IMF Weekend Read

 

Dear MARIA,   In today's edition, we highlight: Growth in Africa Government Budgets People Can Trust The Debt-Inequality Cycle Europe and AI Stablecoins and Cross-Border Payments GROWTH IN AFRICA Africa Can Be the Next Growth Story “Africa is not just another region,” IMF Managing Director Kristalina Georgieva told leaders at the Africa Forward Summit in Nairobi. “It is where the world will acquire its next growth engine.” With a young population and an estimated $4 trillion in underused domestic assets, the continent sits on the right side of the world’s demographic and growth divide. Now is the time to unlock this potential.   This starts by creating the conditions for private sector‑led growth. This requires credible macroeconomic policies, coupled with determined efforts to cut red tape and fight corruption. Closing even half the gap with emerging markets in regulation and governance could raise sub-Saharan Africa’s output by up to 20 percent within a decade. Trade integration can add further gains: full implementation of the African Continental Free Trade Area, including cutting tariff and nontariff barriers, could lift income per person by more than 10 percent.   And Africa must deal decisively with the burden of debt. Restructure or reprofile when debt is unsustainable; avoid non-productive borrowing; and shift the balance from debt to equity as much and as quickly as possible. For this, it is paramount to develop deeper, more diversified capital markets.   To match these ambitions, the IMF has sharply increased concessional lending for African members from about $8 billion before the pandemic to $36 billion today. Georgieva said this support, alongside efforts to improve the international debt architecture, aims to help African countries turn their potential into lasting prosperity. Read the speech GOVERNMENT BUDGETS Credible Budgets Matter More Than Ever in Africa Budgets people can trust are essential for growth, stability, and public confidence.   New IMF research, covering 39 sub‑Saharan African countries between 2021 and 2024, shows that fiscal deficits on average overshot budget targets by about 1.3 percent of GDP. In most cases, revenues fell short and current spending exceeded budgeted ceilings. The study finds that overly optimistic revenue forecasts, persistent overspending on wages and other current expenditures, and systematic under‑execution of capital spending have turned this “credibility gap” into a structural feature of public finances, not just the result of bad luck or one‑off shocks.   The composition of these misses matters. When revenues fall short or donor grants arrive late, governments usually cut investment first, not salaries or transfers. Capital spending on roads, schools, health care, and other infrastructure has become the main adjustment variable, even though the region faces large development and infrastructure gaps. The study also shows that when tax and other domestic revenues surprise on the upside, many countries raise day‑to‑day spending instead of saving more or reducing deficits.   Narrowing the gap between plans and results is critical. Countries with stronger fiscal institutions—including fiscal rules, independent fiscal councils, and higher public financial‑management scores—have smaller and less volatile deviations. The IMF paper calls for more realistic revenue forecasting, stronger expenditure controls, better cash‑flow planning, and reforms to protect capital investment and reinforce transparency and accountability throughout the budget cycle. Read the Country Focus F&D MAGAZINE The Debt-Inequality Cycle During the Great Depression, Federal Reserve Chairman Marriner Eccles warned that excessive saving by the rich was draining demand and deepening the downturn. “To protect them from the results of their own folly,” he told the Senate in 1933, “we should take from them a sufficient amount of their surplus to enable consumers to consume and business to operate at a profit.”   Atif Mian argues in the March issue of F&D that today’s global economy faces a similar dynamic. When a rising share of income accrues to top earners, their excess saving creates a “saving glut” that weakens demand and forces economies to rely increasingly on debt‑financed spending to keep growth going. Before 2008, private credit expansion—especially household borrowing—filled the gap; after the financial crisis, public debt took over as governments ran larger, ongoing deficits to keep economies away from the zero lower bound and avoid recessions.   Mian calls this pattern “indebted demand”: growth propped up by ever‑rising debt because underlying spending power is too weak. “We often frame inequality in moral terms, but the macro lesson is starker,” he writes. “When too much income pools at the top, demand weakens, deficits persist, and dependence on debt weakens us all.” Read the story HIGHLIGHTS FROM THE SPRING MEETINGS Europe Can Still Win the AI Race Artificial intelligence is diffusing faster than any major technology in history, but Europe risks capturing only a modest growth boost without reforms.   