## ppea2019039

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### EXECUTIVE SUMMARY — Overview and Outlook
- Paper: fifth in series examining macroeconomic developments and prospects in low-income developing countries (LIDCs).
- LIDCs: 59 IMF member countries; contain one fifth of the world’s population—1.5 billion people—but account for only 4 percent of global output.
- Three chapters: recent macroeconomic developments and drivers of growth in LIDCs; challenges in implementing a value-added tax (VAT) system in LIDCs; how financial safety nets can be tailored to LIDCs’ needs.
- Growth and outlook:
  - LIDCs expected to record average annual growth of some 5 percent in 2018–19.
  - Growth expected to pick up marginally in 2020 and beyond; global growth projected at 3.0 percent in 2019 (down from 3.8 percent in 2017).
- External environment:
  - Commodity-dependent economies underperform diversified exporters since mid-2014 commodity price drop.
  - Oil prices: peaked at $81 per barrel in October 2018 and declined to about $60 at end-September 2019 (global energy prices declined by nearly 20 percent over that interval).
- Capital flows and market access:
  - Repeat sovereign bond issuers include Côte d’Ivoire, Ghana, Kenya, Nigeria, and Senegal.
  - First-time issuers in sample period: Tajikistan in 2017, Papua New Guinea in 2018, Benin in 2019.
  - More than half of LIDCs have not issued sovereign bonds in international markets over the past decade.
  - FDI accounts for the bulk of private capital inflows; portfolio flows fluctuate year to year.
- Fiscal and debt dynamics:
  - Growth of public debt levels slowed significantly since 2017 but drifts upward in about half of countries.
  - Two-fifths of LIDCs assessed to be at high risk of, or in, debt distress (up only marginally from 2017).
- Revenue and taxation:
  - Median tax-GDP ratio in LIDCs is at some 13 percent and largely unchanged over six years.
  - One-quarter of countries increased tax-GDP ratio by at least 2 percentage points.
- Structural constraints and priorities:
  - Investment and declines in total factor productivity (TFP) are key growth drivers/constraints.
  - Priorities: higher-quality public investment, better business environment, improved education quality.

### REMITTANCES, ODA, AND RECENT MACRO DEVELOPMENTS
- Remittances and ODA:
  - Number of migrants increased by 50% since 2000.
  - Average cost of transferring money to LIDCs has fallen by 22 percent since 2011 but remains high.
  - ODA to LIDCs picked up in 2017 (flows up by over 10 percent in nominal terms); aid as a share of LIDC GDP has steadily declined over time.
  - Remittances (excluding Nigeria) dipped temporarily in 2015–16 due to weak conditions in major oil-exporting host countries.
- Heterogeneity in growth paths:
  - 2018–2019 pace of growth averaged 5.0 percent (up from 3.6 percent in 2016 and 4.7 percent in 2017).
  - Fuel exporters slowly recovering from 2014 oil price shock; NFC exporters experienced easing of growth since 2016; diversified exporters sustained stronger growth (~6 percent trend for diversified exporters noted elsewhere).
  - Country-level positive contributors: large-scale investment projects (Lao P.D.R., Rwanda, Senegal), trade/investment reallocation (Vietnam), post-disaster reconstruction (Nepal).
  - Negative contributors: natural disasters (Comoros, Mozambique), security-political challenges (Afghanistan, Nicaragua, Sahel countries, Sudan).
- Aggregate fiscal positions:
  - Median fiscal deficit among fuel exporters fell from 5.4 percent in 2017 to a projected 2.3 percent in 2019.
  - NFC exporters: revenues recovered by on the order of 1–1¼ percent of GDP; weighted average decline in deficit levels by some 0.6 percent of GDP to 2.5 percent of GDP.
  - Country-level revenue projected to rise in 2018-19 by at least 1 percent of GDP in 13 countries and fall relative to GDP in 13 countries.
  - Diversified exporters: deficits projected to widen marginally during 2018–19 (on the order of 0.3 percent of GDP).

### KEY MACRO STATISTICS (selected from Table 1)
- Growth (percent), LIDCs (59): 2010-14 = 5.9; 2016 = 3.6; 2017 = 4.7; 2018 = 5.0; 2019 = 5.0; 2020 = 5.1; 2021-23 (Forecast) = 5.3.
- Inflation (percent), LIDCs: 2010-14 = 9.3; 2016 = 10.0; 2017 = 10.2; 2018 = 9.6; 2019 = 9.4; 2020 = 9.2; 2021-23 = 7.9.
- Fiscal balance (percent of GDP), LIDCs: 2010-14 = -2.7; 2016 = -3.8; 2017 = -3.9; 2018 = -3.8; 2019 = -4.0; 2020 = -4.1; 2021-23 = -3.7.
- Public debt (percent of GDP), LIDCs: 2010-14 = 38.7; 2016 = 44.4; 2017 = 46.5; 2018 = 46.9; 2019 = 47.0; 2020 = 46.8; 2021-23 = 46.7.
- Current account balance (percent of GDP), LIDCs: 2010-14 = -1.7; 2016 = -2.4; 2017 = -1.9; 2018 = -3.0; 2019 = -3.4; 2020 = -3.5; 2021-23 = -3.2.

