Category: International Monetary Fund

Source: IMF – News in Russian

June 30, 2025

• Serbia’s prudent macroeconomic policies have supported economic resilience in an uncertain global environment. After a brief slowdown in early 2025, growth is expected to reaccelerate in 2026 and 2027.
• The authorities are maintaining fiscal discipline and implementing macro-critical structural reforms under the Policy Coordination Instrument, having completed the first review. While Serbia faces domestic and external uncertainties, it has built strong buffers to withstand potential shocks.
• Reinvigorating reforms to improve the business environment and governance would help sustain Serbia’s strong growth over the medium term.

Washington, DC: The Executive Board of the International Monetary Fund (IMF) concluded the 2025 Article IV Consultation with the Republic of Serbia and completed the first review of Serbia’s performance under the Policy Coordination Instrument (PCI).[1] The authorities have consented to the publication of the Staff Report prepared for the consultation and the review.[2]

Serbia’s macroeconomic performance remains resilient amid a challenging global environment. IMF staff projects real GDP growth at 3 percent in 2025, rising to 4 percent in 2026 and 4.5 percent in 2027. Headline inflation has returned to National Bank of Serbia’s target band (3 percent +/-1.5 percentage points), driven by declining energy prices and moderating core inflation. The monetary policy stance is appropriately restrictive.

Despite increased public investment, the fiscal deficit remains under control due to strong revenue performance and prudent management of current spending. While the current account deficit has widened, reflecting higher imports supporting the public investment drive and weak external demand, international reserves remain ample.

Fiscal structural reforms are progressing, including in further strengthening public financial management and public investment management. Energy sector reforms are also advancing but more remains to be done to ensure financial sustainability and operational efficiency in state-owned energy enterprises. Reinvigorating reforms to strengthen the business environment and improve governance is important for supporting Serbia’s growth rates over the medium term.

Downside risks to the outlook are elevated. A global slowdown and further geoeconomic fragmentation could weigh on exports and foreign direct investment. Domestically, heightened political tensions could erode consumer and investor confidence. But Serbia is well-positioned to manage potential shocks— international reserves and government deposits are high, public debt is declining, and banks are well-capitalized and liquid.

At the conclusion of the Board discussion on the Republic of Serbia, Ms. Gita Gopinath, First Deputy Managing Director, made the following statement:

“Serbia’s prudent macroeconomic policies and strong engagement with the IMF have delivered impressive results. Growth has been resilient, and fiscal and external buffers have strengthened. Reflecting these accomplishments, Serbia received its first-ever investment grade sovereign rating in 2024. Under the Policy Coordination Instrument (PCI), the Serbian authorities have continued their commitment to sound economic policies and structural reforms.

“In light of easing inflation and heightened domestic and external challenges, the planned fiscal expansion focused on growth-enhancing investment, can help cushion the near-term slowdown while boosting medium-term growth. Fiscal policy anchored to the deficit target, which safeguards hard-earned fiscal credibility and contains pressures on current spending, is critical. As the current investment cycle winds down, gradual fiscal consolidation is needed to rebuild buffers against external shocks. Advancing fiscal structural reforms remains essential, particularly to strengthen public financial management, enhance governance and transparency in public investment management, and address emerging fiscal risks.

“A restrictive monetary policy stance remains appropriate until disinflation is firmly sustained. While banks have been resilient and systemic risks remain contained, financial intermediation would benefit from additional improvements in regulatory and supervisory frameworks, including by closer alignment with EU standards. Continued progress on strengthening AML/CFT is also important.

“Further energy reforms remain crucial for securing sustainable and stable energy supplies. Increases in grid fees and electricity tariffs would improve cost recovery and the financial strength of energy state-owned enterprises and allow for investment in a more diversified and less carbon-intensive energy mix.

“Serbia faces medium-term challenges including from population aging. Enhancing productivity will be critical to sustaining income convergence with advanced economies. This will require structural and governance reforms to attract higher value-added FDI and domestic private investment to support growth. Improving the business environment will require measures to enhance commercial judicial frameworks, foster innovation, and strengthen governance.”

