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1、Evolution,Drivers,and Policies Fiscal Vulnerabilitiesin Low-Income Countries Advance EditionJoseph Mawejje Fiscal Vulnerabilities in Low-Income Countries www.worldbank.org/prospects Fiscal Vulnerabilities in Low-Income Countries Evolution,Drivers,and Policies Advance Edition Joseph Mawejje The text

2、of this advance edition is a work in progress for the forthcoming book Fiscal Vulnerabilities in Low-Income Countries:Evolution,Drivers,and Policies.A PDF of the final book,once published,will be available at https:/openknowledge.worldbank.org.Please use the final version of the book for citation,re

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15、v Contents Acknowledgments.vii About the Author.ix Abbreviations.xi Executive Summary.1 I.Introduction.9 Contributions.13 Main findings.16 II.Evolution of Fiscal Positions in LICs.23 Conceptual framework.25 Evolution of debt.26 Evolution of primary deficits.30 Evolution of revenues.32 Evolution of e

16、xpenditures.36 III.Fiscal Vulnerability to Shocks.41 IV.Fiscal Policy Options in LICs.47 Domestic resource mobilization.49 Expenditure efficiency.52 Robust fiscal frameworks.55 Debt challenges.58 International support.60 V.Conclusion.65 Annex 1.Decomposition of debt.69 Annex 2.Measurement of spendin

17、g efficiency.70 Annex 3.Event studies.70 References.73 vi Box Box 1 LIC challenges in the context of EMDEs.18 Figures 1 Low-income countries:prospects,risks,and policies .6 2 Development challenges in LICs.12 3 Government debt.15 B1.1 LIC challenges in the context of EMDEs.20 B1.2 LIC challenges in

18、the context of EMDEs(continued).21 4 Decomposition of changes in government debt.28 5 Decomposition of changes in government debt(continued).29 6 Primary fiscal balances.30 7 Decomposition of changes in primary fiscal balances.31 8 VAT rates,tax expenditures,fuel subsidies,and tax effort.33 9 Govern

19、ment revenues.34 10 Decomposition of government revenues,2011-22.35 11 Government expenditures.37 12 Country characteristics and macroeconomic volatility.38 13 Decomposition and efficiency of government expenditures.39 14 Fiscal outcomes around major adverse events.45 15 Domestic resource mobilizati

20、on.50 16 Expenditure efficiency.53 17 Fiscal policy procyclicality and volatility,and fiscal frameworks.56 18 Debt management and institutional quality.60 19 Global support.61 Table 1 List of low-income countries(LICs).72 vii Acknowledgments This study is a product of the Prospects Group and was pro

21、duced under the overall guidance of M.Ayhan Kose.Ayhans constant support,insights,and dedication immeasurably raised the quality of the study.The study also benefited from the outstanding support and advice of Carlos Arteta.The study benefited from insightful reviews and thoughtful suggestions by To

22、mmy Chrimes,Graham Hacche,Samuel Hill,Jeetendra Khadan,and Joseph Rebello.Franziska Ohnsorge and Shu Yu provided excellent inputs to an earlier version of the study.I am grateful for the superb research assistance provided by Jiayue Fan and Maria Hazel Macadangdang.I am thankful to my colleagues in

23、the World Banks Prospects Group who provided early feedback at internal seminars.In addition,staff members from World Bank country teams,the Development Finance Vice Presidency,and other World Bank Vice Presidencies provided extensive comments at different stages of the study,including during the in

24、stitution-wide review of a chapter on fiscal challenges confronting low-income countries featured in the June 2023 Global Economic Prospects report.I am indebted to many colleagues who worked on the production process,publishing,media relations,and dissemination of the study.I am grateful to Joseph

25、Rebello for his considered suggestions throughout the process,and with him,Nandita Roy,Kristen Milhollin,and Mariana Lozzi Teixeira for managing media relations and social media outreach.I thank Graeme Littler for editorial and web support.I owe a particular debt of gratitude to Adriana Maximiliano

26、for her outstanding contributions in designing and coordinating the print publication.ix About the Author Joseph Mawejje is an Economist in the World Bank Groups Prospects Group.Previously,he worked in the World Bank Groups Macroeconomics,Trade,and Investment Global Practice for the Eastern and Sout

27、hern Africa region.Before that,he worked in different capacities at the Economic Policy Research Centre and the Private Sector Foundation in Kampala,Uganda.xi AE DeMPA DGE DRC DSSI EM-DAT EMDE FCS FDI GDP GNI GRFC HIPC IDA IEG IMF LIC LMIC MDB MDRI MIC NCBP ODA PIMI PPP SDFP SDG SSA SWF UCDP UNCTAD

28、UNU-WIDER VAT WDI WEO advanced economy debt management performance assessments dynamic general equilibrium Democratic Republic of Congo debt suspension initiative emergency events database emerging market and developing economy fragile and conflict-affected situations foreign direct investment gross

29、 domestic product gross national income global report on food crises heavily indebted poor countries International Development Association Independent Evaluation Group International Monetary Fund low-income country lower-middle-income country multilateral development bank multilateral debt relief in

30、itiative middle-income country non-concessional borrowing policy official development assistance public investment management index purchasing power parity sustainable development finance policy sustainable development goals Sub-Saharan Africa sovereign wealth fund Uppsala Conflict Data Program Unit

31、ed Nations Conference on Trade and Development United Nations University-World Institute for Development Economics Research value added tax World Development Indicators World Economic Outlook Abbreviations Executive Summary Low-income countries(LICs)need significant resources to meet enormous develo

32、pment challenges.The 26 LICsthe worlds poorest countriesaccount for just a little more than 0.5 percent of global output and income,but they are home to almost 10 percent of the worlds population and nearly 40 percent of the worlds poor.Two-thirds of LICs(17 out of 26)are classified as fragile and c

33、onflict-affected situations(FCS).The COVID-19 pandemic and subsequent overlapping crises have put into reverse LICs progress toward convergence with both advanced-economy and other EMDE income levels.In the poorest LICsthose with more than half of the population below the extreme poverty lineaverage

34、 per capita income between 2020 and 2024 took a particular hit,falling by up to 14 percent relative to its pre-pandemic trend.To meet critical development goals,LICs will need additional annual investment,relative to current projections,equivalent to 8 percent of GDP through 2030.In other words,thes

35、e countries will need to double the average annual investment they have made over the past decade.Fiscal positions in LICs have weakened significantly in recent years.The average government debt-to-GDP ratio in LICs increased by 9 percentage points in 2023 alonethe largest annual rise in more than t

36、wo decadesto 72 percent.The debt build-up(relative to GDP)among LICs since 2020 has been widespread,climbing in 80 percent of these economies.Rising debt and global interest rates have resulted in a sharp increase in debt-service payments.In 2023,interest payments for the average LIC exceeded 10 per

37、cent of revenuethe highest in two decades.Government gross financing needs in the average LIC rose by 3 percentage points of GDP between 2019 and 2022,to reach about 11.5 percent of GDP.No LIC was assessed to be at low risk of debt distress as of end-April 2024,with many of them already in or at hig

38、h risk of it.For LICs assessed at moderate risk of debt distress,safety margins have eroded.The increase in LIC government debt,relative to GDP,has been driven mainly by large and widening fiscal deficits.Average fiscal deficits have expanded markedly,from 1.2 percent of GDP in 2019 to 2.4 percent i

39、n 2023.4 LOW-INCOME COUNTRIES FISCAL VULNERABILITIES LICs face long-standing challenges in mobilizing domestic revenues.Tax effort(the extent to which actual tax collections reach total tax potential)is generally lower in LICs than in other emerging market and developing economies(EMDEs).Over 2011-2

40、3,LICs are estimated to have collected,on average,less than two-thirds of their potential tax revenue,mobilizing total revenues equivalent to about 18 percent of GDP11 percentage points lower than other EMDEs.Several structural factors impede the ability of LICs to raise tax revenues.These factors i

41、nclude underdeveloped financial sectors,limited use of information technology,and high levels of informality.Over the past decade,informal sector activity in LICs accounted for an estimated 37 percent of GDP,compared with 24 percent in other EMDEs.At the same time,tax expenditures(such as exemptions

42、,special deductions,and tax credits)absorb a sizable amount of revenues in LICs,averaging more than 2 percent of GDP.The efficiency of government spending is lower in LICs than in other EMDEs.In part,lower government spending efficiency in LICs reflects weaker institutions and a greater incidence of

43、 corruption.In addition,subsidies,particularly for food and energy,are pervasive and tend to be poorly targeted and costly.The cost of fuel subsidies in LICs in 2022 averaged about 2 percent of GDPmore than the average domestic expenditure on health.Many LICs also are prone to large-scale,often unpr

44、oductive spending,including on the military,as well as excessive civil-service employment.As a result,growth-enhancing public spending on human capital and other development needs tends to be crowded out.Government spending on education and health(as a share of GDP)is 2 percentage points lower in LI

45、Cs than in other EMDEs,even as human capital needs in LICs tend to be greater.LIC fiscal positions are vulnerable to both global and domestic shocks.Among myriad shocks that can hit LICs,two are particularly pernicious:global recessions and domestic armed conflicts.Global recessions are associated w

46、ith deteriorations in LICs fiscal balances,averaging 1.7 percentage points of GDP in the recession year,with the impact lasting for two years.Government debt increases,on average,by 2 percentage points of GDP in the recession year.For commodity-exporting LICs,reduced demand for commodities during gl

47、obal recessions tends to lower fiscal revenues.Declines in remittances tend to lower tax revenues in recipient countries through their effects on private consumption and investment.Another common feature of global recessions is a reduction in LOW-INCOME COUNTRIES 5 FISCAL VULNERABILITIES official de

48、velopment assistance(ODA),which affects many LIC government revenues directly.Around intense conflict events,relative to conflict-free years,fiscal balances in LICs,on average,deteriorate by an estimated 11.5 percentage points of GDP.Domestic armed conflicts have the potential to affect fiscal posit

49、ions through various channels.First,conflict directly disrupts economic activity.Second,it is associated with physical and human capital destruction,which reduces productive potential(and therefore hits potential revenues).Third,conflict tends to increase military spending,which erodes fiscal positi

50、ons.Fourth,conflict is associated with weaker revenue administration capacity and a more general deterioration of institutional quality.In addition,the increasing incidence and magnitude of weather-related natural disasters also poses an additional fiscal challenge for LICs.The cost of natural disas

51、ters is higher as a share of GDP in LICs;their adaptation costs to climate change are higher;and their buffers are lower,relative to other EMDEs.Because LICs constitute the poorest group among EMDEs,they are confronted by much greater development and fiscal challenges.Given their scarce fiscal resou

52、rces and large development needs,LICs require substantial international support.They are in a precarious situation:other developing economies have seen at least some recovery from the pandemic-related recession,but the income gap of LICs relative to other developing economies has only widened(figure

53、 1,box 1).Rising debt and interest rates have resulted in an even sharper increase in interest payments in LICs,reducing the resources currently available to invest in growth-enhancing sectors,including health,education,infrastructure,and climate change adaptation.LICs have substantial potential to