### TAX REVENUE AND VAT EXPERIENCE — Role, Performance, and Implementation Challenges
- VAT adoption and revenue:
  - Around three-quarters of LIDCs have adopted a VAT.
  - Where adopted, VAT on average raises around 30 percent of total tax revenue.
  - Increased VAT revenue accounts for 1.5 percent of GDP of the 2.1 percent of GDP increase in total revenue since 2000.
- C-efficiency and revenue drivers:
  - Increased VAT revenue mainly reflects improvements in C-efficiency rather than changes in standard rates or consumption levels.
  - Average 4 percent annual increase in ratio of VAT revenue to GDP driven mainly by increases in C-efficiency.
- Shortfalls and potential revenue gains:
  - Shortfalls commonly amount to around 9 percent of GDP.
  - If LIDCs in the lower quartile by C-efficiency raised it to the LIDC median, additional revenue would be around 3.5 percent of GDP.
- Core administrative competencies required:
  - Gathering and using information; identifying, measuring, and treating compliance risks; managing core processes.
  - VAT-specific focus areas: managing VAT credits and taxpayer registration.

### VAT CREDITS, FRAUD, AND REFUND FUNDING RISKS
- Excess VAT credits:
  - Reported magnitudes of excess credits in LIDCs: anywhere from 0.3 percent of GDP to perhaps as high as 0.7 percent of GDP.
  - Excess credits pervasive for exporters (zero-rated), startups, heavy investment, and multiple-rate regimes.
  - Stocks of excess credits can grow where refunds are limited, representing a large unfunded government liability.
- Fraud and administrative responses:
  - Example: a missing electronic cash register scheme estimated to have cost one LIDC two percent of GDP.
  - Common responses (limiting refunds, carrying forward credits, audit-all approaches) can cause long processing times and distortions.
- Funding refunds and macro-fiscal risks:
  - Few LIDCs allocate sufficient Treasury funding to meet approved, risk-assessed VAT refund claims.
  - Accumulated refund claims can jeopardize macro fiscal policies, create inflated impressions of receipts, and understate fiscal deficits.

### VAT REGISTRATION — THRESHOLDS, VOLUNTARY REGISTRATION, AND ADMINISTRATION
- Registration thresholds:
  - IMF common advice: set a high registration threshold as a transitory measure until tax administration capacity strengthens.
  - Top taxpayers concentrate VAT revenue: top 20 percent of taxpayers by declared sales account for 87 percent of total VAT collection (five-country data); one East African example: top 10 percent account for 90 percent of VAT revenues.
  - Example: Uganda raised VAT registration threshold by 200 percent in 2015; outcomes included a 30 percent fall in registered taxpayers, increased percent of VAT ‘payment’ returns, offset claims fell by more than 25 percent, and VAT/GDP ratio rose from 4.1 percent in FY2014/15 to 4.5 percent in FY2017/18.
- Voluntary registration tradeoffs:
  - Eases unrecovered VAT on purchases but increases administrative burden, creates opportunities for bogus traders, diverts resources from large taxpayers, and increases non-filing risks.
  - Illustration (Francophone Africa LIDC): of 3,685 VAT registered taxpayers: 916 administered (24%); 670 active in database (16%); 556 expected to file (15%); 357 filers (9%); 199 in VAT debt position (5.4%).

### VAT COMPLIANCE STRATEGY ELEMENTS (Box 5)
- Controlled and monitored registration.
- On time-and-full filing; returns should support assessment and provide control information.
- Prompt and full payment to avoid unmatched credit claims.
- Verification using third-party information (customs, government acquisitions, large taxpayers).
- Controlled issuance of invoices (examples: Paraguay, Cabo Verde).
- Facilitation of compliance and public lists of active taxpayers (examples: Benin, Cameroon, Chad) improved VAT collection by 5–15 percent in real terms.
- Effective use of technology (e-invoicing, electronic fiscal devices) important but not sufficient without data use.
- Risk-based treatment of taxpayers: low-risk facilitation; high-risk strict monitoring; prioritize compliant taxpayers.

