Selected Issues Papers
IMF Selected Issues Papers are prepared by IMF staff as background documentation for periodic consultations with member countries.
2025
August 1, 2025
Domestic Revenue Mobilization in Guinea-Bissau
Description: This paper quantifies Guinea-Bissau’s tax potential using a stochastic frontier model and investigates the underlying sources of untapped revenue. Beyond benchmarking performance against structural peers, it tackles the complex drivers of low revenue mobilization, including high informality, administrative inefficiencies, a fragmented tax system, and weak enforcement. The analysis distinguishes between structural constraints and policy or institutional gaps, offering a nuanced diagnosis of where reforms can yield the greatest returns. It finds that Guinea-Bissau has significant scope to increase domestic revenue by broadening the tax base, enhancing compliance, and strengthening core tax functions. Targeted, sequenced reforms in administration and policy could help close the tax gap and support more sustainable, resilient public finances.
August 1, 2025
Bolstering Social Protection and Human Capital to Promote Inclusive Growth: Guinea-Bissau
Description: Guinea-Bissau’s social sectors face persistent challenges despite the progress made over the past few years. This paper reviews existing social protection programs in the country, assesses the efficiency and adequacy of public spending, and formulates recommendations to enhance value for money in social spending. Government spending on education and social protection has been low compared to regional peers, which partly reflects weak domestic revenue mobilization and volatile donor support. However, total health spending has been relatively high due to large private out-of-pocket payments. The much-needed expansion of health and education services to cover a larger segment of the population is expected to generate significant structural fiscal pressures. Regarding social protection, the analysis shows that Guinea-Bissau would benefit from implementing ambitious and well-targeted social programs and moving away from untargeted subsidies.
July 30, 2025
Ethiopia - Fiscal Federalism: Fiscal Policy Considerations for the Medium Term
Description: Ethiopia’s interregional fiscal arrangements entail a sizable redistribution of resources. They help the objective of income redistribution and equity, as well as providing partial insurance against regional macroeconomic shocks. However, overall transfers from the federal government to regions have been constrained by limited fiscal space. By law, regions cannot borrow without Ministry of Finance approval. There is room to improve redistribution and stabilization features of Ethiopia’s government finances, strengthen regional budgetary frameworks, and mobilize domestic resources to support socio-economic development. Implementation of revenue mobilization reforms will require support from the federal government to strengthen tax administration in the regions. Lastly, the curtailment of overseas development assistance would disproportionately affect regions with large humanitarian and disaster risk expenditure requirements.
July 30, 2025
Building Monetary Transmission in Ethiopia
Description: This Selected Issues Paper reviews Ethiopia’s transition to an interest-rate based monetary framework. For this framework to be effective, monetary transmission—the process through which policy rate changes affect inflation and economic activity—must function reliably. Achieving this, requires a clear, well-communicated policy framework, strong analytical capacity, and continued efforts to address structural features that may hamper transmission.
July 30, 2025
Potential Drivers of Post-Reform Parallel Market Premium: Federal Democratic Republic of Ethiopia
Description: A comparative analysis of Ethiopia with Angola, Egypt, and Nigeria highlights three structural factors that may be sustaining the parallel market premium despite exchange rate unification: (i) some remaining current account restrictions, including a 2.5 percent commission payable to National Bank of Ethiopia (NBE) on foreign exchange (FX) sales; (ii) a tightly closed capital and financial account coupled with low returns on Birr denominated assets; and (iii) an underdeveloped financial market, lacking hedging instruments and dominated by a single bank, which weakens competition and reduces market efficiency. While each case has its own distinctive features, Ethiopia’s conditions most closely resemble those of Angola during its transition to a more flexible exchange rate regime, where a significant parallel market premium persisted.
