and 2014, average tax ratios rose by 2.8 percent of GDP in sub-Saharan Africa and by 3.6 percent in the Western Hemisphere and emerging and developing Asia.

Read the full article here