 

Executive Board Assessment[3]

Executive Directors agreed with the thrust of the staff appraisal. They commended Serbia’s prudent macroeconomic policies and strong commitment to reforms and welcomed the satisfactory performance under the Policy Coordination Instrument. Noting the heightened domestic and external risks to the outlook, Directors emphasized the importance of sustaining fiscal discipline, rebuilding buffers to shocks, and increasing productivity to support more sustainable growth.

Directors underscored that a fiscal deficit of 3.0 percent of GDP or lower would allow for priority investment spending, while preserving hard won credibility. They recognized the authorities’ commitment to adhere to the wage and pension special fiscal rules, which should help to keep public debt firmly on a downward path and support investor confidence. Directors welcomed the focus on ensuring transparent, accountable, and efficient government operations. Measures to improve public financial and investment management and fiscal risk management will help to maintain fiscal discipline, while ensuring the delivery of quality public investment. Directors also underscored the need to strengthen tax administration capacity. They welcomed the authorities’ commitment to addressing domestic arrears and preventing the accumulation of new arrears.

Directors agreed on the need to maintain a monetary policy tightening bias to achieve sustained disinflation. While noting that the banking sector has been resilient and systemic risks remain contained, Directors stressed the need for continued efforts to enhance regulatory and supervisory frameworks, including through closer alignment with EU standards. Continued efforts to strengthen AML/CFT frameworks are also important.

Directors highlighted that energy sector reforms remain essential to secure sustainable and stable energy supplies and support decarbonization. Accordingly, they welcomed the authorities’ commitment to strengthen the financial viability of energy state owned enterprises and support investment in a more diversified energy mix. In this regard, ensuring cost recovery through increased household electricity tariffs is important.

Directors agreed that ambitious structural and governance reforms are critical to achieving strong and sustainable medium term growth. Noting the impact of the aging population, Directors stressed the need to enhance employment opportunities for women and youth and to ensure better matching of skills with evolving labor market demands. They also supported intensified efforts to improve the business environment, including by enhancing commercial judicial frameworks, fostering innovation, and improving governance. Continued efforts to reduce corruption are important.

It is expected that the next Article IV consultation with the Republic of Serbia will be held on the 24-month cycle.

Serbia:  Selected Economic and Social Indicators, 2024–27 2024 2025 2026 2027 Est. PCI Request Proj. PCI Request Proj. PCI Request Proj. Output Real GDP growth (%) 3.8 4.2 3.0 4.2 4.0 4.5 4.5       Employment       Unemployment rate (labor force survey) (%) 8.6 8.5 8.5 8.4 8.4 8.3 8.3       Prices       Inflation (%), end of period 4.3 3.4 3.3 3.3 3.2 3.2 3.2       General Government Finances       Revenue (% GDP) 40.9 41.2 40.9 40.9 40.4 40.9 40.1 Expenditure (% GDP) 42.9 44.2 43.9 43.9 43.4 43.9 43.1 Fiscal balance (% GDP) -2.0 -3.0 -3.0 -3.0 -3.0 -3.0 -3.0 Public debt (% GDP) 47.5 47.7 46.8 46.9 46.5 46.4 46.4       Money and Credit       Broad money, eop (% change) 13.6 8.0 7.8 7.8 8.0 8.3 8.8 Credit to the private sector, eop (% change) 1/ 8.5 7.9 9.3 5.7 9.6 9.2 10.5       Balance of Payments       Current account (% GDP) -4.7 -5.1 -5.4 -5.2 -5.6 -5.5 -4.5 FDI (% GDP) 5.6 5.1 4.4 4.8 4.8 4.7 4.4 Reserves (months of prospective imports) 7.3 6.6 7.0 6.3 6.5 5.9 6.5 External debt (% GDP) 61.9 60.3 61.3 58.7 59.3 55.9 54.8       Exchange Rate       REER (% change) 2.3 … … … … … …      Sources: Serbian authorities and IMF staff estimates.  1/ Calculated at a constant exchange rate to exclude the valuation effects.