### VAT DISTRIBUTIONAL CONSIDERATIONS, DIGITAL MITIGANTS, AND POLICY PRIORITIES
- Regressivity concerns:
  - Reduced rates and exemptions can mitigate regressivity but are poorly targeted and costly.
  - Some studies find VAT distributionally neutral (examples: Namibia, Ethiopia, Togo).
  - Registration thresholds and untaxed consumption can moderate regressivity.
  - No alternative less regressive and practicable revenue source identified that can raise comparable revenue.
- Digitalization and targeted compensation:
  - Proposals: individualized VAT (D-VAT), personalized VAT credits, biometric ID linked cash compensation.
  - Examples: India’s DBT linked to Aadhaar (coverage 93 percent of adult population); Thailand’s State Welfare Smartcard rebate (capped at around US$16 equivalent per month; first five months: 14.5 million holders; government transferred around US$650 thousand to e-wallets and around US$120 thousand to holders’ savings accounts).
- Key VAT implementation priorities:
  - Treat VAT credits with a comprehensive risk-based strategy; ensure sufficient funding for timely refunds.
  - Set registration threshold in line with administration capacity; consider increasing threshold until capacity strengthened.
  - Build institutional capacity to manage VAT and catalyze wider tax administration reform.

### FINANCIAL SECTOR SAFETY NETS — VULNERABILITIES, COSTS, AND PILLARS
- Observed vulnerabilities and costs:
  - In absence of strong safety nets, LIDCs vulnerable to financial shocks; recent bank failures reveal weaknesses (examples: Ghana, Moldova).
  - Historical evidence: 38 of 54 LIDCs in Laeven and Valencia (2018) experienced full-blown banking crises since 1976.
  - Laeven and Valencia estimates: median net fiscal costs of banking crises in low- and middle-income countries at approximately 10 percent of GDP and 22 percent of financial sector assets; median increase in public debt over three years following crises was 16 percent of GDP.
- Four pillars of an effective financial safety net (Box 8):
  - Powers for early intervention (supervisory powers).
  - Effective powers and tools for resolving failing banks (special resolution regime).
  - Deposit insurance (DIS) with depositor preference.
  - Emergency liquidity assistance (ELA) with central bank safeguards.
- Complementarity: early intervention, ELA, and DIS combined reduce risk of runs; coordination and contingency planning required.

### BANK RESOLUTION FRAMEWORKS, KEY ATTRIBUTES, AND LIDC SHORTCOMINGS
- Key Attributes (FSB): resolution powers exercisable swiftly by administrative resolution authority without shareholder/creditor consent; creditor safeguards with limited redress; toolkit includes P&A, bridge bank, bail-in; require recovery and resolution planning and cross-border cooperation.
- Shortcomings in LIDCs:
  - Many lack special bank resolution regimes and are limited to court-based liquidation.
  - Consequences: nationalizations, taxpayer-funded bailouts, protracted closures, low recoveries.
  - Legal framework inadequacy, capacity shortfalls, weak cross-border cooperation.
- Tailoring Key Attributes to LIDCs:
  - Staff recommends all countries adopt special resolution regime with powers to remove management, appoint administrator, operate/resolve bank, override shareholder rights, transfer assets/liabilities (P&A), suspend creditor payments, and liquidate.
  - Minimum toolkit: P&A and bridge bank tools; caution on statutory bail-in complexity.
- Resolution authority design:
  - Clearly identified administrative authority with operational autonomy, transparent processes, governance, resources, and legal protection for staff.
  - Often suitable to vest mandate in central bank/supervisor with firewalls.

### RECOVERY & RESOLUTION PLANNING, CROSS-BORDER COOPERATION, AND RESOLUTION FUNDING
- Recovery and Resolution Plans:
  - Recovery plans by banks; resolution plans by authorities.
  - Staff advice: require recovery plans for all banks; resolution plans at least for systemic banks or those with cross-border operations; apply proportionality.
- Cross-border cooperation:
  - Foreign-owned banks’ growing importance makes cooperation crucial; host authorities should prepare “Plan B” if joint planning fails.
  - Many LIDCs have made little progress; should leverage supervisory colleges where available.
- Resolution funding:
  - Resolution requires ready funding (industry-financed DIS, special resolution fund, ex post recovery mechanisms).
  - Priority in LIDCs: make DIS adequately funded and operational rather than separate funds; public resources only as last resort under strict conditions.

### DEPOSIT INSURANCE SYSTEMS (DIS) — DESIGN, MANDATES, AND INTRODUCTION CHALLENGES
- DIS role and design:
  - Enhance depositor confidence; protect small depositors; preserve payments.
  - Should cover the maximum number of retail depositors rather than maximum amounts; needs well-endowed fund and credible backup funding.
- Current DIS status in LIDCs:
  - DIS exist in over half of LIDCs; a further 12 taking steps toward establishing DIS.
  - Most operate under “paybox” or “paybox plus” mandates; two-thirds set up as independent bodies.
  - Broader loss-minimizer mandates only in Kenya and Nigeria.
- Challenges introducing DIS:
  - Precondition: conducive operating environment per IADI Core Principles (stable macro, effective supervision, resolution, legal/accounting systems).
  - Not recommended to establish DIS where supervision/resolution are weak or banks undercapitalized.
- Interim measure:
  - Adopting depositor preference recommended to reduce costs and facilitate payouts; design should avoid nationality/location-based preferences to preserve cross-border cooperation.
- Choosing DIS mandate and institutional form:
  - “Paybox plus” often suitable for smaller systems; least-cost funding for resolution preferred.
  - Institutional options: independent agency vs. within existing authority (central bank) — central-bank hosting may be appropriate if independence is secured.