54、improve growth and development prospects.To confront these challenges,LICs have a range of opportunities to accelerate growth and development and thus expand fiscal space,if appropriate reform efforts are pursued and the necessary support from the global community is provided.Several LICs have abund

55、ant oil and gas resources,mineral deposits,and significant solar energy and tourism potential.With the right governance,these could generate significant growth and revenues.LICs can also reap large dividends as their working-age populations grow significantly over the next half-century,provided thes

56、e people can be equipped with the right capabilities and opportunities.If effectively harnessed,these natural resource endowments and demographic dividends could drive economic growth and transformation.6 LOW-INCOME COUNTRIES FISCAL VULNERABILITIES FIGURE 1 Low-income countries:prospects,risks,and p

57、olicies Since 2000,the income gap between LICs and other EMDEs has widenedparticularly following the 2020 pandemic recessionunderscoring LICs particularly precarious situation.About 40 percent of the worlds extreme poor live in LICs.The debt buildup in LICs has been faster and more widespread compar

58、ed to other EMDEs,with governments net interest payments increasing significantly between 2019 and 2023.Relative to other EMDEs,a larger share of LICs is in or at high risk of debt distress.Although IDA financing has increased,total grants received by LICs have declined.B.Number of extreme poor A.Re

59、al GDP per capita in LICs relative to other EMDEs Sources:International Debt Statistics(database);International Monetary Fund;World Bank.Note:EMDEs=emerging market and developing economies;IDA=International Development Association;LICs=low-income countries;Other EMDEs=emerging market and developing

60、economies excluding LICs.A.Bars show the average real GDP per capita in LICs relative to real GDP per capita of other EMDEs.Based on up to 24 LICs and 127 other EMDEs.B.Number of poor in the 26 current LICs and the rest of the world.C.Bars show unweighted averages.Orange whiskers show the interquart

61、ile ranges.Based on up to 23 LICs and 128 other EMDEs.D.Net interest payments are defined as the difference between the primary balance and the overall balance.Unweighted average.Orange whiskers show interquartile ranges.E.Percent of EMDEs in or at risk of debt distress.Based on 70 EMDEs,of which 24

62、 are LICs.F.Grants are defined as legally binding commitments allocating specific funds for disbursement without any requirement for repayment.Data are on a disbursement basis.Data exclude debt forgiveness grants.IDA grants are net disbursements of grants from IDA.D.Net interest payments C.Governmen

63、t debt F.Grants received by LICs E.Share of LICs in or at high risk of debt distress 0400800120016002000200020102023LICsRest of the worldMillions01530456075902011 2019 2021 2023 2011 2019 2021 2023LICsOther EMDEsPercent of GDPPercent024681012142011 2019 2021 2023 2011 2019 2021 2023LICsOther EMDEsPe

64、rcent of revenues020406080100201220192024201220192024LICsOther EMDEsIn debt distressHigh riskModerate riskLow riskPercent00.30.60.91.21.502468102010201120122013201420152016201720182019202020212022GrantsIDA grants(RHS)Percent of GNI10111213142000201020192023PercentageLOW-INCOME COUNTRIES 7 FISCAL VUL

65、NERABILITIES Well-designed national policy interventions can improve fiscal positions in LICs.To strengthen fiscal positions in LICs,national policy makers should aim to strengthen domestic revenue mobilization,improve spending efficiency,enhance debt management practices,and foster stronger economi

66、c growth.Domestic revenue mobilization can be supported by stronger institutions for tax policy and administration.Improved use of information technology can ease constraints in tax administration and help widen the tax base,including by simplifying taxpayer registration,filing and payment,audit,col

67、lection enforcement,and appeals.The efficiency of public spending can be improved by increased transparency and accountability,including by reducing waste and improving the returns on public investment.Fiscal transparency and accountability can also improve taxpayer morale and compliance.Fiscal sust

68、ainability and debt-management practices can be enhanced by credible and well-designed frameworksincluding such instruments as fiscal rules,stabilization funds,and medium-term expenditure frameworks.These can also help LICs improve budget management,including the management of revenue windfalls.In a

69、ddition,they can reduce the procyclicality of fiscal policy,build fiscal space,and strengthen policy outcomes.Long-term growth prospects can be enhanced by policies that encourage broad reforms to ease structural constraints on investment growth,reduce informality,address market failures,and strengt

70、hen institutions.The support of the global community is critical to helping LICs to take advantage of their natural resources and demographic dividends,stabilizing their fiscal positions and improving fiscal policy management.Even though fiscal challenges have become acute in LICs,net ODAincluding d

71、isbursements of loans made on concessional terms to these economieshas declined to its lowest level as a share of recipients gross national income(GNI)in two decades.Since 2020,total net ODA to LICs has declined by 5 percentage points of GDP to an average of 7 percent in 2022.LICs account for one-th

72、ird of the countries eligible for low-interest loans and grants from the World Banks International Development Association(IDA)and,like the broader group,they face severe challenges.IDA is now their single-8 LOW-INCOME COUNTRIES FISCAL VULNERABILITIES largest source of low-cost financing from abroad

73、.It has stepped up its support to LICs,with IDA grants more than doubling(relative to income)since 2015,reaching 1.2 percent of GNI by 2022.Given their large and growing needs,LICs domestic efforts must be complemented by additional help from abroadboth in the form of greater international cooperati

74、on on trade and investment and in the form of much larger support,via IDA and other entities,which can work with the private sector to mobilize additional resources.These institutions should also provide tailored technical assistance to bolster their institutional frameworks,address reform needs,ren

75、der them more resilient,and help strengthen LICs fiscal positions.I.Introduction The pandemic and the overlapping global shocks that followed exacerbated LICs development challenges and delayed progress toward the Sustainable Development Goals(SDGs).1 In 2024,about 40 percent of people in low-income

76、 countries are in extreme poverty,up from 36 percent in 2019.In 2019-20,indicators of human development and access to infrastructure in LICs were substantially worse than they were in 2000 for those LICs that subsequently graduated to the group of middle-income countries(MICs)(figure 2).In the poore

77、st LICsthose with more than half of the population below the extreme poverty lineaverage per capita income fell between 2020 and 2024 by up to 14 percent compared to its pre-pandemic trend.Food insecurity has also intensified.The global shocks of the past five years also contributed to a significant

78、 worsening of LICs fiscal positions.Despite the recovery of 2021-23,government debt in the average LIC is estimated to have risen to 72 percent of GDP by the end of that perioda 16-year high.At end-2023,government debt exceeded 50 percent of GDP in 81 percent of LICs,compared with less than one-half

79、 of other EMDEs.LICs average fiscal deficit in 2023 is estimated at 2.4 percent of GDP,about 1.2 percentage points wider than in 2019.Government gross financing needs in the average LIC rose by 3 percentage points of GDP between 2019 and 2022,to reach 11.4 percent of GDP(World Bank 2023a).As a resul

80、t of rising debt and interest rates,government interest payments increased in about one-fifth of LICs between 2019 and 2023,sharply in some cases.Interest payments have absorbed an expanding share of government revenuesexceeding 10 percent on average in 2023,the highest in two decades.The rise in in

81、terest payments has increasingly threatened to crowd out critical development spending(UNCTAD 2024;World Bank 2023b).Some LICs have already had to commit more resources to interest payments than to domestically financed health spending.Amid high debt and debt-service costs,debt vulnerabilities are e

82、levatedtwelve of the 26 LICs were assessed as being in or at high risk of debt distress at the end of April 2024(IMF 2024a).1 See table 1 for a complete list of low-income countries.12 LOW-INCOME COUNTRIES FISCAL VULNERABILITIES FIGURE 2 Development challenges in LICs About 40 percent of the worlds

83、extreme poor live in LICs.Real GDP per capita in LICs has remained below its pre-pandemic trend.Measures of human capital development and access to infrastructure are lower in todays LICs than in countries that were LICs in 2000 but have since become middle-income countries.Food insecurity has incre

84、ased,particularly in conflict-affected countries.B.Real GDP per capita A.Number of extreme poor Sources:GRFC(database);WDI(database);WEO(database).Note:EMDEs=emerging market and developing economies;LICs=low-income countries;MICs=middle-income countries;Other EMDEs=emerging market and developing eco

85、nomies excluding LICs.A.Number of poor in the 26 current LICs and the rest of the world.B.Extreme poverty rate is measured as the share of people living on less than$2.15 per day(2017 PPP).Dashed lines show per capita GDP projections in the October 2019 World Economic Outlook.Based on 10 LICs with e

86、xtreme poverty above 50 percent and 13 LICs with extreme poverty below 50 percent in 2019.The sample excludes Democratic Republic of Congo and Nigerboth with over half of the population experiencing extreme poverty.C.-E.Simple average.“Latest”refers to 2020 or the latest year available.There are 26“

87、Todays LICs,”and 39“LICs turned MICs”(countries that were classified as LICs in 2000 but are now classified as middle-income countries).F.Bars show the number of people in food crisis,as classified by the Integrated Food Security Phase Classification Phase 3,that is,in acute food insecurity crisis o

88、r worse.D.Education indicators C.Health indicators F.Food insecurity in conflict and conflict-free countries E.Electricity access 90951001051101152017 2018 2019 2020 2021 2022 2023 2024LICs with extreme poverty above 50 percentLICs with extreme poverty below 50 percentIndex,2019=100Pre-pandemic tren

89、ds15304560759030405060702000Latest2000LatestLife expectancyMaternal mortality ratio(RHS)Todays LICsLICs turned MICsYearsPer ten thousand live births0204060801000204060802000Latest2000LatestSecondary schoolenrollment rateLiteracy rate(RHS)Todays LICsLICs turned MICs%gross%of people age 15-24020406080

90、2000LatestTodays LICsLICs turned MICsPercent of population04080120160201820202024201820202024LICsOther EMDEsFragile and conflict-affectedOtherMillions of people0400800120016002000200020102023LICsRest of the worldMillionsLOW-INCOME COUNTRIES 13 FISCAL VULNERABILITIES In addition to weaker fiscal posi

91、tions,several other macroeconomic indicators for LICs have deteriorated in recent years.While inflation began to moderate in 2024,many commodity and consumer prices have remained elevated(World Bank 2024a,2024b).Current account balances and terms of trade have deteriorated,and external positions mor

92、e broadly are weaker than in other EMDEs.While the tepid recovery of economic growth is expected to continue,risks to the near-term outlook are tilted to the downside,further threatening fiscal positions.Prospects are particularly feeble for the two-thirds of LICs that are in fragile or conflict sit

93、uations or susceptible to adverse weather events(World Bank 2024a).Fiscal resources to address LICs development challenges were already severely constrained before the pandemic.Government revenues averaged 18 percent of GDP during 2011-19,less than half the advanced-economy average and 11 percentage

94、 points below the average of other emerging market and developing economies(EMDEs).2 Revenues fell short of primary government expenditure,which averaged about 20 percent of GDP,resulting in persistent fiscal deficits and growth of government debt.Thus,government debt in LICs,on average,rose to 67 p

95、ercent of GDP in 2019 from 36 percent of GDP in 2011.Against this challenging backdrop,this study examines the following questions.How have fiscal positions evolved in LICs?What have been the main sources of the recent deterioration in LIC fiscal positions?How do adverse shocks affect fiscal positio