[1] Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

[2] Under the IMF’s Articles of Agreement, publication of documents that pertain to member countries is voluntary and requires the member consent. The staff report will be shortly published on the www.imf.org/Serbia page.

[3] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm.

https://www.imf.org/en/News/Articles/2025/06/30/pr-25228-serbia-imf-concludes-2025-art-iv-consult-completes-1st-rev-policy-coor-instrument

MIL OSI

Source: IMF – News in Russian

June 30, 2025

• The IMF Board today completed the Eighth Review of the Extended Arrangement under the Extended Fund Facility (EFF) for Ukraine, enabling a disbursement of about US$0.5 billion (SDR 0.37 billion) to Ukraine, which will be channeled for budget support.
• Ukraine’s economy remains resilient, and the authorities met all end-March and continuous quantitative performance criteria, the prior action, and two structural benchmarks for the review.
• Despite the challenges, progressing with domestic revenue mobilization, strengthening the investment climate, improving governance, and completing the debt restructuring strategy are necessary to restore fiscal and debt sustainability and support growth. The full and timely disbursement of external support during the program period remains indispensable for macroeconomic stability

Washington, DC: The Executive Board of the International Monetary Fund (IMF) today completed the Eighth Review of the EFF, enabling the authorities to draw US$0.5 billion (SDR 0.37 billion, which will be channeled for budget support. This will bring the total disbursements under the IMF-supported program to US$10.6 billion.

Ukraine’s 48-month EFF, with access of SDR 11.6 billion (equivalent to about US$15.5 billion, or 577 percent of quota), was approved on March 31, 2023, and forms part of an international support package totaling US$152.9 billion in the program’s baseline scenario. Ukraine’s IMF-supported program helps anchor policies that sustain fiscal, external, and macro-financial stability at a time of exceptionally high uncertainty. The EFF aims to support Ukraine’s economic recovery, enhance governance, and strengthen institutions with the aim of promoting long-term growth and investment.

For the Eighth Review, Ukraine met all end-March and continuous quantitative performance criteria as well as the prior action to submit to the Cabinet of Ministers of Ukraine a detailed reform plan for the State Customs Service (SCS). Two structural benchmarks on tax reporting for digital platform operators and publication of the external audit of NABU were also completed. Four new benchmarks were also established, including: measures to update the single project pipeline; preparation of a prioritized roadmap for financial market infrastructure; implementation of international valuation standards; and development of legislative proposals to align securitization and bonds with international standards. The timelines of some other structural benchmarks, including the appointment of the head of the SCS, have been reset by the IMF Executive Board to allow the authorities more time to complete these important reforms. The authorities also requested a rephasing of access to IMF financing over the remainder of 2025 to better align them with Ukraine’s updated balance of payments needs, while the overall size of the program remains unchanged.   

The 2025 growth forecast has been maintained at 2–3 percent as a smaller electricity deficit is offset by lower gas production and weaker agricultural exports. Pressures from Russia’s war will require a supplementary budget for 2025, and the medium-term fiscal path has been revised to better reflect the authorities’ policy intentions on revenue mobilization and expenditure prioritization. The National Bank of Ukraine (NBU) has maintained a tight monetary policy to respond to the still high inflation, while inflation expectations remain anchored. FX reserves remain adequate, sustained by continued sizeable external support. Overall, the outlook remains subject to exceptionally high uncertainty.

Following the Executive Board discussion on Ukraine, Ms. Gita Gopinath, First Deputy Managing Director of the IMF, issued the following statement[1]:

“Russia’s war continues to take a devastating social and economic toll on Ukraine. Nevertheless, macroeconomic stability has been preserved through skillful policymaking as well as substantial external support. The economy has remained resilient, but the war is weighing on the outlook, with growth tempered by labor market strains and damage to energy infrastructure. Risks to the outlook remain exceptionally high and contingency planning is key to enable appropriate policy action should risks materialize.

