Mr. Bernardin Akitoby, Mr. Jiro Honda, and Keyra Primus
Raising revenues has been a formidable challenge for fragile and conflict-affected states (FCS), a fact confirmed once again in the COVID-19 crisis. Nonetheless, achieving sizable gains in tax collection in fragile environments is not impossible. This paper—with empirical analyses and case studies—contributes to policy discussions on tax reform in such challenging environments. Our analyses show that many FCS achieved some recovery of tax revenues, even though they found it challenging to sustain the momentum beyond three years. We also find that changes in the quality of institutions (e.g., government effectiveness and control of corruption) are a key contributory factor to their tax performance (much more so than for non-FCS). Next, we look into the tax increase episodes of four countries (Liberia, Malawi, Nepal, and the Solomon Islands). Although each FCS is unique, their experiences suggest two lessons: (i) tax reforms can be pursued even with initially weak institutions; and (ii) strong political commitment is important to sustain reform efforts and realize long-lasting, sizable gains.
International Monetary Fund. Asia and Pacific Dept
This paper presents Nepal’s Request for Disbursement Under the Rapid Credit Facility (RCF). The coronavirus disease 2019 pandemic is having a severe impact on Nepal’s economy. During recent months, remittances have fallen considerably, tourist arrivals collapsed, and domestic activity has taken a hit amid social distancing measures. The authorities are taking proactive, well-targeted measures to address the human and economic impact of the pandemic, while preserving macroeconomic stability. Such measures include increasing health spending, strengthening social assistance to protect the most vulnerable, and providing bank liquidity and credit support. Additional assistance from development partners, beyond what had already been committed before the outbreak of the pandemic, is needed to close the remaining balance of payments gap and ease the fiscal situation. The authorities’ commitment to high standards of transparency and governance in the management of financial assistance is welcome. The IMF staff assesses that Nepal meets the RCF eligibility requirements and supports the request. Public debt is at low risk of distress and there is adequate capacity to repay the Fund. The IMF disbursement is expected to play a catalytic role in securing additional financing from Nepal’s development partners.