96、ns in these economies?Which policies can help improve LICs fiscal positions?Contributions The study contributes to the literature in several ways.Analysis of LIC fiscal vulnerabilities.The study provides a comprehensive analysis of fiscal vulnerabilities in LICs and the fiscal policy challenges they

97、 face in the wake of the pandemic and subsequent global shocks,as well as the challenges faced in the decade before the pandemic.3 Previous studies have examined the fiscal positions of different groups of EMDEs,including 2 To ensure broad-based representation of LIC fiscal developments,averages in

98、this study are unweighted unless otherwise specified.3 Throughout this study,the period under consideration starts in 2011 to exclude both the global recession of 2009 and the robust economic rebound of 2010.This period corresponds to the fourth global wave of debt,which Kose et al.(2020)identify as

99、 starting at the end of 2010.14 LOW-INCOME COUNTRIES FISCAL VULNERABILITIES the larger group of lower-middle-income and low-income countries(Chrimes et al.2024;IMF 2020a).This study focuses exclusively on LICs because of their particular characteristics:they are heavily reliant on grant financing;la

100、ck access to international capital markets;include a large share of recipients of debt relief,including assistance through the Highly Indebted Poor Country(HIPC)initiative and the Multilateral Debt Relief Initiative(MDRI);and are more resource reliant than other EMDEs.Despite external assistance,the

101、ir debt buildup has been faster and more widespread than that of other EMDEs(figure 3).Drivers of the key fiscal variables.The study provides the first systematic,detailed assessment of the main drivers of government debt,revenues,and expenditures.While previous studies have examined the evolution o

102、f LICs debt and its composition,there has been more limited analysis of other fiscal outcomes,such as the composition and efficiency of government spending.4 Implications of adverse shocks for fiscal positions.It studies the evolution of government debt and the primary balance around three adverse e

103、vents:global recessions,intense conflict events,and natural disasters.By doing so,the study adds to the literature on the impact of adverse shocks on LICs fiscal positions.Policy priorities.The study discusses key policy interventions for strengthening fiscal positions in LICs.Domestic revenue mobil

104、ization is one important element,for which progress on policy work has already taken place(see Junquera-Valera et al.2017 for an overview).Measures to improve expenditure efficiency are another well-trodden policy area:many countries have undertaken detailed public expenditure reviews,and several se

105、ts of guidelines for best practices are available(see Manghee and van den Berg 2012 for water and sanitation;and World Bank 2017a for education).Policy options to improve debt management have received much attention(Kose et al.2020).Growth in LICs has been a subject of continuous debate(see,for exam

106、ple,IMF 2024b).This study undertakes a comprehensive analysis of fiscal policy outcomes in LICs and provides a rich menu of the policy priorities that both national and global policy makers can consider.By doing so,the study explores the relationship between fiscal outcomes and the broader supportin

107、g environment which has not been analyzed in previous work.4 See,for instance,Kose et al.(2020)on the evolution of LIC debt and its composition.LOW-INCOME COUNTRIES 15 FISCAL VULNERABILITIES FIGURE 3 Government debt Government debt rose,relative to GDP,in more than 90 percent of LICs and about 80 pe

108、rcent of other EMDEs between 2011 and 2019,on average by 30 and 15 percentage points of GDP,respectively.Between 2019 and 2023,government debt rose further in 15 out of 21 LICs,on average by 6 percentage points of GDP.The foreign currency and nonresident-held shares of LIC debt have risen since 2011

109、 and the concessional share has fallen,adding to debt vulnerabilities.B.Shares of EMDEs with increasing and decreasing debt-to-GDP ratios A.Government debt in LICs Sources:International Monetary Fund;World Bank.Note:EMDEs=emerging market and developing economies;CEX=commodity exporting countries;LIC

110、s=low-income countries;Other EMDEs=emerging market and developing economies excluding LICs.A.Government debt in LICs.Unweighted averages.B.Bars show the share of countries with increases(in red)or decreases(in blue)in government debt as a share of GDP in the time periods shown.C.Gray line indicates

111、50 percent.The latest available data are for 2020.D.Bars show the unweighted averages.Orange whiskers show the interquartile ranges.Based on up to 23 LICs and 128 other EMDEs.E.Percent of countries with government debt exceeding 50 percent of GDP(for LICs)or 60 percent of GDP(for other EMDEs).F.Perc

112、ent of EMDEs in or at risk of debt distress.Based on 70 EMDEs,of which 24 are LICs.D.Government debt C.Composition of government debt F.Share of EMDEs in or at risk of debt distress E.Share of EMDEs with high government debt 0204060801002011-192019-232011-192019-232011-192019-23EMDEsEMDEs excl.LICsL

113、ICsIncreaseDecreasePercent020406080ForeigncurrencyConcessionalNonresident-heldForeigncurrencyConcessionalNonresident-heldLICsOther EMDEs2011LatestPercent01530456075902011 2019 2021 2023 2011 2019 2021 2023LICsOther EMDEsPercent of GDPPercent01530456075902011201920212023LICsOther EMDEsPercent02040608

114、0100201220192024201220192024LICsOther EMDEsIn debt distressHigh riskModerate riskLow riskPercent020406080AllNon-LICAllCEXFCVEMDEsLICs201120192023Percent of GDP16 LOW-INCOME COUNTRIES FISCAL VULNERABILITIES Main findings The study presents the following findings.First,government debt has increased sh

115、arply since 2019.In 2023 alone,average LIC government debt rose by 9 percentage points of GDP the largest annual increase in more than two decadesto reach 72 percent of GDP.By contrast,in other EMDEs,public debt fell by 2 percentage points of GDP,on average,in 2023,to 57 percent of GDP.Te debt build

116、-up among LICs since 2019 has been widespread:relative to GDP,it rose in 80 percent of LICs.However,the debt build-up started before the pandemic as LICs took advantage of benign global financial conditions to borrow relatively cheaply to expand investments and service delivery.Between 2011 and 2019

117、,the government debt-to-GDP ratio in the average LIC rose by 30 percentage points to 67 percenta much larger increase than the rise of 12 percentage points of GDP,to 53 percent,in other EMDEs.Second,since 2019,signifcant and widening fscal defcitsprimary defcits and interest paymentsin LICs have ecl

118、ipsed nominal GDP growth.Tat has led to a notable raise in debt-to-GDP ratios.Te pandemic,which sharply increased spending needs,contributed to a jump in primary deficits from an average of 1.2 percent of GDP in 2019 to 3.4 percent in 2020.Despite the post-pandemic growth rebound,less than one-half

119、of this increase was unwound,so that fiscal deficits were estimated at 2.4 percent of GDP by 2023.In 91 percent of LICs,primary balances deteriorated between 2019 and 2023.Tird,the sizable primary defcits that have driven the debt buildup in LICs have refected expenditure pressures amid persistent r

120、evenue weakness.Total revenues in LICs were 11 percentage points of GDP below those in other EMDEs,on average,over 2011-23,mostly reflecting weaker indirect tax revenues.A decrease in foreign grants was only partly offset by rising tax revenues over this period,such that total revenues declined rela

121、tive to GDP.Meanwhile,in the decade before 2020,the composition of expenditures in LICs shifted away from health and education toward military spending,subsidies,interest payments,and the government wage bill,with the latter rising more as a share of total spending than in other EMDEs.Fourth,global

122、recessions and intense domestic armed confict substantially weaken LICs fscal balances and increase public debt.Tus,an event analysis shows that,on average,global recessions have been associated with a deterioration of the fiscal balance,relative to GDP,of 1.7 percentage points in the recession year

123、.A similar analysis shows that intense domestic armed conflict LOW-INCOME COUNTRIES 17 FISCAL VULNERABILITIES eventsthose involving more than one hundred deaths per one-million populationhave been associated on average with a fiscal-balance deterioration of 1 to 1.5 percentage points of GDP.In contr

124、ast,natural disasters were not found to be associated with a significant deterioration of fiscal balances or public debt,possibly reflecting their short-lived duration.LICs generally lack the fiscal space to respond to shocks and may have to rely on support from the international community.Faced wit

125、h large development needs,deteriorating fscal positions,and shrinking grant fnancing,policy priorities for LICs include domestic revenue mobilization,improved spending efciency,and broad-based policies to generate stronger economic growth.High government debt levels also call for strengthened debt m

126、anagement and,in some cases,may warrant debt relief.Tese measures need to be embedded in strategies of domestic reform to strengthen institutional frameworks,ease structural constraints,and address informality.Tese strategies need to be supported by the international community through the provision

127、of policy advice;technical assistance on improving fiscal management,especially in tax policy design and implementation;and concessional financing.18 LOW-INCOME COUNTRIES FISCAL VULNERABILITIES Among EMDEs,LICs face a particularly challenging environment,with a sharp deterioration of growth and deve

128、lopment prospects in recent years.LICs account for about 1.3 percent of total EMDE output and 10 percent of the EMDE populationbut they are home to 45 percent of the people in extreme poverty within the EMDE group.The recovery from the pandemic recession has been weaker in LICs compared to other EMD

129、Es.While EMDEs as a group continue to suffer the lingering effects of,and subdued recovery from,the pandemic recession,the fact that,in recent years,the income gap between LICs and other EMDEs has widened underscores LICs particularly precarious situation.Since 2000,the gap between real per capita G

130、DP in LICs and other EMDEs has increased by 2 percentage points such that by 2023,the average LIC had real per capita GDP of about one-ninth of the level in other EMDEs(figure B.1.1.A).A particularly stark reversal for LICs.Various development challenges confronting LICsincluding high levels of extr

131、eme poverty and low human development outcomeshave been compounded by the overlapping crises of the past few years.LICs progress toward key development goals has stalled.Only about 4 percent of SDG targets are on track in LICs,compared with 10 percent for other EMDEs(Sachs,Lafortune,and Fuller 2024)

132、.The gap between real GDP per capita and its pre-pandemic trend is larger in LICs than in other EMDEs(figure B.1.1.B).Amid stunted economic recoveries,one in two LICs is poorer now than on the eve of the pandemica particularly stark reversal.Conflict and climate change-induced natural disasters have

133、 intensified in LICs,and they have been associated with a marked increase in food insecurity(World Bank 2024c).Incidences of natural disasters over the past decade have precipitated larger losses(as a percentage of GDP)in LICs than in other EMDEs(figure B1.1.C).An even greater set of fiscal challeng

134、es in LICs.Relative to other EMDEs,fiscal positions are weaker in LICs and have deteriorated more rapidly in recent years.LICs entered the 2020 pandemic recession with inadequate fiscal buffers,which,in the context of limited market access,constrained their ability to undertake countercyclical fisca

135、l policyand even more so than in other EMDEs(figure B.1.1.D).Since 2019,the debt build-up has been faster and more widespread in LICs than in other EMDEs,and LICs spend a higher share of their revenue on interest BOX 1 LIC challenges in the context of EMDEs 19 LOW-INCOME COUNTRIES FISCAL VULNERABILI

136、TIES payments than other EMDEs.Amid high debt and debt-service costs,debt vulnerabilities are elevated,and the share of countries in or at high risk of debt distress is greater in LICs than in other EMDEs(figure B.1.2.A).Growth opportunities.To confront these challenges,LICs have a range of opportun