“The Fund-supported program remains fully financed, with a cumulative external financing envelope of US$153 billion in the baseline scenario and US$165 billion in the downside scenario, over the 4-year program period. This includes the full utilization of the approximately US$50 billion from the G7’s Extraordinary Revenue Acceleration Loans for Ukraine (ERA) initiative. Full, timely, and predictable disbursement of external support—on terms consistent with debt sustainability—remains essential to achieving program objectives.

“The continuing war has necessitated a Supplementary Budget for 2025. Restoring fiscal sustainability and meeting elevated priority expenditures over the medium term will require continued decisive efforts to implement the National Revenue Strategy. This includes modernization of the tax and customs services (including the timely appointment of the customs head), reduction in tax evasion, and harmonization of legislation with EU standards. These reforms, combined with improvements in public investment management frameworks, medium-term budget preparation, and fiscal risk management, are critical to underpinning growth and investment. 

“The authorities continue working to complete their debt restructuring strategy in line with the program’s debt sustainability objectives, which is essential to create room for priority expenditures, reduce fiscal risks, and restore debt sustainability.

“Given still elevated inflation, the tight monetary policy stance is appropriate, and the NBU should stand ready to tighten further should inflation expectations deteriorate. Greater exchange rate flexibility will help strengthen economic resilience while safeguarding reserves.

“The financial sector remains stable, though vigilance is needed given heightened risks. Operational and governance weaknesses in the security markets regulator need to be tackled urgently. Closing gaps in Ukraine’s capital markets infrastructure will be key to attracting foreign private capital for post-war reconstruction.

“Sustained progress in anticorruption and governance reforms remains crucial. The completed audit of the National Anti-Corruption Bureau is an important step; additional efforts are required, including amending the criminal procedures code, appointing the new head of the Economic Security Bureau, and strengthening AML/CFT frameworks.”