### ACCESS TO FINANCE AND FINTECH
- Improvements 2014–2017:
  - Access to financial accounts almost doubled between 2014 and 2017, largely driven by mobile accounts, but remains much lower than in EMs.
  - Fintech likely to strongly increase financial inclusion in some countries (e.g., Bangladesh, Mali); nonbank/microfinance institutions likely to play larger roles in others (e.g., Benin, Cambodia, Tajikistan).
- Key statistics (Figure 14 / Box 1):
  - Median access to financial accounts: 19.8 (LIDC 2014–16 avg./median shown).
  - Of which: mobile accounts: 53.9 (contextual figure in source).
  - Access to financial accounts (2017): 18.0; mobile accounts (2017): 11.4.
  - Credit to private sector ~20 percent of GDP during 2013–18 (compared with 50 percent in EMs and 90 percent in AEs).
  - Savings in bank deposits <20 percent of GDP in LIDCs (vs. 57 percent in EMs and 95 percent in AEs).
  - In 2017, 9 percent of adult population (15 years+) in LIDCs had a savings account at a financial institution (vs. 17 and 53 percent in EMs and AEs).
- Policy implications:
  - Address impediments to deposit mobilization; promote fintech adoption where feasible; strengthen banking regulation and depositor protection; tailor financial inclusion strategies to country context.

### FINANCIAL STRESS, CORRESPONDENT BANKING RELATIONSHIPS, AND RESERVES
- Financial stress:
  - Share of countries under financial stress rose to close to 40 percent in 2019 (up from ~32 percent in 2017 and <20 percent in 2016).
  - Elevated NPLs have trended upward; drivers include public arrears, falling remittances, prolonged conflict.
- Correspondent banking relationships (CBRs):
  - Loss of CBRs occurred in one-third of LIDCs over past two years, with significant adverse effects in about half of these cases—typically small and fragile states (Djibouti, Solomon Islands, Somalia, Mauritania, Nicaragua).
- Reserves:
  - As of end-2018, 25 LIDCs had reserves below conventional benchmark of three months import coverage.
  - Bottom quartile had reserves of less than two months coverage.

### ANALYTICAL FINDINGS AND POLICY IMPERATIVES (SUMMARY)
- Heterogeneity: striking differences across LIDCs (commodity vs. diversified exporters; fuel vs. non-fuel; frontier markets; fragile states) — averages can be misleading.
- Structural priorities for sustainable growth:
  - Raise public and private investment with sound project selection and efficient execution.
  - Improve business environment to stimulate private investment.
  - Address TFP weaknesses via efficiency-enhancing reforms.
  - Improve education quality to raise human capital.
- Fiscal policy and revenue mobilization:
  - Implement well-designed VAT reforms with strong compliance strategies and institutional capacity building.
  - Use targeted benefit programs, leveraging digitalization, to protect vulnerable groups while maintaining revenue mobilization.
- Financial stability:
  - Develop proportionate resolution regimes, ELA frameworks, and deposit insurance schemes where lacking.
  - Prioritize financial safety-net strengthening consistent with international standards and country capacity.

*Prepared by an interdepartmental IMF team; ppea2019039 - EXECUTIVE SUMMARY.*
*International Monetary Fund — MACROECONOMIC DEVELOPMENTS AND PROSPECTS LIDCS—2019 (excerpt).*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Overview
- The paper is the fifth in a series examining macroeconomic developments and prospects in low-income developing countries (LIDCs).
- LIDCs: 59 IMF member countries; contain one fifth of the world’s population—1.5 billion people—but account for only 4 percent of global output.
- The paper has three chapters:
  - Recent macroeconomic developments and drivers of growth in LIDCs.
  - Challenges in implementing a value-added tax (VAT) system in LIDCs.
  - How financial safety nets can be tailored to LIDCs’ needs.