137、ities to accelerate growth and development and thus expand fiscal space,if appropriate reform efforts are pursued and the necessary support from the global community is provided.If effectively harnessed,natural resource endowments and demographic dividends could drive economic growth and transformat

138、ion.Natural resources.Several of todays LICs have abundant oil and gas resources,mineral deposits,and substantial solar energy and tourism potential.Fiscal revenues(as a percentage of GDP)from natural resources are higher in LICs than in other EMDEs(figure B.1.2.B).Natural resource endowments presen

139、t both opportunities and challenges.Commodity revenues,and the increase in fiscal space,can be transformative if used efficiently for public investment.However,commodity dependence can precipitate macroeconomic management challenges related to Dutch disease and fiscal policy volatility,potentially u

140、ndercutting sustained growth and poverty reduction.Demographic dividends.LICs can reap substantial dividends as the share of their working-age population grows significantly over the next half-century(figure B1.2.C).During that period,the share of the working-age population is set to continue to ris

141、e in LICs,by even a larger degree than in other EMDEsand peak later in LICs than elsewhere in the EMDE group.By contrast,the working-age share of the population has been declining in advanced economies for over a decade.The expected growth in LIC working-age populations could have sizable economic i

142、mpacts(Ahmed and Cruz 2016).As cohorts of children become working age,dependency ratios will decline,and the labor force will swell.By illustration,demographic trends,if combined with effective labor market reforms,could add an estimated 1.2 percentage points a year to potential growth between 2022

143、and 2030 in SSAthe region that concentrates the vast majority of LICs(Kasyanenko et al.2023).Support from the global community.LICs require substantial international support to make meaningful progress toward development BOX 1 LIC challenges in the context of EMDEs(continued)20 LOW-INCOME COUNTRIES

144、FISCAL VULNERABILITIES BOX 1 LIC challenges in the context of EMDEs(continued)FIGURE B1.1 LIC challenges in the context of EMDEs The income gap between LICs and other EMDEs has widened over the past two decades.The recovery from the pandemic has been much slower and incomplete in LICs.Climate-change

145、-induced natural disasters precipitate larger economic costs(relative to GDP)in LICs than in other EMDEs.B.GDP per capita relative to 2019 A.Real GDP per capita in LICs relative to other EMDEs Sources:EM-DAT(database);International Monetary Fund;World Bank.Note:EMDEs=emerging market and developing e

146、conomies;LICs=low-income countries;Other EMDEs=emerging market and developing economies excluding LICs.A.Bars show average real GDP per capita in LICs relative to real GDP per capita of other EMDEs.Based on up to 24 LICs and 127 other EMDEs.B.Dashed lines show per capita GDP projections in the Octob

147、er 2019 World Economic Outlook(WEO).Solid lines show per capita GDP estimates in the April 2024 WEO.Based on 23 LICs and 127 other EMDEs.C.Bars and diamonds show the weighted average of economic damages from natural disasters as a percentage of GDP.Based on up to 17 LICs and 105 other EMDEs.D.Fiscal

148、 measures in response to the COVID-19 pandemic as of September 27,2021.Based on 7 LICs and 69 other EMDEs.D.COVID-19 fiscal policy support C.Cost of natural disasters 90951001051101152017201820192020202120222023LICsOther EMDEsIndex,2019=100Pre-pandemic trends00.51.01.52.0LICsOther EMDEs2011-232000-1

149、0Percent of GDP0123LICsOther EMDEsPercent of GDP10111213142000201020192023Percentageand climate goals.Multilateral creditors provided a record$115 billion in new financing for developing countries in 2022,nearly half of which came from the World Bank(World Bank 2023b).Grants provided by the World Ba

150、nks International Development Association(IDA)to LICs have grown significantly over the past decade and have more than doubled(relative to income)since 2015,to 1.2 percent of GNI in 2022.IDA is the largest source of official development assistance(ODA)for LICs and contributed nearly half(47 percent)

151、of new ODA disbursements from multilateral organizations to LICs in 2022(OECD 2024).IDA net 21 LOW-INCOME COUNTRIES FISCAL VULNERABILITIES disbursements to LICs amounted to more than$5 billion in 2022,significantly higher than disbursements to other EMDEs(figure B1.2.D).a With its successful track r

152、ecord of delivery,affordable financing options,and deep knowledge of development,the IDA is a vital partner for LICs.It supports these countries in a wide range of areas,including private BOX A1 LIC challenges in the context of EMDEs(continued)FIGURE B1.2 LIC challenges in the context of EMDEs(conti

153、nued)Fiscal positions are weaker in LICs than in other EMDEs,and a larger share of LICs are in or at high risk of debt distress.LICs can take advantage of their natural and demographic resources to support growth.Support from the International Development Association is critical to address LIC devel

154、opment challenges.B.Resource revenues A.Risk of debt distress Sources:International Debt Statistics(database);International Monetary Fund;UN World Population Prospects(database);UNU-WIDER Government Revenue Dataset(database);World Bank.Note:AEs=advanced economies;EMDEs=emerging market and developing

155、 economies;LICs=low-income countries;Other EMDEs=emerging market and developing economies excluding LICs.A.Percent of EMDEs in or at high risk of debt distress.Based on 70 EMDEs,of which 24 are LICs.B.Bars show the 2020-2022 GDP weighted average fiscal revenue(as a percentage of GDP)from natural res

156、ources.Based on up to 12 LICs and 92 other EMDEs.C.Population-weighted averages.Working-age population is defined as people aged 15-64.Population projections come from the UN World Population Prospects database.Based on 36 AEs,25 LICs,and 117 other EMDEs.D.IDA grants are net disbursements of grants

157、from IDA in billions of U.S.dollars.Based on 24 LICs and 46 other EMDEs.D.IDA grants C.Working age population 01234LICsOther EMDEsPercent of GDP50556065701980199020002010202020302040205020602070208020902100LICsOther EMDEsAEsPercent012345620022004200620082010201220142016201820202022LICsOther EMDEsUSD

158、 billions020406080100201220192024201220192024LICsOther EMDEsIn debt distressHigh riskModerate riskLow riskPercenta.Data are from the World Banks International Debt Statistics database.Accessed:09/05/2024.22 LOW-INCOME COUNTRIES FISCAL VULNERABILITIES BOX 1 LIC challenges in the context of EMDEs(cont

159、inued)sector development,human capital development,infrastructure and climate change adaptation,and many others.b IDA,working through the International Finance Corporation(IFC)and the Multilateral Investment Guarantee Agency(MIGA),incentivizes private sector investment in LICs by partially mitigatin

160、g risks and potential losses(World Bank 2017b).This risk mitigation makes otherwise unviable investments bankable(Nonay,Motta,and Grigorov 2024).IDA also provides critical support for human capital development in LICs,including in education,health,and nutrition.For example,IDA supported LICs during

161、crises such as the Ebola outbreak,and more recently,the COVID-19 pandemic(IDA 2023;World Bank 2019a).IDAs support has enabled LICs to invest in critical infrastructure,including in the energy,transport,and urban infrastructure sectors(IDA 2024).At the same time,IDA helps countries cope with the impa

162、cts of climate change and other shocks while reducing their carbon emissions through green investments in key sectors,including food and land use,transport,and urban systems.IDA invests in strengthening government capacity to implement strategies aligned with climate goals and supports countries to

163、design and implement climate information systems for crisis preparedness,including early warning systems for extreme weather events(World Bank 2021).In the five years to 2022(the latest available data),more than 84 percent of IDA resources were disbursed to LICs,compared to 74 percent in the five ye

164、ars prior.However,given LICs large and growing needs,greater global support is essential to help the worlds poorest countries restore sustainable fiscal positions that are capable of supporting their long-term development aspirations.b.For detailed information on IDAs work in developing economies,se

165、e IDA(2023).For examples of IDA funded projects in LICs,see:https:/ida.worldbank.org/en/replenishments/road-to-IDA21.II.Evolution of Fiscal Positions in LICs Even before the onset of the pandemic and ensuing global recession of 2020,LICs average debt-to-GDP ratios had risen sharply during 2011-19,wi

166、th persistent fiscal deficits outweighing the effects of nominal GDP growth.Before and since the pandemic,the larger fiscal deficits in LICs relative to other EMDEs have mainly reflected weakness in revenues,especially income tax revenues.Spending pressures before and during the pandemic,as well as

167、the effects on spending of subsequent shocks,have further widened LICs fiscal deficits.Domestic armed conflicts and fragility have added to these fiscal challenges,including by tilting revenue collection from income taxes to trade taxes and by increasing military spending.Conceptual framework An acc

168、ounting decomposition offers a framework for identifying the sources of changes in a countrys debt burden,or ratio of government debt to GDP(World Bank 2024a).Setting aside,for simplicity,some complications to be considered below,the change in the debt-to-GDP ratio between one period and the next de

169、pends on the primary fiscal balance(the difference between revenues and non-interest expenditures),the interest rate on government debt,the initial level of government debt,and the growth rate of nominal GDP,which is the sum of the growth rate of real GDP and the rate of inflation.Te complications i

170、nclude the fact that some government debt is owed to foreign creditors and denominated in foreign currency,so that the average interest rate on government debt depends on foreign as well as domestic interest rates,and changes in the value of debt in terms of the domestic currency will depend partly

171、on exchange rate movements.Other complications include privatization proceeds,the materialization of contingent liabilities,and other ad hoc changes to debt stocks such as the emergence of hidden debt(annex 1).The decomposition is applied to the whole period 2011-23,to 2011-19 to capture changes in

172、the decade leading up to the pandemic,and to 2019-23 to capture changes during and following the pandemic.The exercise is conducted for up to 151 EMDEs,including 22 LICs for which sufficient data are available(table 1.B).In addition,the exercise is conducted for a counterfactual scenario 26 LOW-INCO

173、ME COUNTRIES FISCAL VULNERABILITIES using five-year-ahead forecasts for real GDP growth,inflation,revenues,and non-interest expenditures from the IMFs October 2018 World Economic Outlook.By comparing the debt-to-GDP ratios in 2023 implied by these projections with actual outturns,the exercise can es

174、timate the reasons for higher-than-projected debt in 2023.Evolution of debt Government debt in the average LIC has risen rapidly since 2011,with most of the buildup occurring well before the 2020 recession as LICs took advantage of a low-interest-rate global environment to expand public investment(C

175、huku et al.2023).Government debt in LICs,relative to GDP,increased faster than in other EMDEs over the past decade.In the average LIC,the ratio of government debt to GDP increased by 6 percentage points between end-2019 and end-2023,to 72 percentcompared to an increase of 4 percentage points in othe

176、r EMDEs.In 2023 alone,the average debt-to-GDP ratio in LICs increased by 9 percentage points.The rise in debt,relative to GDP,reflects persistent and widening fiscal deficits,which outweighed the effect of nominal GDP growth.At the same time,LICs average government debt-to-export earnings ratio incr

177、eased by 59 percentage points between 2011 and 2022,to 210 percent,with 80 percent of countries having ratios rising to even higher levels.Over the same period,the number of LICs with an external debt-to-export earnings ratio exceeding 300 percent rose from two to eight countries(World Bank 2023b).5