July 30, 2025
Ethiopia’s Tax System: Structure, Performance, and Benchmarking
Description: This Selected Issues Paper reviews Ethiopia’s tax system, highlighting its persistently low tax-to-GDP ratio despite sustained economic growth. It benchmarks Ethiopia’s revenue performance against regional and structural peers, examines the structure and efficiency of major tax categories, and analyzes revenue responsiveness to the business cycle. Using stochastic frontier analysis, it estimates the country’s tax potential and identifies significant gaps.
July 25, 2025
Options to Strengthen the Tax System in Estonia: Republic of Estonia
Description: Estonia’s tax mix has been traditionally reliant on consumption taxes—especially VAT—whereas income taxes are a relatively small share of revenue. Recent and expected changes will further shift the tax burden in this direction. Consumption taxes are less distortive than income taxes, but higher spending needs may require a broader revenue base, reaching untapped potential. This Selected Issues Paper discusses alternative broad-based, growth-friendly options on how to strengthen income, VAT, as well as property taxes. Options to strengthen revenues include (i) addressing the personal income tax revenue (PIT) shortfall from the introduction of a uniform allowance by considering revenue neutral options, i.e., calibrate the basic allowance, the tax rates, and/or the tax brackets subject to the intended degree of progressivity; (ii) improving the capacity of the tax administration to analyze income statements and exploring alternative corporate income tax (CIT) regimes that would preserve the competitiveness of the current system while reaching a broader tax base; (iii) streamlining remaining VAT exemptions to broaden the tax base; and (iv) limiting exemptions on residential land and taking steps to introduce a modern tax on immovable property by developing a fiscal cadaster to ensure fair taxation based on value and use of property.
July 25, 2025
Revisiting Fiscal Multipliers for Estonia: Republic of Estonia
Description: This Selected Issues Paper revisits fiscal multipliers for Estonia with a view to highlighting policy trade-offs and providing growth-friendly options for fiscal consolidation. The pandemic triggered a sharp and partly permanent increase in government spending. Demand for better quality and broader provision of public services has materialized, while climate and ageiong-related spending pressures are set to intensify over time and geopolitical risks have triggered a sharp increase in defense spending. Despite the 2022–2024 protracted recession, Estonian authorities have responded to these pressures with two rounds of wide-ranging tax changes affecting PIT, CIT, VAT, and excises, while spending cuts based on comprehensive spending reviews were enacted. Do these measures have significant short-term effects on growth? Granular estimates of fiscal multipliers by type of instrument—on both revenue and spending—can shed light on potential short-term output costs and underpin policy advice on specific instruments for fiscal consolidation. Our results indicate that multiplier effects in Estonia are not negligible. First-year multiplier estimates tend to fall in a 0.85–1.4 range for a general fiscal shock, 0.6–1.2 for aggregate spending, and about -0.2 for revenue. Granular multipliers suggest initially larger but less persistent output costs of spending cuts relative to tax increases.
July 25, 2025
Allocative Efficiency, Firm Dynamics, and Productivity in the Baltics: Republic of Estonia
Description: Labor productivity growth has decelerated in the Baltic economies during the past two decades, with the downturn accelerating in recent years. This Selected Issues Paper analyzes the roles of allocative efficiency and firm dynamics in productivity growth. Our results suggest that the lack of allocative efficiency has hindered productivity growth, while the contribution of firm entry and exit has been limited. The findings underpin the need for structural reforms to improve allocation of capital and labor, ease the bottlenecks faced by young innovative firms, and facilitate the exit of unviable firms.
July 25, 2025
Strengthening Resilience in Kiribati with Public Investment: Kiribati
Description: Kiribati, a collection of remote archipelagos of mostly low-lying atolls, faces significant risks from natural hazards and an existential risk from rising sea levels. This paper explores the critical needs for public investment in climate-resilient infrastructure to safeguard the nation's long-term prosperity and assesses the macroeconomic implications of such investments. To build moderate resilience, carefully designed fiscal policies and enhanced public investment efficiency are needed to alleviate the fiscal burden, maximize output gains from better infrastructure, and crowd in private investment, while maintaining debt sustainability.