Table 1. Ukraine: Selected Economic and Social Indicators, 2021–27
		2021		2022			2023		2024		2025		2026		2027
		Act.		Act.			Act.		Proj.		Proj.		Proj.		Proj.
Real economy (percent change, unless otherwise indicated)
Nominal GDP (billions of Ukrainian hryvnias) 1/		5,451		5,239			6,628		7,659		8,866		10,192		11,322
Real GDP 1/		3.4		-28.8			5.5		2.9		2-3		4.5		4.8
Contributions:
Domestic demand		12.8		-19.0			11.9		3.8		5.2		3.4		2.7
Private consumption		4.5		-19.0			3.0		4.6		2.8		3.4		2.7
Public consumption		0.1		5.6			3.0		-1.5		0.3		-2.5		-2.0
Investment		8.1		-5.5			5.8		0.6		2.1		2.5		2.0
Net exports		-9.3		-9.8			-6.3		-0.8		-3.2		1.1		2.1
GDP deflator		24.8		34.9			19.9		12.3		13.5		10.0		6.0
Unemployment rate (ILO definition; period average, percent)		9.8		24.5			19.1		13.1		11.6		10.2		9.4
Consumer prices (period average)		9.4		20.2			12.9		6.5		12.6		7.6		5.3
Consumer prices (end of period)		10.0		26.6			5.1		12.0		9.0		7.0		5.0
Nominal wages (average)		20.8		1.0			20.1		23.1		17.4		13.7		10.8
Real wages (average)		10.5		-16.0			6.4		15.6		4.2		5.7		5.3
Savings (percent of GDP)		12.5		17.0			12.8		11.4		4.4		10.0		18.3
Private		12.7		30.2			27.4		23.3		21.4		15.9		18.0
Public		-0.2		-13.1			-14.6		-11.8		-17.1		-5.9		0.3
Investment (percent of GDP)		14.5		12.1			18.1		18.6		20.9		22.6		23.7
Private		10.7		9.6			13.4		13.3		16.6		18.3		18.9
Public		3.8		2.5			4.7		5.4		4.3		4.3		4.9
General Government (percent of GDP)
Fiscal balance 2/		-4.0		-15.6			-19.3		-17.2		-21.3		-10.1		-4.6
Fiscal balance, excl. grants 2/		-4.0		-24.8			-25.8		-23.1		-22.1		-10.4		-5.6
External financing (net)		2.5		10.7			16.2		15.0		24.5		8.9		1.7
Domestic financing (net), of which:		1.5		5.0			3.1		0.3		-3.1		1.3		2.8
NBU		-0.3		7.3			-0.2		-0.2		-0.1		-0.1		-0.1
Commercial banks		1.4		-1.5			2.5		2.9		2.7		0.8		3.4
Public and publicly-guaranteed debt		48.9		77.7			81.2		89.7		108.6		110.4		106.4
Money and credit (end of period, percent change)
Base money		11.2		19.6			23.3		7.7		21.7		13.1		10.4
Broad money		12.0		20.8			23.0		13.4		14.4		13.2		10.4
Credit to nongovernment		8.4		-3.1			-0.5		13.5		10.6		17.7		18.6
Balance of payments (percent of GDP)
Current account balance		-1.9		4.9			-5.3		-7.2		-16.5		-12.6		-5.4
Foreign direct investment		3.8		0.1			2.5		1.8		2.2		4.0		5.0
Gross reserves (end of period, billions of U.S. dollars)		30.9		28.5			40.5		43.8		53.4		52.8		55.6
Months of next year’s imports of goods and services		4.5		3.8			5.3		5.1		6.3		6.3		6.5
Percent of short-term debt (remaining maturity)		74.4		83.3			100.3		130.9		178.9		171.5		172.1
Percent of the IMF composite metric (float)		105.5		110.3			130.2		125.4		125.5		114.0		115.7
Goods exports (annual volume change in percent)		39.0		-37.5			-8.5		16.8		3.0		14.9		14.3
Goods imports (annual volume change in percent)		15.1		-29.7			18.5		6.0		19.3		4.7		5.5
Goods terms of trade (percent change)		-8.4		-11.6			3.6		0.5		1.3		1.0		0.4
Exchange rate
Hryvnia per U.S. dollar (end of period)		27.3		36.6			38.0		42.0		…		…		…
Hryvnia per U.S. dollar (period average)		27.3		32.3			36.6		40.2		…		…		…
Real effective rate (CPI-based, percent change)		2.6		3.2			-6.7		-6.5		…		…		…
Memorandum items:
Per capita GDP / Population (2017): US$2,640 / 44.8 million
Literacy / Poverty rate (2022 est 3/): 100 percent / 25 percent perpercentpercent
Sources: Ukrainian authorities; World Bank, World Development Indicators; and IMF staff estimates.
1/ GDP is compiled as per SNA 2008 and excludes territories that are or were in direct combat zones and temporarily occupied by Russia (consistent with the TMU).
2/ The general government includes the central and local governments and the social funds.
3/ Based on World Bank estimates.

[1] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summing up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm.

https://www.imf.org/en/News/Articles/2025/06/30/pr-25227-ukraine-imf-completes-8th-rev-of-ext-arrang-under-eff

MIL OSI

Source: IMF – News in Russian

June 30, 2025

End-of-Mission press releases include statements of IMF staff teams that convey preliminary findings after a visit to a country. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board. Based on the preliminary findings of this mission, staff will prepare a report that, subject to management approval, will be presented to the IMF’s Executive Board for discussion and decision.

• The near-term prospects for the Algerian economy remain broadly positive despite global uncertainty, but fiscal vulnerabilities are high.
• A gradual yet urgent fiscal adjustment is essential to strengthen fiscal resilience and rebuild buffers, while monetary policy should remain focused on price stability. Greater exchange rate flexibility would strengthen the economy’s ability to absorb external shocks, including from hydrocarbon prices.
• Strengthened policy frameworks, along with reforms to enhance fiscal resilience, diversify the economy, and promote private investment, are critical to lifting growth and creating jobs over the medium-term.