### Macroeconomic Developments and Outlook
- Growth and outlook
  - LIDCs are expected to record average annual growth of some 5 percent in 2018–19.
  - Growth is expected to pick up marginally in 2020 and beyond, but risks to the global economy threaten this outlook.
  - Global growth: projected at 3.0 percent in 2019, down from 3.8 percent in 2017 and some 0.7 points below the level forecast a year ago.
- External environment and commodities
  - Commodity-dependent economies continue to fare less well than countries reliant on other export sectors; pattern in place since the drop of commodity prices from mid-2014.
  - Commodity prices recovered significantly from early-2016 lows but remain well down on 2014 levels.
  - Oil prices: peaked at $81 per barrel in October 2018 and declined to about $60 at end-September 2019 (global energy prices declined by nearly 20 percent over that interval).
- Capital flows and market access
  - Several LIDCs have become repeat issuers of sovereign bonds recently: Côte d’Ivoire, Ghana, Kenya, Nigeria, and Senegal.
  - First-time issuers in the sample period include Tajikistan in 2017, Papua New Guinea in 2018, and Benin in 2019.
  - More than half of LIDCs have not issued sovereign bonds in international markets over the past decade.
  - FDI continues to account for the bulk of private capital inflows to LIDCs; portfolio flows fluctuate year to year.
- Fiscal and debt dynamics
  - Growth of public debt levels in LIDCs slowed significantly since 2017 but continues to drift upward in about half of the countries.
  - Two-fifths of LIDCs are assessed to be at high risk of, or in, debt distress, up only marginally from 2017.
- Revenue and taxation
  - The median tax-GDP ratio in LIDCs is at some 13 percent and has changed little over the past six years.
  - One-quarter of countries increased the tax-GDP ratio by at least 2 percentage points, showing sustained progress is possible with well-designed reforms.
- Growth drivers and constraints
  - Analysis highlights the importance of investment and the drag on growth from inefficiencies reflected in declines in total factor productivity (TFP).
  - Higher public investment needs to be directed to the right projects and executed efficiently.
  - Tackling deficiencies in the business environment is imperative to boost private investment.
  - Rising school enrollment rates are encouraging, but the quality of education is low relative to middle income economies, constraining human capital accumulation.

### The VAT Experience in LIDCs
- Role and performance
  - Many LIDCs need fiscal space to finance developmental policies; the VAT can be an efficient and productive instrument for revenue mobilization.
  - The performance of VAT in LIDCs has been improving.
- Implementation challenges
  - Key challenges include handling VAT credits and managing VAT registration.
  - VAT management requires the same core competencies as other taxes, but LIDCs need to:
    - implement a comprehensive risk-based strategy to address VAT compliance issues; and
    - build institutional capacity to properly manage VAT registration.
- Distributional considerations
  - Concerns about VAT regressivity are relevant, but redistribution should be assessed in the context of the overall tax and spending system.
  - Reduced rates and exemptions might mitigate distributional implications, but at a very high cost.
  - Carefully-designed benefit programs—new possibilities opened by digitalization—can be much more efficient.
  - The VAT is very efficient in raising revenues; it would be difficult to identify alternative, less regressive revenue sources for LIDCs to finance development spending.

### The Financial Sector Safety Net in LIDCs
- Vulnerabilities and recent experience
  - In the absence of strong financial sector safety nets, LIDCs are highly vulnerable to financial shocks.
  - Recent bank failures in LIDCs have revealed continuing weaknesses.
- Gaps in frameworks and tools
  - Many LIDCs lack:
    - a special bank resolution regime with effective resolution powers;
    - well-designed Emergency Liquidity Assistance (ELA) frameworks; and
    - deposit insurance in a significant number of cases.
- Policy guidance
  - International financial standards were strengthened after the global financial crisis; safety nets in LIDCs should be tailored to country-specific circumstances and proportionally applied.
  - LIDCs should prioritize measures to address remaining shortcomings in their financial safety nets, in line with implementation capacity.

### Analytical Findings and Policy Imperatives
- Heterogeneity
  - There is striking heterogeneity across LIDCs—commodity vs. diversified exporters, fuel vs. non-fuel commodity exporters, frontier markets, and fragile states—so averages can be misleading.
- Structural priorities for sustainable growth
  - Raise public and private investment while ensuring project selection and execution quality.
  - Improve business environment to stimulate private investment.
  - Address TFP weaknesses through reforms that deliver efficiency gains.
  - Improve education quality to raise human capital accumulation.
- Fiscal policy and revenue mobilization
  - Implement well-designed VAT reforms with strong compliance strategies and institutional capacity building.
  - Use targeted benefit programs, leveraging digitalization, to protect vulnerable groups while maintaining revenue mobilization.
- Financial stability
  - Develop proportionate resolution regimes, ELA frameworks, and deposit insurance schemes where lacking.
  - Prioritize financial safety-net strengthening consistent with international standards and country capacity.