178、 Widespread rise in government debt Between 2011 and 2023,the ratio of government debt to GDP in the average LIC rose by 36 percentage pointsalmost twice as much as in other EMDEsto 72 percent at end-2023,well above the level in other EMDEs(figure 3).Increases were widespread,occurring in 80 percent

179、 of LICs.The overall rise was unexpectedly large:in 2018,when the IMFs 5-year-ahead forecasts first became available for 2023,the government debt-to-GDP ratio in the average LIC was projected to rise to only 60 percent of GDP,although increases were projected for almost three-quarters of the LICs in

180、 which they ultimately occurred.More than four-fifths of the government debt buildup between 2011 and 2023 occurred before the pandemic(figure 3).Countries with the fastest rise in debt were often fragile and affected by combinations of conflict,weak governance,and commodity dependence(World Bank 20

181、19b).Only in two LICs 5 The external debt-to-export earnings ratio exceeded 300 percent in Burundi,The Gambia,Guinea-Bissau,Mozambique,Niger,Rwanda,Sudan,and Uganda.LOW-INCOME COUNTRIES 27 FISCAL VULNERABILITIES(Afghanistan,the Democratic Republic of Congo)did government debt decline relative to GDP

182、 over this period,largely because of debt relief.Debt decreased in six LICs between 2019 and 2023(Chad,DRC,Ethiopia,Gambia,Mozambique,Yemen).In the 90 percent of LICs where government debt increased between 2011 and 2019,it rose much more than in other EMDEs with rising government debt.In 2020,the g

183、overnment debt-to-GDP ratio in the average LIC rose by 0.4 percentage points,and then increased further during 2021-23,by 8 percentage points to 72 percent.By contrast,the ratio declined by 2 percentage points in other EMDEs,on average,to 57 percent.The average debt-to-GDP ratio in LICs is projected

184、 to fall to 67 percent in 2025,helped by a pick-up in GDP growth.However,past forecasts have typically proven too optimistic(Ho and Mauro 2016).Deficit-driven government debt buildup The rise of 36 percentage points in the average government debt-to-GDP ratio in LICs between 2011 and 2023 reflected

185、persistent and widening primary fiscal deficits,which more than offset the effect of nominal GDP growth(figure 4).In contrast,in the average non-LIC EMDE,primary deficits only partly offset the effects of growthat least until the pandemic.The government debt buildup in LICs during 2011-23 was larger

186、 than projected in 2018 for many reasons:growth disappointed,primary deficits were larger than expected,interest costs were higher than expected,and other factors raised debt more than twice as much as expected.Government debt rose in 92 percent of LICs between 2011 and 2023by 36 points on average.T

187、hree-fourths of the increase was due to sizable primary deficits,which outweighed the effects of real growth and inflation(figure 5).6 The drivers of debt varied significantly across countries,but only in the Central African Republic,Sudan,and Yemen did real output contractions contribute to increas

188、es in the debt-to-GDP ratio.In all other LICs,real GDP growth helped lower the ratio.Interest costs accounted for almost one-third of the debt buildup in LICs with rising debtless than in other EMDEs,reflecting the fact that almost one-third of LIC external debt was on concessional terms.In some cou

189、ntries,other factors played a sizeable role.These include the recognition or realization of contingent liabilities net of privatization proceeds,debt restructuring,and measurement error(figure 5;World Bank 2024a).In 6 Two LICs saw a decline in debt during 2011-23(Afghanistan and the Democratic Repub

190、lic of Congo),largely due to debt relief accompanied by near-balanced primary deficits.28 LOW-INCOME COUNTRIES FISCAL VULNERABILITIES FIGURE 4 Decomposition of changes in government debt The rise in LICs government debt-to-GDP ratios between 2011 and 2023 resulted from fiscal deficits that outweighe

191、d the effects of nominal GDP growth,even before the pandemic.The debt buildup over 2011-23 was larger than projected in 2018,mainly because of disappointing growth outcomes and higher-than-expected interest costs;primary deficits were broadly as expected.B.Contributions to average increase in LICs g

192、overnment debt,2019-23 A.Contributions to average increase in LICs government debt,2011-19 Sources:International Monetary Fund;World Bank.Note:LICs=low-income countries.Debt in 2011(2019 in B)is in percent of GDP.Red bars indicate debt-increasing contribution and orange bars indicate debt-decreasing

193、 contribution.Please note that the group of LICs with rising government debt differs by sample periods(i.e.,2011-19 in A;2019-23 in B;and 2011-23 in C-D).“Other”factors include exchange rate depreciation,privatization proceeds,the materialization of contingent liabilities,or other ad-hoc changes to

194、debt stocks.D.The decomposition is based on the forecasts for 2023 from the IMFs October 2018 World Economic Outlook.D.2018 projections of contributions to average increase in government debt,2011-23 C.Contribution to average increase in LICs government debt,2011-23 Mozambique and Sudan,where state-

195、owned enterprises created large contingent(or explicit)government liabilities,other factors accounted for 4 and 18 percentage points,respectively,of the average annual change in the debt-to-GDP ratio(IMF 2018a).In The Gambia,it accounted for more than 1 percentage point of GDP per year,as a result o

196、f government bailouts of state-owned enterprises and widespread mismanagement of debt(World Bank 2018a).Riskier sources of government financing In addition to the buildup of debt,the composition of government debt in LICs has shifted toward riskier sources of financing.At end-2022,external governmen

197、t debt in the average LIC was equivalent to 55 percent of GDP020406080Debt in2019GrowthPrimarydeficitsInterestcostOtherPercentage points of GDP020406080Debt in2011GrowthPrimarydeficitsInterestcostOtherPercentage points of GDP020406080Debt in2011GrowthPrimarydeficitsInterestcostOtherPercentage points

198、 of GDP020406080Debt in2011GrowthPrimarydeficitsInterestcostOtherPercentage points of GDPLOW-INCOME COUNTRIES 29 FISCAL VULNERABILITIES almost three-quarters of total government debt.Almost all of this external debt was denominated in foreign currencies.Also,between 2011 and 2022,the concessional sh

199、are of government debt in the average LIC declined by 8 percentage points,to 52 percent(figure 3).In the decade before the pandemic,non-Paris Club official creditors,notably China,became a more important source of financing,especially in SSA(Essl et al.2019).In 2022,the most recent year for which da

200、ta are available,non-Paris Club debt accounted for more than one-fifth(23 percent)of the average LICs external government debt,and about 13 percent of its government debt.Lending arrangements for non-Paris Club official debt,like commercial debt,are often opaque,and they can be complex and varied(Ho

201、rn,Reinhart,and Trebesch 2019).FIGURE 5 Decomposition of changes in government debt(continued)In LICs with rising debt-to-GDP ratios during 2011-23,primary deficits outweighed the benefits of nominal GDP growth,whereas in LICs with falling debt-to-GDP ratios,the reverse was true.However,there was wi

202、de variation.B.Contributions to average decline in government debt in LICs with falling debt,2011-23 A.Contributions to average increase in government debt in LICs with rising debt,2011-23 Sources:International Monetary Fund;World Bank.Note:LICs=low-income countries.“Other”factors include exchange r

203、ate depreciation,privatization proceeds,the materialization of contingent liabilities,or other ad-hoc changes to debt stocks.The sample covers LICs with rising(A,C)or falling(B,D)government debt-to-GDP ratios between 2011 and 2022.A.B.Red bars indicate debt-increasing contribution and orange bars in

204、dicate debt-reducing contribution.C.D.Blue bars indicate median contributions to the average changes in government debt-to-GDP ratios during 2011-23,and orange whiskers indicate interquartile ranges.D.Range of contributions to changes in government debt in LICs with falling debt,2011-23 C.Range of c

205、ontributions to changes in government debt in LICs with rising debt,2011-23 010203040Debt in2011GrowthPrimarydeficitsInterestcostOtherPercentage points of GDP-30-150153045GrowthPrimarydeficitInterest costOtherPercentage points of GDP-20-1001020GrowthPrimarydeficitInterest costOtherPercentage points

206、of GDP020406080Debt in2011GrowthPrimarydeficitsInterestcostOtherPercentage points of GDP30 LOW-INCOME COUNTRIES FISCAL VULNERABILITIES Non-Paris Club official creditors did agree to temporary debt-service relief in the past few years,notably under the debt service suspension initiative(DSSI)and the

207、G20 Common Framework.Nevertheless,the increased exposure of LICs to non-Paris Club official creditors and commercial creditors poses coordination challenges for debt resolutions(World Bank and IMF 2018).Higher levels of public debt and increased reliance on riskier sources of financing make many LIC

208、s more vulnerable to currency,interest rate,and refinancing risks(Essl et al.2019).Evolution of primary deficits Persistent primary deficits Persistent and sizable primary deficits have been the main source of government debt accumulation in LICs since 2011.On average during 2011-23,LICs primary def

209、icits amounted to 2.3 percent of GDP,about 1 percentage point above the average for other EMDEs.About 60 percent of LICs ran primary deficits every year during that period.The pandemic,which sharply increased spending needs,led to a jump in LICs primary deficits in 2020,to 3.4 percent of GDP on aver

210、age,from 1.2 percent in 2019.Despite the post-pandemic growth rebound,only about one-fourth of this increase was unwound during 2021-23(figure 6).Between 2011 and 2023,the average primary deficit widened by 1.2 percentage points of GDP,to 2.4 percent of GDPhigher than projected in 2018.Primary FIGUR

211、E 6 Primary fiscal balances Primary fiscal deficits,relative to GDP,have been consistently wider,on average,in LICs than in other EMDEs.In the average LIC,the deterioration in primary balances in 2020-22,owing mainly to the pandemic,resulted from both increased primary expenditures and reduced reven

212、ues.B.LIC government revenues and primary expenditures,2010-24 A.Primary fiscal balance Sources:International Monetary Fund;World Bank.Note:LICs=low-income countries;Other EMDEs=emerging market and developing economies excluding LICs.A.Bars show unweighted averages,with whiskers showing interquartil

213、e ranges.Data for 2023 are estimated.B.Projections(marked f)are shown for 2024-25.-4-3-2-1015171921232520112012201320142015201620172018201920202021202220232024f2025fPrimary balance(RHS)RevenueExpenditurePercent of GDP-6-4-2022011 2019 2021 2023 2011 2019 2021 2023LICsOther EMDEsPercent of GDPLOW-INC

214、OME COUNTRIES 31 FISCAL VULNERABILITIES balances deteriorated in more than 90 percent of LICs between 2011 and 2023,considerably more than the 56 percent of non-LIC EMDEs(figure 7).Sources of widening primary deficits LICs have had considerably lower revenue and expenditure-to-GDP ratios than other

215、EMDEs for a prolonged period(Akitoby et al.2018).Although revenue losses during 2011-19 were followed by a post-pandemic improvement,between FIGURE 7 Decomposition of changes in primary fiscal balances Increases in government spending outpaced revenue growth in LICs between 2011 and 2023,resulting i