Algiers, Algeria: An International Monetary Fund (IMF) mission led by Mr. Charalambos Tsangarides visited Algiers during June 16–30, to conduct the 2025 Article IV consultation with Algeria.

At the end of the mission, Mr. Tsangarides issued the following statement:

“Economic activity eased to 3.6 percent in 2024 from 4.1 percent in 2023, as OPEC+ production cuts weighed on the hydrocarbons sector, while nonhydrocarbon activity remained strong, expanding by 4.2 percent. The current account balance turned to a deficit in 2024 amid lower hydrocarbon output and gas prices. International reserves remained robust at US$ 67.8 billion, covering about 14 months of imports.

Inflation fell sharply from an average of 9.3 percent in 2023 to 4 percent in 2024, driven mainly by lower food prices, with core inflation also declining. Monetary policy remained accommodative in the first half of 2025. The budget deficit widened significantly in 2024, reaching 13.9 percent of GDP due to lower hydrocarbon revenues and higher wage and investment spending, and is expected to remain high in 2025.

The near-term outlook is broadly positive, supported by a gradual recovery in hydrocarbon production as OPEC+ production cuts ease, which is expected to sustain growth in 2025, while inflation remains moderate. However, growing fiscal pressures pose significant financing challenges and if continued, would increase public debt in the medium term. Continued global uncertainty and volatile hydrocarbon prices are likely to dampen exports and investment, contributing to a wider current account deficit in 2025.

Economic prospects face several risks, primarily from volatile hydrocarbon prices amid shifting trade policies and geopolitical tensions, and persistent fiscal deficits that strain debt sustainability and deepen financial linkages between the government, state-owned enterprises (SOEs), and public banks (SOBs). However, medium-term economic prospects would improve with sustained reforms to diversify the economy, and effective implementation of the government’s Action Plan and structural reforms.

To safeguard macro-financial stability and mitigate near-term risks amid a volatile global environment, the mission recommends gradual yet timely fiscal rebalancing. This will curb rising financing needs driven by large deficits and falling hydrocarbon prices, helping to reduce vulnerabilities, rebuild buffers, and stabilize public debt over the medium term. Monetary policy should continue to be guided by economic conditions and firmly focused on its inflation objective, while maintaining close oversight of financial sector developments. More exchange rate flexibility will enhance the economy’s ability to absorb external shocks amid heightened hydrocarbon price volatility and global uncertainty.

Medium-term reform priorities include enhancing fiscal sustainability, strengthening monetary and financial frameworks, and advancing structural reforms to boost private investment, inclusive growth, and job creation.

The fiscal adjustment strategy would be strengthened by reforms to increase nonhydrocarbon revenues and streamline spending. A revised revenue mobilization strategy would support efforts to expand the tax base, including by rationalizing tax expenditures, and enhance compliance via digitalization. Reforming subsidies would help rebuild fiscal buffers and create space for priority expenditures, including targeted support for vulnerable households. Enhancing public investment efficiency would support the authorities’ economic diversification goals. Improving oversight, efficiency, and governance of SOEs would be essential to contain macro-financial risks. The mission welcomes progress in implementing the 2018 Organic Budget Law, which is expected to enhance transparency and accountability in budget execution, the establishment of a unit within the Ministry of Finance to oversee SOEs and strengthen fiscal risk management, and the expected implementation of the new Public Procurement Law.

The mission commends the authorities for their ongoing implementation of the 2023 Monetary and Banking Law, improvements in liquidity management, and strengthened capacity in macroeconomic forecasting and policy analysis. Clarifying the monetary policy framework—by defining a clear primary objective and nominal anchor—would enhance policy transmission and effectiveness. Improving financial sector oversight is crucial to mitigate risks arising from strong financial linkages between the central government, SOEs, and SOBs.