IMF economists Florian Misch and Carlo Pizzinelli show that productivity growth has slowed sharply, with GDP per capita now rising only about 1 percent a year after roughly 2 percent in earlier decades. Their analysis suggests that under current policies, AI adoption would raise productivity in Europe by only around 1 percent cumulatively over five years—still more than comparable estimates for the United States, but not enough to close the gap.   The gains would also vary widely across countries. Higher‑income, service‑heavy economies like Norway could see particularly large boosts—up to around 5 percent in optimistic scenarios—because they have more white‑collar jobs exposed to AI and higher wages that make automation attractive. Lower‑income economies such as Romania would likely see smaller gains, just under 2 percent even in favorable scenarios, so AI could temporarily widen productivity gaps within Europe.   Technology alone will not deliver the growth Europe needs. Fragmented services markets, limited access to finance for innovation, rigid labor markets, and restrictive or fragmented regulation can all choke off the productivity payoff from AI. Deepening the EU single market for services and improving access to capital will be essential. So, too, will be supporting worker mobility and skills and designing adaptive, innovation‑friendly regulation to help Europe capture a larger AI dividend. Watch the Analytical Corner video HIGHLIGHTS FROM THE SPRING MEETINGS Stablecoins Could Disrupt Payments Like Remittances Stablecoins may move from the fringe to the mainstream of payments, according to IMF analysis that looks at how investors react when real money is on the line. Clearer rules on stablecoins could increase their use and raise competition in payments. After the United States Congress passed a law regulating stablecoins, stocks of major payment firms such as Visa and Western Union fell by about 1 percent over five hours, wiping out roughly $22 billion in market value.   The impact hit hardest where payments already cost more. Firms that focus on cross‑border transfers, including remittances, saw larger declines than firms that run large payment networks. Alexander Copestake and his co‑authors then scale the initial market reaction to reflect a full move from no stablecoin law to a clear legal framework. In that scenario, the implied hit reaches about 18 percent, or nearly $300 billion in market value—similar in scale to past regulatory shocks such as U.S. debit‑card fee caps.   The findings suggest that stablecoins could first gain ground where payments run slow and cost more, especially across borders. Investors also expect firms with strong networks or early crypto experience to weather the shift better than others. Given this evidence that markets see stablecoins as a lasting part of the payments landscape, governments need to prepare for the changes to come and design regulation to manage risks while supporting fair competition. Watch the Analytical Corner video Thank you very much for your interest in the Weekend Read! Be sure to let us know what issues and trends we should have on our radar.  Jacqueline Deslauriers Editor | IMF Weekend Read  jdeslauriers@imf.org Stay connected with the International Monetary Fund:       This email was sent to politikimx@gmail.com on behalf of: International Monetary Fund 1900 Pennsylvania Ave NW · Washington, DC · 20431

GREECE How Tax Administration Supported Greece’s Economic Recovery  (Credit: momo11353/iStock by Getty Images)  ελληνικά Greece was once Europe’s cautionary tale—shut out of markets, reliant on external financial support, and collecting too little tax to finance public services and support economic growth. Today, it is one of only five European Union countries running a primary budget surplus. This is a striking reversal that underscores how far its public finances have come. The shift reflects, in no small part, a transformed tax administration that has steadily closed compliance gaps and rebuilt fiscal credibility—one of the quiet engines behind Greece’s broader economic recovery.   The IMF’s latest annual health check of the Greek economy (the Article IV consultation) finds that the country is wellpositioned to cope with external shocks, including those stemming from the war in the Middle East. This reflects strengthened fiscal sustainability and financial stability. The primary surplus rose to nearly 5 percent of GDP in 2024-25, while the public debt-to-GDP ratio has fallen by about 65 percentage points from its 2020 peak. Financing conditions improved in parallel, with sovereign spreads returning to levels last seen before the 2008 global financial crisis.   The reform agenda is not finished. But the scale—and sequencing—of Greece’s turnaround offers valuable lessons for other countries pursuing tax reform. New IMF work in this area highlights two core insights. First, governments cannot deliver on their fiscal reform goals unless taxation is fair, credible, and transparent. Second, building these capabilities can take time. In Greece, reform unfolded in three mutually reinforcing phases—stabilization (2010–12), institution building (2013–17), and digital transformation (2018–25)—supported throughout by IMF capacity development.     