216、n widening primary deficitsthough with significant variation across countries.Primary balances deteriorated in a larger share of LICs than other EMDEs.In LICs with improvements in fiscal balances,revenues increased by more and expenditures rose by less than in LICs with deteriorating balances.B.Shar

217、e of economies with deterioration in primary balances between 2011 and 2023 A.Contributions to changes in primary balance,2011-23 Sources:International Monetary Fund;World Bank.Note:EMDEs=emerging market and developing economies;LICs=low-income countries;Other EMDEs=emerging market and developing ec

218、onomies excluding LICs.A.Bars show unweighted average changes between 2011 and 2023 in the primary fiscal balance-to-GDP ratio,the revenue-to-GDP ratio,and the negative of primary expenditure-to-GDP ratio.B.Gray line denotes 50 percent.C.Bars indicate median contributions to change in primary balanc

219、e(in blue),revenues(in red),and primary expenditures(in orange;all in percent of GDP)during 2011-22,with whiskers indicating the interquartile range.D.“Worsening”(“Improving”)primary balance refers to the 19(6)LICs and 69(59)other EMDEs where the primary balance in 2023 was below(above)the primary b

220、alance in 2011.Bars indicate median contributions to change in revenues(in blue),and primary expenditures(in red;all in percent of GDP)during 2011-23,with whiskers indicating the interquartile range.D.Range of contributions to changes in LICs primary balances,2011-23 C.Range of changes in primary ba

221、lances,revenues,and expenditures,2011-23 020406080100LICsOther EMDEsPercent of countries-4-2024Primary balanceRevenuePrimaryExpenditurePrimary balanceRevenuePrimaryExpenditureLICsOther EMDEsPercentage points of GDP-9-6-30369WorseningImprovingWorseningImprovingLICsOther EMDEsRevenuesPrimary expenditu

222、rePercentage points of GDP-2-101LICsOther EMDEsRevenuesPrimary expendituresPrimary balancePercentage points of GDP32 LOW-INCOME COUNTRIES FISCAL VULNERABILITIES 2011 and 2023 revenues declined by 1.9 percentage points of GDP.Primary expenditures also declined in this period,but by only half as much,

223、such that the average primary deficit widened.There was wide heterogeneity among countries in the evolution of spending and revenues between 2011 and 2023.None of the LICs with improving primary balances suffered the magnitude of revenue losses of the one-fourth of LICs with deteriorating primary ba

224、lances.In LICs with improving primary balances,spending increases were much smaller than in the majority of LICs with worsening primary balances.Evolution of revenues Revenue weakness LICs weak revenue collection mainly reflects challenges in collecting tax revenues.This may partly reflect tax expen

225、ditures(Mullins,Gupta,and Liu 2020).In the average LIC,tax expendituressuch as tax credits and exemptionsreduced revenues by 2.3 percent of GDP in 2022 or the latest year with available data(figure 8).Although average ratios of tax revenues to GDP in LICs were broadly stable over the past decade,the

226、re was some variation,with somewhat greater volatility in LICs that are in fragile and conflict-affected situations(FCS).Revenue composition In the average LIC,government revenues were equivalent to 18 percent of GDP during 2011-2311 percentage points lower than in non-LIC EMDEs(figure 9).Tax revenu

227、es accounted for 6 percentage points of this gap.Both direct and indirect tax revenues were weaker in LICs than in other EMDEs,by up to 3 percentage points of GDP,the largest differences being in goods and services taxes(3 percentage points of GDP),personal income taxes(2 percentage points),and corp

228、orate income taxes(1 percentage point).Trade tax revenues,relative to GDP,were broadly similar in LICs and other EMDEs.On average,value-added tax(VAT)rates were higher in LICs than in other EMDEs in 2022,but VAT revenues were 2 percentage points of GDP(and significantly)lower in LICs(figure 8).Aid h

229、as always played an important role in LICs.During 2011-15,grants amounted to an average of 7 percent of GDP in LICsnearly three times the average of 2.4 percent of GDP in other EMDEs.They also constituted more than one-third of total government revenue.Since then,however,grants to LICs declined stee

230、plyto 2.5 percent of GDP and less than one-fifth of revenue by 2022(figure 9).The decline may reflect rising financing costs and other funding LOW-INCOME COUNTRIES 33 FISCAL VULNERABILITIES constraints in donor countries,but also limited absorptive capacity in LICs that may have constrained the effe

231、ctiveness of aid(Feeny and McGillivray 2009).At the same time,aid coordination has been hindered by increased donor fragmentation(World Bank 2022a).There is a well-established association between higher grant funding and lower tax revenues,although it has been found that stronger institutions and a

232、more equal income distribution may mitigate the association(Thornton 2014).Since 2011,the composition of tax revenues in LICs has been broadly stable,at least for the nine LICs for which a revenue breakdown is available.In these LICs,FIGURE 8 VAT rates,tax expenditures,fuel subsidies,and tax effort

233、On average,VAT rates are higher in LICs than in other EMDEs.Tax expenditures absorb sizeable amounts of revenue in LICs and other EMDEs,averaging more than 2 and 3 percent of GDP,respectively.Fuel subsidies cost an estimated 2 percent of GDP in LICs in 2022.Tax effort is lower in LICs than in other

234、EMDEs:on average,LICs have been able to collect less than two-thirds of their potential tax revenue over the past decade.B.Tax expenditures A.Value-added tax rates Sources:International Monetary Fund;Global Tax Expenditures(database);McNabb,Danquah,and Tagem(2021);World Bank.Note:EMDEs=emerging mark

235、et and developing economies;LICs=low-income countries;Other EMDEs=emerging market and developing economies excluding LICs.A.Bars show simple average.Whiskers show interquartile range.Based on 133 EMDEs,of which 21 are LICs.B.Bars show simple average.Whiskers show interquartile range.Based on 71 EMDE

236、s,of which 12 are LICs.C.Weighted averages.Fuel subsidy data are from Black et al.(2023).Based on a sample of 133 EMDEs,of which 21 are LICs.D.Tax effort measures the extent to which tax collections reach potential,expressed as a percentage.Tax potential estimates are the latest available data point

237、s for each country,based on the pooled estimates reported in McNabb,Danquah,and Tagem(2021).Based on 126 EMDEs,of which 19 are LICs.D.Tax effort C.Explicit fuel subsidies 012345LICsOther EMDEsPercent of GDP0123LICsOther EMDEsPercent of GDP5053565962LICsOther EMDEsPercent048121620LICsOther EMDEsPerce

238、nt34 LOW-INCOME COUNTRIES FISCAL VULNERABILITIES both indirect and direct tax revenues rose by almost 2 percentage points of GDP between 2011 and 2019,before declining by 2 percentage points between 2019 and 2020(figure 10).The increase in indirect tax revenues between 2011 and 2019,to just over 8 p

239、ercent of GDP,was largely on account of an increase in goods and service taxes.Within the increase in direct tax revenues,personal income tax revenues increased by 0.7 percentage points of GDPonly about one-third as much as indirect tax revenues.More than four-fifths of LICs are commodity exporters.

240、Stronger dependence on commodities can make fiscal capacity in LICs highly cyclical and weaken fiscal FIGURE 9 Government revenues Government revenues in LICs have consistently lagged behind other EMDEs,primarily due to gaps in tax revenues,particularly from goods and services taxes,as well as incom

241、e taxes.Commodity-exporting LICs have somewhat higher goods and services tax collections.Over the past decade,the composition of tax revenues has shifted somewhat toward goods and services.Grants have declined steeply among LICs.B.LIC government revenues,by country group A.Government revenues Source

242、s:International Monetary Fund;World Bank.Note:EMDEs=emerging market and developing economies;FCS=fragile and conflict-affected situations;LICs=low-income countries;Other EMDEs=emerging market and developing economies excluding LICs.A.Bars show unweighted averages,with whiskers showing interquartile

243、ranges.B.Lines show the unweighted averages.C.Unweighted average.D.Unweighted averages.Based on up to 134 EMDEs,of which 20 are LICs.D.Composition of total revenues C.Composition of tax revenues 1517192120102011201220132014201520162017201820192020202120222023AllCommodity exportersFCSPercent of GDP05

244、101520201120152020201120152020LICsOther EMDEsIncomeGoods and servicesInternational TradePropertyPercent of GDP0102030201120152022201120152022LICsOther EMDEsTaxSocial contributionsGrantsOther revenuesPercent of GDP01530452011 2019 2021 2023 2011 2019 2021 2023LICsOther EMDEsPercent of GDPLOW-INCOME C

245、OUNTRIES 35 FISCAL VULNERABILITIES capacity in the longer term(Benitez et al.2023;Mawejje 2019),worsen governance(Sinnott,Nash,and de la Torre 2010),or both(Cassidy 2019).Among commodity-exporting LICs,three-fifths are predominantly agricultural commodity exporters.The remainder rely on energy or in

246、dustrial metal exports.Revenue mobilization can be seriously hindered by fragility and conflict(Fang et al.2020).The two-thirds of LICs that are in fragile and conflict-affected situations(FCS)have struggled more than other LICs to collect tax revenues.In many other LICs,including ones with poor pro

247、vision of public services,and large informal sectors,measures to expand the tax base and reduce tax evasion have shown the potential to generate sizable revenue gains(Mascagni,Mengistu,and Woldeyes 2021;Okunogbe and Tourek 2024).FIGURE 10 Decomposition of government revenues,2011-22 During 2011-22,o

248、verall revenues in LICs were below those in other EMDEs,mainly because of differences in tax revenue collection,especially of goods and services taxes but also income taxes.The composition of tax revenues in LICs has shifted somewhat toward indirect taxes.B.Direct and indirect tax revenues in LICs a

249、nd other EMDEs A.Revenues in LICs and other EMDEs Sources:International Monetary Fund;World Bank.Note:EMDEs=emerging market and developing economies;FCS=fragile and conflict-affected situations;LICs=low-income countries;Other EMDEs=emerging market and developing economies excluding LICs.*shows the s

250、ignificance level at 10 percent.A.B.Unweighted average revenues(in percent of GDP)during 2011-22 in LICs and other EMDEs.C.Unweighted average revenues(in percent of GDP)during 2011-22 in FCS and other LICs.D.Unweighted averages for 9 LICs and 85 other EMDEs.D.Tax revenues and overall revenues C.Reve

251、nues in FCS and other LICs 0246810Goods andservices taxesTradetaxesPersonalincome taxCorporateincome taxLICsOther EMDEsPercentage points of GDP*0246Goods andservices taxesTradetaxesPersonalincome taxCorporateincome taxIndirect taxesDirect taxesFCSOther LICsPercentage points of GDP*051015202530352011

252、20192020201120192020LICsOther EMDEsIndirect taxesDirect taxesOverall revenuePercent of GDP0102030OverallrevenueTaxesIndirecttaxesDirecttaxesGrantsLICsOther EMDEsPercentage points of GDP*36 LOW-INCOME COUNTRIES FISCAL VULNERABILITIES Evolution of expenditures Spending constrained by revenues Revenue

253、weakness constrains government spending in LICs(World Bank 2019c).During 2011-23,primary expenditures in the average LIC were about 9 percentage points of GDP lower than in the average non-LIC EMDEbroadly in line with the revenue gap between the two groups of countries(figure 10).In more than two-th

