Nigel Clarke, Deputy Managing Director of the International Monetary Fund (IMF), addressed the Fourth Financing for Development Conference in Seville, Spain. Clarke emphasized the importance of tax capacity as a fundamental financial enabler for state capacity. Drawing from his experience as Jamaica’s Minister of Finance during challenging times, he highlighted that development relies on the deliberate and equitable mobilization of resources.
Clarke stated, "Sound public finances are essential to safeguard macroeconomic stability and lay the foundations for sustained growth." He noted that increases in tax capacity have slowed globally, with productive expenditure being crowded out by rising debt service and intensifying spending pressures.
The IMF's research suggests a tipping point in tax to GDP ratio that leads to higher sustained economic growth. Clarke pointed out that targeting at least 11-15 percent of GDP is ideal for effective government management and public service provision. Many countries fall below this threshold.
He acknowledged the challenges faced by developing nations in improving revenue levels due to political resistance but praised countries like Cabo Verde, Cambodia, Rwanda, and Jamaica for their progress. According to Clarke, low-income countries could potentially increase their tax revenue by up to 7 percent of GDP over time by emulating top-performing developing nations.
Clarke introduced the Global Public Finance Partnership as an initiative providing tailored capacity development support to member countries. This partnership aims to equip nations with necessary tools and expertise for successful fiscal reforms.
In conclusion, Clarke reiterated that tax capacity is crucial for national resilience and sustainable development. He stressed that it is not solely about revenue but also about trust, fairness, and long-term stable growth.