*Prepared by an interdepartmental IMF team; ppea2019039 - EXECUTIVE SUMMARY.*

### 7.       Remittances to LIDCs continue to

### 7.       Remittances to LIDCs continue to grow, while aid flows remain below pre-2014 levels

### Remittances and Official Development Assistance (ODA)
- Remittance flows have maintained their upward trend, driven by an increase in migrants and helped by falling transaction fees.
- Number of migrants increased by 50% since 2000.
- The average cost of transferring money to LIDCs has fallen by 22 percent since 2011 (World Bank, 2019a) but remains high.
- Remittances (excluding Nigeria) and ODA are shown in Figure 4 (Billions of USD).
- Official development assistance (ODA) to LIDCs picked up in 2017, with flows increasing by over 10 percent in nominal terms, but this rebound has merely reversed prior declines; aid as a share of LIDC GDP has steadily declined over time.
- The level of remittances dipped temporarily in 2015–16, reflecting weak economic conditions in major oil-exporting host countries.

### Recent Macroeconomic Developments in LIDCs — Continued heterogeneity in growth paths
- The pace of growth in LIDCs has picked up modestly during 2018-2019, averaging 5.0 percent, up from 3.6 percent in 2016 and 4.7 percent in 2017.
- Growth dynamics differ between:
  - Fuel exporters: slowly recovering from recessions after the 2014 drop in oil prices.
  - Larger non-fuel commodity (NFC) exporters: experienced a steady easing of growth since 2016.
  - Diversified exporters: experienced strong growth for several years, with modest year-to-year movements broadly tracking the global economy.
- Country-level contributors to growth:
  - Positive: large-scale investment projects (Lao P.D.R., Rwanda, Senegal), temporary U.S. trade and investment reallocation (Vietnam), post-disaster reconstruction (Nepal).
  - Negative: natural disasters (Comoros, Mozambique) and security-political challenges (Afghanistan, Nicaragua, the Sahel countries, Sudan).
- Fragile states generally have slower growth than non-fragile countries.

### Aggregate fiscal positions
- Fiscal balances improved in most commodity exporters during 2018-19, supported by a pick-up in revenues.
- Among fuel exporters, the median deficit fell from 5.4 percent in 2017 to a projected 2.3 percent in 2019 (below the 3.2 percent median in 2010–14).
- Nigeria is an outlier: fiscal position, though improving, still significantly weaker than in 2010–14.
- NFC exporters: deficits projected to decline during 2018–19 with revenue recovery on the order of 1–1¼ percent of GDP and a (weighted) average decline in deficit levels by some 0.6 percent of GDP to 2.5 percent of GDP.
- Country-level fiscal movements:
  - Revenue is projected to rise in 2018-19 by at least 1 percent of GDP in 13 countries (e.g., Burkina Faso, Sierra Leone, Uzbekistan), but fall relative to GDP in 13 countries (e.g., Malawi, Lao P.D.R., Tajikistan).
  - Spending increases across commodity exporters are concentrated in less than half of the 30 countries (e.g., Nigeria, Uzbekistan, Sudan), with spending falling in many others (Côte d’Ivoire, Republic of Congo, Mauritania).
- Diversified exporters: fiscal deficits projected to have widened marginally during 2018–19 (on the order of 0.3 percent of GDP) due to revenue erosion and rising spending.
  - Revenues declined in 2018-19 by at least 0.5 percent of GDP in 12 countries (e.g., Ethiopia, Tanzania, Vietnam) while increasing by at least this margin in 10 others (e.g., Cambodia, Niger, Nepal).
  - Expenditure rose by more than 0.5 percent of GDP in 13 countries (most marked in Cambodia, Nepal, and Togo) while falling by more than this margin in 10 countries (e.g., Bhutan, Ethiopia, Kyrgyz Republic).

### Growth, inflation, fiscal and debt statistics (selected from Table 1)
- Growth (percent), LIDCs (59): 2010-14 = 5.9; 2016 = 3.6; 2017 = 4.7; 2018 = 5.0; 2019 = 5.0; 2020 = 5.1; 2021-23 (Forecast) = 5.3.
- Inflation (percent), LIDCs: 2010-14 = 9.3; 2016 = 10.0; 2017 = 10.2; 2018 = 9.6; 2019 = 9.4; 2020 = 9.2; 2021-23 = 7.9.
- Fiscal balance (percent of GDP), LIDCs: 2010-14 = -2.7; 2016 = -3.8; 2017 = -3.9; 2018 = -3.8; 2019 = -4.0; 2020 = -4.1; 2021-23 = -3.7.
- Public debt (percent of GDP), LIDCs: 2010-14 = 38.7; 2016 = 44.4; 2017 = 46.5; 2018 = 46.9; 2019 = 47.0; 2020 = 46.8; 2021-23 = 46.7.
- Current account balance (percent of GDP), LIDCs: 2010-14 = -1.7; 2016 = -2.4; 2017 = -1.9; 2018 = -3.0; 2019 = -3.4; 2020 = -3.5; 2021-23 = -3.2.