254、irds of LICs,primary spending relative to GDP increased between 2011 and 2023.Spending composition In the average LIC,between 2011 and 2023,primary expenditures declined by 1 percentage point of GDP,while interest payments,as a ratio to total revenues,increased by more than 4 percentage points to re

255、ach 10 percent(figure 11).But there was wide heterogeneity,with interest payments exceeding 20 percent of government revenues in some LICs(Malawi,Sierra Leone,Uganda).Primary expenditures decreased during 2019-23,despite increased outlays on health and social protection.Between 2011 and 2019,primary

256、 spending had risen only marginally(less than 0.5 percentage points of GDP),the largest increases being in the government wage bill and defense spending,with modest increases in health and education spending in LICs.In South Sudana fragile and conflict-affected LICthe fastest and most significant ex

257、pansion in public employment occurred in the armed forces(Mawejje 2020).Between 2019 and 2021,LICs government wage bills and interest payments together averaged 39 percent of government spending and were 11 percentage points of GDP higher than in other EMDEs(figure 11).In contrast,combined governmen

258、t spending on education and health is about 2 percentage points of GDP lower in LICs than in other EMDEs.With high contractual,non-discretionary expenditures,the ability of LICs to reallocate spending toward growth-enhancing investments and social programs tends to be limited,at least in the short r

259、un,the main flexibility in spending being provided by revenue windfalls.As a result,infrastructure spending,for example,in LICs has been highly procyclical(Foster,Rana,and Gorgulu 2022).At the same time,the high prevalence of conflict and natural disasters among LICs and the fact that 80 percent of

260、LICs are heavily commodity-reliant result in macroeconomic volatility since countries with greater variability in their tax bases tend to exhibit more procyclical fiscal policy(figure 12;Talvi and Vegh 2005).In addition,the prevalence of conflict and violence increases pressures for defense spending

261、 at the LOW-INCOME COUNTRIES 37 FISCAL VULNERABILITIES expense of more productive spending,including on education,health,and infrastructure.Spending efficiency The efficiency of government spending was found to be statistically significantly weaker in LICs than in other EMDEs in almost all major spe

262、nding categories(figure 13).7 explanation is that processes for project appraisal and evaluation were less rigorous,due to lack of capacity or corruption.The inefficiency of FIGURE 11 Government expenditures Primary spending,relative to GDP,has been consistently lower in LICs than in other EMDEs.In

263、LICs,on average,governments net interest payments increased substantially between 2019 and 2023.With the outbreak of the pandemic,primary spending in LICs rose steeply in 2020.B.Primary expenditures in LICs,by country groups A.Primary expenditures Sources:International Monetary Fund;World Bank.Note:

264、EMDEs=emerging market and developing economies;FCS=fragile and conflict-affected situations;LICs=low-income countries;Other EMDEs=emerging market and developing economies excluding LICs.A.Bars show unweighted averages,and whiskers show interquartile ranges.B.Lines show unweighted averages.C.Net inte

265、rest payments are defined as the difference between the primary balance and the overall balance.Unweighted average.The orange whiskers show interquartile ranges.Countries with negative net interest payments and those with incomplete data are not included in the sample.D.Expense excludes net investme

266、nt in government nonfinancial assets.D.Composition of government spending C.Net interest payments 7 The technical details on measuring spending efficiency are provided in annex 2.1719212320102011201220132014201520162017201820192020202120222023AllCommodity exportersFCSPercent of GDP024681012142011 20

267、19 2021 2023 2011 2019 2021 2023LICsOther EMDEsPercent of revenues0204060801002011 2019 2020 2021 2011 2019 2020 2021LICsOther EMDEsWage billInterest spendingSubsidies and transfersOther spendingPercent of expense102030402011 2019 2021 2023 2011 2019 2021 2023LICsOther EMDEsPercent of GDP38 LOW-INCO

268、ME COUNTRIES FISCAL VULNERABILITIES spending on health and education,combined with limited reallocation of spending to these categories over the past decade,may intensify the challenges facing LICs in these areas.In part,weak spending efficiency in LICs reflects broader underdevelopment,weak institu

269、tions,and associated capacity constraints.As an example,in 2014,the Guinean government planned to build a$20 billion infrastructure project,consisting of heavy-duty railways and a new port,to help export some of the worlds highest-grade iron ore from Simandou.But the project stalled in 2017 amid cor

270、ruption allegations and ownership changes(World Bank 2018b).FIGURE 12 Country characteristics and macroeconomic volatility The incidence of conflict and violence events has recently been higher in LICs than in other EMDEs.Relative to other EMDEs,the average cost of natural disasters in LICs is highe

271、r and has increased more rapidly in recent years.LICs are more commonly dependent on commodity exports than other EMDEs.These factors contribute to higher volatility of GDP growth in LICs than in other EMDEs.B.Cost of natural disasters A.Number of conflict and violence events Sources:Armed Conflict

272、Location and Event Data(database);EM-DAT(database);International Monetary Fund;World Bank.Note:EMDEs=emerging market and developing economies;LICs=low-income countries;Other EMDEs=emerging market and developing economies excluding LICs.A.Bars show the number of reported conflict and violence events

273、between 2011 and 2022,both for LICs and non-LIC EMDEs.B.Bars and diamonds show the weighted average of economic damages from natural disasters as a percentage of GDP.Based on up to 17 LICs and 105 non-LIC EMDEs.C.Share of commodity exporters among LICs and EMDEs.D.Bars show the standard deviation of

274、 real GDP growth.Based on a sample of 146 EMDEs,of which 22 are LICs.The sample period is 2011-23.D.Volatility of real GDP growth C.Share of countries that are commodity exporters 00.51.01.52.0LICsOther EMDEs2011-232000-10Percent of GDP020406080100LICsOther EMDEsPercent of countries2345LICsOther EMD

275、EsStandard deviation0481216202011 2019 2021 2022 2011 2019 2021 2022LICsOther EMDEsThousandsLOW-INCOME COUNTRIES 39 FISCAL VULNERABILITIES FIGURE 13 Decomposition and efficiency of government expenditures Government spending on education and the wage bill,as a share of GDP,has been significantly low

276、er in LICs compared to EMDEs,but spending on health care has been higher.Spending efficiency is weaker in LICs,including in infrastructure and health.B.Government expenditure:major spending categories,2011 and 2020 A.Government expenditure:major categories,2011-22 Sources:Dabla-Norris et al.(2012);I

277、nternational Monetary Fund;World Bank;World Economic Forum.Note:EMDEs=emerging market and developing economies;LICs=low-income countries;Other EMDEs=emerging market and developing economies excluding LICs.*shows the significance level at 1 percent,*at 5 percent,and*at 10 percent.Unweighted averages

278、for LICs and other EMDEs for each spending category in percent of GDP.A.Data for up to 26 LICs.B.Data for up to 20 LICs.C.Data for up to 120 EMDEs,including up to 21 LICs.PIMI refers to the IMFs Public Investment Management Index.D.Data for up to 95 EMDEs.D.Difference in efficiency of infrastructure

279、 spending between top and bottom quartiles of EMDEs,2006-16 C.Spending efficiency,2008-18 024681012142011202020112020LICsOther EMDEsHealthEducationDefensePercent of GDP*00.51.01.52.0Overall PIMIInfrastructureElectricityinfrastructureTransportinfrastructureEducationHealthIndexLICsOther EMDEs*00.20.40

280、.60.8InformalityCorruptionLack of lawand orderInternalconflictBottom quartileTop quartilePercent02468PublicinvestmentEducationHealthDefenseWage billLICsOther EMDEsPercent of GDPIII.Fiscal Vulnerability to Shocks LICs fiscal positions are vulnerable to various types of shocks.Their high dependence on

281、 official development assistance and commodity exports,and their narrow export bases,make LICs fiscal positions vulnerable to global economic shocks,particularly recessions and large commodity price movements(IMF 2024b).Political instability and armed conflict are relatively common in LICs,and they

282、can substantially disrupt economic activity and lead to increased defense spending,exacerbating existing challenges.Many LICs are also highly vulnerable to extreme weather events,due to their geographic locations,dependence on agriculture,capacity constraints,and limited buffers.Climate change exace

283、rbates this vulnerability,by causing more frequent and intense natural disasters impacting larger populations and resulting in significant economic losses(Donatti et al.2024).This study estimates the effects of these types of shock on LICs fiscal balances and debt positions using event studies(see a

284、nnex 3 for methodological details).Global recessions.LICs fiscal positions can weaken substantially during global recessions,with primary balances and debt-to-GDP ratios deteriorating for up to five years from the start of a recession(Kose et al.2021).Reduced demand for commodity exports can lower b

285、oth prices and export volumes,leading to lower fiscal revenues for commodity-exporting countries.Receipts of remittances also tend to weaken,depressing consumer spending and consumption-based tax revenues.Increased needs for social spending to support vulnerable groups and lower development assistan

286、ce can further strain fiscal positions.Limited access to international financial markets can reduce the ability of LICs to conduct countercyclical fiscal policies.Coupled with more prolonged weakness in economic activity,fiscal deficits may take longer to unwind in the aftermath of global recessions

287、,resulting in more accumulation of debt than in other EMDEs(World Bank 2023b).Domestic armed conflicts.Armed conflicts disrupt economic activity,cause the destruction of physical and human capital,reduce investment,and weaken institutions,resulting in contractions in actual and potential output in t

288、he affected countries(Fang et al.2020).Estimates indicate that in Sub-Saharan Africa(SSA),for example,conflicts are associated with lower real GDP per 44 LOW-INCOME COUNTRIES FISCAL VULNERABILITIES capita,by 1520 percent over five years(IMF 2019).Without conflict,GDP per capita in South Sudan might

289、be as much as three times higher(Mawejje and McSharry 2021).Armed conflicts are associated with increases in defense expenditure and reductions in revenue capacity,which can significantly weaken fiscal positions(Ezeoha et al.2023).Recent estimates show that three years after the onset of the average

290、 armed conflict in developing economies,public debt,relative to GDP,was up to 13 percentage points higher because of the conflict and continued to rise over time(Fan et al.2024).Natural disasters.Natural disasters can adversely affect fiscal balances and debt-to-GDP ratios by reducing output and gov

291、ernment revenues and increasing government spending to meet relief and reconstruction needs(Kose et al.2022;Lis and Nickel 2010).For example,recent estimates show that,on average,droughts are associated with a 4.5 percentage points reduction in fiscal revenues in EMDEs(Fuje et al.2023).It has also b

292、een estimated that in SSA,primary balances,relative to GDP,tend to be lower by about 0.2 percentage points,on average,in the aftermath of disruptive natural disasters(IMF 2020b).New evidence on the effects of global recessions,armed conflicts,and natural disasters on LICs fiscal positions.An event a

293、nalysis of global recessions,conflict events,and natural disasters since 2000 indicates that fiscal positions in LICs have tended to weaken significantly during global recessions and conflicts,with deteriorating primary balances and increasing debt relative to GDP(figure 14).On average,global recess