The authorities’ efforts to diversify the economy and improve the business climate to boost private investment are welcome. Key initiatives include a one-stop digital shop for real estate access, aligning exports with international standards, and advancing online trade. The mission encourages continuing these reforms but cautions against broad application of fiscal incentives that may create revenue gaps. Additional gains can be achieved by removing administrative restrictions, increasing flexibility in product and labor markets, and ensuring a level playing field between public and private sectors. The mission also welcomes recent governance reforms and continued efforts to strengthen the AML/CFT framework and enhance transparency and accountability in the public sector.”

“The mission expresses its gratitude and appreciation to the authorities and all interlocutors for their warm hospitality and the open and constructive discussions.”

https://www.imf.org/en/News/Articles/2025/06/30/pr-25226-algeria-imf-staff-completes-2025-article-iv-mission

MIL OSI

Source: IMF – News in Russian

June 30, 2025

(As Prepared for Delivery)

Thank you so much for inviting me to join you today. It is an honor to participate on behalf of the IMF.

As you know, before I joined the IMF last Fall, I served as Jamaica’s Minister of Finance. This was during some of the most turbulent years in recent memory—marked elevated uncertainty, including COVID-19 and extreme weather events. And I can tell you that it has profoundly shaped my view on the role of tax capacity as the crucial financial enabler of state capacity.

Development is not funded by hope. It is funded by the deliberate, disciplined, and equitable mobilization of resources. That is the lesson I carry with me from my time as Finance Minister. And it is a lesson I believe holds true for all nations.

Sound public finances are essential to safeguard macroeconomic stability and lay the foundations for sustained growth. But across much of the world, increases in tax capacity have slowed. Productive expenditure is being crowded out by rising debt service. And spending pressures are intensifying.

The key to progress lies in country-led reform agendas that focus on building trust, taxing fairly, and spending wisely.

Tax capacity is not just about revenue. It is about the state’s capacity to invest in infrastructure, respond to crises, and deliver services for people—from roads and electricity, to sanitation and health, to education and security. And, according to our latest research, there is a tipping point of tax to GDP that—once crossed—leads to higher sustained economic growth. 

The right level of taxation will depend on each country’s economic and social circumstances. But our research suggests that targeting at least 11-15 percent of GDP is best. Below that, it is very difficult for governments to manage their economies and provide adequate public services. Unfortunately, many countries are well below this level.

And as countries progress past the taxation tipping point, higher economic growth is accompanied by better financial development, more government effectiveness, and stronger legal institutions. This creates fertile ground for the private sector to help boost growth and job creation. It all sounds great, right? But we know that it is not easy.

In much of the developing world, progress on improving revenue levels has stalled. And deep political resistance to tax increases remains. And yet, countries like Cabo Verde, Cambodia, Rwanda, and, I’m proud to say, Jamaica have made great progress. And there is potential for others to follow.

Our research shows that low-income countries could gain as much as 7 percent of GDP in tax revenue over the medium to long term by raising their tax efforts to match the best-performing developing countries. If they implement strong public financial management systems, they can ensure that those revenues are used efficiently.

This is critical: To be successful, spending and revenue reforms must be part of a coherent country program. And that can often benefit from international support.

That is why we created the Global Public Finance Partnership. Through this, we provide flexible and holistic capacity development support to our members—tailored to each country and designed to equip them with the tools and expertise they need to succeed.

We will continue to deliver this essential capacity development in close partnership with the international community. What is the bottom line? Going back to the beginning: Tax capacity is the ultimate foundation of national resilience.

Without it, there is no fiscal space. Without fiscal space, no sustainable development. It’s not just about revenue—it’s about trust, fairness, and long-term stable and enduring growth.

https://www.imf.org/en/News/Articles/2025/06/30/sp063025-FfD4-domestic-public-resources-roundtable-dmd-nigel-clarke

MIL OSI