2010-2012: Stabilization   Facing imminent economic collapse, Greece requested financial assistance from what became known as the Troika—the IMF, the European Commission, and the European Central Bank. Early tax administration interventions focused on stabilizing revenue flows and laying the groundwork for deeper reforms. These included an anti-tax-evasion plan, targeted programs to improve revenue collection from large taxpayers and wealthy individuals, and a medium‑term reform roadmap.   One early success was the digitalization of value‑added tax (VAT) filing. By 2014, 96 percent of registered taxpayers were filing VAT returns on time, up from 65 percent in 2010. Other initiatives—especially efforts to strengthen collection from large corporations, wealthy individuals, and tax debtors—proved harder to sustain, revealing the limits of reforms that did not sufficiently address governance and political interference.   2013-2017: Building durable institutions   The second phase of Greece’s reforms underscored a critical lesson: tax administration reforms cannot perform effectively without autonomy, clear accountability, and strong leadership.   Beginning in August 2012, Greece consolidated its tax office network, reducing the number of local offices from 288 to 119 in just over a year, and reorganized operations around functions rather than geography. As revenue collections improved—thus reinforcing the political will required to continue reforms—the next step involved granting greater autonomy to the tax authority. A landmark law in 2016 transferred responsibility for tax administration to a new, independent authority with its own budget and governance framework. The law also established that the tax administration’s management board and governor be selected through an open competition with clearly defined criteria. The Independent Authority for Public Revenue became operational in 2017, giving Greece a tax administration insulated from political interference and focused on results.   The impact was tangible. During this period, the tax-to-GDP ratio rose by 1.8 percentage points, from 25.8 percent in 2013 to 27.6 percent in 2017, reflecting stronger compliance and improved institutional capacity.   2018-2025: Digital transformation   While digital tools had been introduced earlier, the decisive push came after the institutional foundations were firmly in place. By this stage, the tax administration had the governance, skills, and credibility required to make digitalization stick. Between 2020 and 2025, in part in response to the pandemic, Greece rolled out an integrated suite of digital systems—from back‑office analytics to real‑time electronic invoicing and point‑of‑sale connectivity.   These reforms made compliance easier for taxpayers and provided auditors with sharper tools to identify risks and target enforcement where it mattered most. The results were clear. VAT compliance improved significantly, with VAT revenues  increasing by 2.4 percentage points of GDP over 15 years, from 7.1 percent in 2010 to about 9.5 percent in 2025.   A virtuous cycle—and lessons beyond Greece   Taken together, Greece’s reforms created a virtuous cycle: better governance enabled digitalization; digitalization improved compliance; higher and more reliable revenues reinforced public trust and fiscal credibility.  By 2025, Greece’s tax-to-GDP ratio had climbed to 28 percent in 2025, up from 20.5 percent in 2009. While revenue growth also reflects broader economic and policy changes, improvements in tax administration played a central role by broadening the tax base, strengthening enforcement, and increasing trust in the system.   The journey continues. The next challenge is to make the recent gains durable—by embedding new ways of working deeply into day‑to‑day processes. Priorities include using analytics and artificial intelligence more systematically to manage compliance risks, further improving taxpayer services and trust, and ensuring that skills and staffing keep pace with rapid technological change.   Though in some ways unique, Greece’s experience offers a profoundly valuable and widely-applicable lesson. Sustained effort—grounded in good governance, careful sequencing, and investment in people—can turn crisis response into lasting institutional strength. **** Andrew Okello is a division chief, Stoyan Evtimov Markov is a senior economist, and Chenghong Wang is an externally financed appointee, all in the IMF’s Fiscal Affairs Department. They co-authored the IMF note, Tax Administration Reform in Greece: Outcomes and Lessons (2010–25), with Elli-Sivylla Gregou of the Independent Authority for Public Revenue of Greece. Related Links Greece: Mission Concluding Statement Tax Administration Reform in Greece Greece and the IMF We'd love to hear your thoughts and suggestions. Feel free to contact us.   Peter Walker  Managing Editor | IMF Country Focus  pwalker@IMF.org Stay connected with the International Monetary Fund:       This email was sent to politikimx@gmail.com on behalf of: International Monetary Fund 1900 Pennsylvania Ave NW · Washington, DC · 20431