### Tax revenue developments
- Progress in boosting tax collection shows mixed results; median tax-GDP ratio across all 59 LIDCs has remained broadly unchanged at some 13 percent of GDP since 2013.
- Country-level tax revenue changes from 2013 to 2019:
  - Tax revenue as a share of GDP increased by at least 2 percentage points in 14 LIDCs (such as Guinea-Bissau, Nepal, Uganda).
  - Tax-GDP ratio declined by more than 2 percentage points in 14 countries (e.g., Papua New Guinea, São Tomé and Príncipe, Zimbabwe).
- Effective implementation of a value-added tax (VAT) is often a key contributor to boosting tax revenues, but many countries have faced challenges in VAT design and administration.

### Public debt vulnerabilities
- The rapid growth in public debt recorded between 2013 and 2017 slowed significantly in 2018–19, but the general trend remained an upward drift in debt burdens.
- Debt levels in several countries (notably fuel exporters) fell sharply on fiscal tightening and recoveries of GDP and/or real exchange rates.
- Excluding fuel exporters:
  - Debt to GDP ratios are projected to have increased by at least 2 percentage points of GDP in 23 (of 52) countries, and by at least 5 percentage points of GDP in 11 cases (such as Liberia, Zambia).
  - Rising primary deficits and off-budget operations have been key drivers of debt build-ups, partly reflecting higher public investment levels.
  - Debt to GDP ratios are expected to decline (excluding fuel exporters) by at least 2 percentage points of GDP in 11 countries (such as The Gambia, Vietnam) and by at least 5 percentage points of GDP in three countries (including São Tomé and Príncipe).
- Debt distress assessments:
  - The share of countries assessed to be at high risk of, or in, debt distress rose slightly to 43 percent of countries for which DSAs are available, slightly higher than in 2017.
  - The share of countries assessed to be at low risk of debt distress has also increased modestly.

### External positions and reserves
- Current account balances weakened in many countries during 2018–19.
  - Among fuel exporters, current account deficits narrowed over the period, helped by recovery in export revenues—except in Nigeria, where recovery in import levels dominated a transitory increase in export revenues in 2018.
  - NFC exporters: current account deficits widened markedly (exceeding 6 percent of GDP in 2018) due to a surge in import levels, sometimes FDI-driven (Lao P.D.R.) or demand for capital goods (Uzbekistan).
  - Diversified exporters: export growth remained strong (especially Asian LIDCs such as Bangladesh, Cambodia, Vietnam); current account deficits widened modestly, more noticeably in smaller countries.
- Foreign reserves:
  - As of end-2018, 25 LIDCs had reserves below the conventional benchmark of three months of import coverage.
  - The bottom quartile of countries had reserve levels of less than two months coverage.
  - Low reserve levels leave countries particularly vulnerable to external shocks.

### Inflation, monetary policy, and credit
- Inflation levels have eased since 2017, more noticeably in countries with flexible exchange rates.
  - Among pegged exchange rate regimes, the median inflation rate, already low, has fallen below 4 percent, helped by low growth in import prices.
  - For flexible exchange rate countries, improvement in inflation has been more marked as pass-through effects from prior exchange rate depreciation faded.
  - Outliers: conflict situations (South Sudan, Sudan, Yemen) or countries with currency regime shifts (Zimbabwe).
- Falling inflation provided space for monetary easing in countries with monetary autonomy; real interest rates declined in most inflation-targeting countries.
- Private sector credit:
  - The pace of private credit growth, which declined sharply during 2014–16, began to recover somewhat in 2018—but remained negative in about 30 percent of LIDCs.

### Financial sector developments and vulnerabilities
- Financial sector stress remains a significant concern in many LIDCs.
  - The number of countries recording bank failures has fallen since 2016, but IMF country teams assess that the share of countries currently under financial stress rose to close to 40 percent in 2019 (up from around 32 percent in 2017 and less than 20 percent in 2016).
  - Regulatory capital remains stable, but the share of LIDCs with elevated levels of nonperforming loans (NPLs) has trended upward, with some easing in commodity exporters in 2018.
- Key drivers of banking sector stress include rising public arrears (Comoros, Republic of Congo, Liberia, Zambia), falling remittances (Eritrea, South Sudan, Tajikistan), and prolonged conflict (Sudan, Afghanistan).
- Loss of correspondent banking relationships (CBRs):
  - Some loss of CBRs occurred in one-third of LIDCs over the past two years, with significant adverse effects on cross-border transactions in about half of these cases—typically small and/or fragile states (Djibouti, Solomon Islands, Somalia, Mauritania, Nicaragua).