294、ions have been associated with a 1.7 percentage point deterioration in the fiscal balance relative to GDP in the recession year,which diminished only slowly in the subsequent two years.In the case of armed conflict events,fiscal balances are estimated to have deteriorated by up to 1.5 percentage poi

295、nts of GDP in the year of the event,relative to non-conflict years,with a sharp subsequent recovery.No significant effect on the debt-to-GDP ratio was found for either global recessions or conflict events.Natural disasters in LICs were found not to have significantly affected primary fiscal balances

296、,but public debt-to-GDP ratios have tended to rise after the onset of a disaster and remain elevated afterward.LOW-INCOME COUNTRIES 45 FISCAL VULNERABILITIES FIGURE 14 Fiscal outcomes around major adverse events Estimates for this study indicate that during 2000-23,fiscal balances and government deb

297、t in LICs weakened significantly following global recessions and domestic conflict events.On average,global recessions were associated with deteriorations in fiscal balances averaging 1.7 percentage points of GDP in the recession year,while intense conflict events were associated with deteriorations

298、 in fiscal balances averaging 1.5 percentage points of GDP in the following year.B.Debt around global recessions A.Primary balances around global recessions Sources:EM-DAT(database);UCDP Battle-Related Deaths Dataset(database);WEO(database);World Bank.Note:LICs=Low-income countries;WEO=World Economi

299、c Outlook.Solid blue lines are the coefficients of estimations in which each fiscal indicator is regressed on a series of dummy variables for each adverse event in year t,based on data for LICs.Dotted red lines are 90 percent confidence intervals.The events include global recessions,intense conflict

300、 events,and natural disasters.The database for the estimations was for the period 2000-23.A.B.Changes in fiscal balances and debt-to-GDP around global recessions.Based on 25 LICs in panel A and 24 LICs in panel B.Years of global recessions(2009 and 2020)are identified in Kose,Sugawara,and Terrones(2

301、020).C.D.Changes in fiscal balances and debt-to-GDP around conflict events.Based on 25 LICs in panel C and 24 LICs in panel D.The identification of conflict episodes is based on battle-related deaths in the UCDP Battle-Related Deaths Dataset,Version 24.1(Shawn et al.2024).E.F.Changes in fiscal balan

302、ces and debt-to-GDP around natural disasters.Based on 25 LICs in panel E and 24 LICs in panel F.D.Debt around conflict events C.Primary balances around conflict events F.Debt around natural disasters E.Primary balances around natural disasters -12-8-4048t-2t-1t=0t+1t+2Change in government debtConfid

303、ence intervalPercent of GDP-3-2-1012t-2t-1t=0t+1t+2Primary balanceConfidence IntervalPercent of GDP-6-4-202468t-2t-1t=0t+1t+2Change in government debtConfidence intervalPercent of GDP-4-2024t-2t-1t=0t+1t+2Primary balanceConfidence IntervalPercent of GDP-15-10-505101520t-2t-1t=0t+1t+2Change in govern

304、ment debtConfidence intervalPercent of GDP-3-2-1012t-2t-1t=0t+1t+2Primary balanceConfidence IntervalPercent of GDPIV.Fiscal Policy Options in LICs Revenue weakness constrains LIC governments ability to provide public goods and services,invest in infrastructure,conduct countercyclical policies,servic

305、e debt,and effectively implement redistributive measures.The constraints are particularly challenging for LICs now,with a rise in conflicts,more frequent natural disasters,and other adverse events threatening to keep food insecurity and poverty at elevated levels(World Bank 2024a).The weakness in go

306、vernment revenues in LICs and the resulting spending constraints and accumulation of debt highlight three policy priorities:more effective domestic resource mobilization,greater spending efficiency,and sounder debt management.These priorities should help guide broad reform efforts to ease structural

307、 constraints,reduce informality,address market failures,strengthen institutions,and generate stronger and more broad-based economic growth(Newbery and Stern 1987;Stiglitz and Rosengard 2015).Meanwhile,aid in the form of grants or concessional lending can be geared particularly toward addressing crit

308、ical emerging challenges,including the effects of climate change,fragility,and pandemics(Fardoust et al.2023).Domestic resource mobilization There is wide scope to improve revenue mobilization among LICs,despite their low levels of development.Recent estimates show that LICs have been able to collec

309、t less than two-thirds of their potential tax revenue over the past decade(Mawejje and Sebudde 2019;McNabb,Danquah,and Tagem 2021).Thus,there are substantial revenues to be gained,by measures such as broadening tax bases,strengthening tax administration,and making tax systems more equitable and effi

310、cient.If implemented progressively,tax reforms can also help achieve redistribution goals.Income and consumption tax efficiencies are lower in LICs than in other EMDEspossibly reflecting widespread informality and,in some cases,corruptionbut trade tax efficiency is higher(figure 15).Past successful

311、efforts to increase tax revenue mobilization in LICs and other EMDEs were usually accompanied by comprehensive reforms of tax policy and revenue administration,including,for example,the introduction of arrangements to set 50 LOW-INCOME COUNTRIES FISCAL VULNERABILITIES aside windfalls from improvemen

312、ts in a countrys terms of trade(Akitoby et al.2018).Such reforms need to be supported by global mechanisms to coordinate tax policy design and implementation,and to limit illicit financial flows.Tax policy.Past tax policy reforms in LICs have generally involved measures to increase indirect tax rate

313、s and broaden the tax base for both direct and indirect taxation(Akitoby et al.2018).Tax bases can be broadened by removing exemptions,especially for higher-income entities,in a way that minimizes economic distortions and strikes the right balance between efficiency and equity FIGURE 15 Domestic res

314、ource mobilization Income and consumption tax efficiencies are lower in LICs than in other EMDEspossibly reflecting widespread informalitywhile trade tax efficiency is higher.B.Consumption tax efficiency A.Personal income tax efficiency Sources:Dabla-Norris et al.(2012);International Monetary Fund;O

315、hnsorge and Yu(2022);Penn World Table 9.1;World Bank;World Economic Forum.Note:EMDEs=emerging market and developing economies;LICs=low-income countries;Other EMDEs=emerging market and developing economies excluding LICs.Unweighted averages in A-C.A.Ratio of personal income tax revenue to total labor

316、 compensation.Share of labor compensation in GDP and real GDP(2011 USD)are from Penn World Table.Based on 66 EMDEs(excl.LICs)and 12 LICs.B.The ratio of consumption tax revenue to consumption.Consumption tax revenue is the sum of revenues from goods and services tax,value-added tax,and excise tax.Dat

317、a are from Penn World Table 9.1.Based on 81 EMDEs(excl.LICs),and 18 LICs.C.The ratio of trade tax revenue to total trade,defined as the sum of imports and exports of goods and services(local currency,International Financial Statistics).Based on 103 EMDEs(excl.LICs)and 24 LICs.D.Difference(in percent

318、age points of GDP)between the average fiscal indicators among the third of EMDEs with above-median and below-median informality by the share of informal output in percent of official GDP(DGE-based estimates from Ohnsorge and Yu 2022).Vertical bars indicate 90 percent confidence intervals of the diff

319、erences.Fiscal indicators and informality measures are 2000-18 averages.The sample includes 70 non-energy exporting EMDEs with populations above 3 million people.Blue bars show the unweighted averages,whiskers interquartile range.unless otherwise specified.Based on 117 EMDEs,including 24 LICs.D.Diff

320、erences in fiscal indicators between EMDEs with above-median and below-median informality C.Trade tax revenue efficiency 0481216LICsOther EMDEsLatest2011Percent of consumption012345LICsOther EMDEs2011LatestPercent of trade-10-50510GovernmentrevenuesOverallIncomeImports(in tenths)Governmentexpenditur

321、esTax revenuesPercentage points of GDP0123456LICsOther EMDEsLatest2011PercentLOW-INCOME COUNTRIES 51 FISCAL VULNERABILITIES(Akitoby et al.2019).Excise taxes,typically on petroleum,cigarettes,alcohol,and motor vehicles,are less frequently used in LICs than in advanced economies but can be administrat

322、ively simple if designed in a way that reduces evasion(IMF 2011).For example,The Gambia found that a switch from weight-based to pack-based taxation of cigarettes,with weight-based taxation of non-cigarette tobacco products,reduced smokers incentive to switch to less-taxed products(Akitoby et al.201

323、9).Tax administration.Strengthening tax collection capacity is a crucial component of state-building and institutional development.Capacity-enhancing measures included risk-based audits,especially with a greater focus on large taxpayers;strengthened legislation to empower tax collectors;a shift in h

324、uman resource management toward training and monitoring;and upgrades in information technology to facilitate registration,filing and payment enforcement(Akitoby et al.2018).The adoption of e-filing has been associated with higher tax revenue collections in LICs(Nose and Mengistu 2023).In Ethiopia,th

325、e introduction of sales registration machines increased VAT and profit tax collections by 48 percent and 12 percent respectively,even as firms responded by reporting higher costs to reduce their tax liability(Mascagni,Mengistu and Woldeyes 2021).Technology.Recent technological advances could empower

326、 tax policymakers to deepen the tax base and improve tax administration(Gupta et al.2017).For instance,wider adoption of mobile payment systems can help simplify tax payment processes,allowing efficiency gains in revenue collection,particularly for direct taxes(Dom et al.2022).Digital technologies h

327、ave helped some LICs to reduce compliance costs and simplify taxpayer registration,filing and payment,audit,collection enforcement,and appeals.For example,digital platforms have been used to facilitate the filing of tax returns and increase revenue collection in Ethiopia,Rwanda,and Uganda(Arewa and

328、Davenport 2022).Structural policies.Widespread economic informality in LICs hinders government revenue collection(Ohnsorge and Yu 2022;World Bank 2019c).Informality is symptomatic of broader institutional weaknesses in LICs,and reducing it requires a multi-pronged approach,more efficient tax adminis

329、tration being only one element of this.Another element,for example,could be financial sector development:underdeveloped financial sectors in LICs have encouraged cash transactions that facilitate tax evasion or avoidance(World Bank 2015).Other priorities include well-designed,effective,and well-enfo

330、rced,but streamlined,regulatory frameworks;better access to finance,markets and inputs;52 LOW-INCOME COUNTRIES FISCAL VULNERABILITIES stronger social safety nets;leveling the playing field between formal and informal firms;better public service delivery;better education;and less corruption(Ohnsorge

331、and Yu 2022).Successful strategies have usually featured strong political commitment,with expedited reform measures helping to build momentum(Akitoby et al.2019).Expenditure efficiency LICs have many high-priority public spending needs(Clements,Gupta,and Jalles 2022).Higher expenditure efficiency an

332、d reductions in unproductive spending can help meet these.In the average LIC,the public sector wage bill rose significantly between 2011 and 2019,to reach about one-third of government primary spending in 2019.Expenditure on defense in fragile and conflict affected LICs averaged around 19 percent of

333、 government primary spending between 2011 and 2021.Expenditure reallocation.There is generally ample room in LICs to cut less productive spending.Subsidies on food and energy,pervasive in LICs,tend to be poorly targeted and costly(Coady,Falamini,and Sears 2015).The costs of fuel subsidies in LICs in 2022 are estimated to have averaged 2 percent of GDP(figure 8).And in some LICs,such as Afghanistan