*International Monetary Fund. Excerpt from "MACROECONOMIC DEVELOPMENTS AND PROSPECTS LIDCS—2019."*

### 21.      Access to finance has improved

### 21.      Access to finance has improved

### Improvements in financial access (2014–2017)
- Access to financial accounts almost doubled between 2014 and 2017, largely driven by increased access to mobile accounts, but remains much lower than in EMs.
- IMF analysis indicates:
  - Fintech is likely to have a strong impact in increasing financial inclusion in some countries (e.g., Bangladesh, Mali).
  - Nonbank/microfinance institutions are likely to play a more important role in other countries (e.g., Benin, Cambodia, Tajikistan).

### Key statistics from Figure 14 (LIDC Financial Access: Improvements from 2014 to 2017)
- Median values (percent of the population):
  - Access to financial accounts: 19.8 (LIDC 2014–16 avg. / median shown)
  - Of which: mobile accounts: 53.9
  - Access to financial accounts (2017): 18.0
  - Of which: mobile accounts (2017): 11.4
  - Additional median figures shown: 9.0 and 3.2 (context in figure for subgroups)
- Chart annotations show subgroup comparisons (LIDCs, EM, etc.) and 2014–16 avg. vs. 2017–2018 median values.

### Box 1 — The Challenge of Low Credit and Deposits in LIDCs
Findings:
- Credit to the private sector in LIDCs remained steady at about 20 percent of GDP during 2013–18, compared with 50 percent in EMs and 90 percent in AEs.
- Savings held in bank deposits in LIDCs amounted to less than 20 percent of GDP, against 57 percent and 95 percent in EMs and AEs, respectively.
- The 2014–2015 commodity price shock weighed on credit growth in commodity-exporting LIDCs:
  - Fuel exporting LIDCs saw a sharp decline in real credit by 7 percent (Box figure).
- Positive credit growth continued in most diversified exporters, underpinned by sustained growth.
- Poor deposit mobilization is a key impediment to expanding credit; banks rely heavily on their own deposit bases as sources of funding.
- In 2017, 9 percent of the adult population (15 years+) in LIDCs had a savings account at a financial institution, compared to 17 and 53 percent in EMs and AEs respectively.

Impediments identified:
- High banking service costs.
- Geographical isolation.

Potential mitigants highlighted:
- Greater adoption of Fintech could help address key constraints and reduce intermediation costs (see IMF, 2017, 2019f).
- A well-regulated banking system, with appropriate depositor protections, is needed to support depositor confidence (see IMF, 2016; and Chapter 3 below).

### Related indicators (Real Credit and Deposit Growth)
- Figure presents real credit and deposit growth (Percent) with subgroup breakdowns:
  - LIDCs, Oil Exporters, Fragile LIDCs shown with 2014–16 avg., 2017, 2018 median values and growth bands from -15 to +10 percent for visualization.

### Policy implications and priorities (from Box 1 and surrounding text)
- Address impediments to deposit mobilization to support greater credit provision.
- Promote Fintech adoption where feasible to lower intermediation costs and overcome geographic barriers.
- Strengthen banking regulation and depositor protection to build depositor confidence.
- Tailor financial inclusion strategies to country context: leverage fintech in some countries and nonbank/microfinance institutions in others.

*Prepared by Imen Benmohamed (MCD); material extracted from the IMF chapter "21.      Access to finance has improved" in the referenced PDF.*

### 32.      Upside risks may support growth and income convergence. As described in Box 2, new

### 32.      Upside risks may support growth and income convergence. As described in Box 2, new

### Upside risks and new technologies
- New technologies—such as mobile devices—have provided significant gains for LIDCs and could support further economic growth and economic inclusion, if accompanied by a commensurate accumulation of human capital.
- Regional economic integration has supported strong growth in several Asian LICs, underscoring the potential gains from a closely integrated African Continental Free Trade Area.

### Conclusions and policy issues — growth outlook
- Economic growth in LIDCs, at 5 percent per annum, has been reasonably robust in 2018–19, despite a significant loss of momentum in the global economy.
- Commodity-dependent economies continue to fare less well than countries reliant on other export sectors, with the latter group continuing to achieve trend growth rates on the order of 6 percent per annum.
- Outlook: The outlook for commodity exporters is expected to improve as countries exit the post-2014 export price-driven slowdowns, but global downside risks threaten this outlook.

### Fiscal positions and revenue mobilization
- Fiscal positions have changed only modestly at the aggregate level since 2017, but country-specific factors delivering diverse outcomes at the country level.
- Growth of public debt levels has slowed significantly from previous years, but more than two-fifths of LIDCs remain at high risk of (or already in) debt distress.
- In boosting tax collections:
  - One-quarter of LIDCs have increased tax revenue/GDP ratios by at least two percentage points since 2013.
  - An equal number experienced a decline of similar magnitude over the same period.

### External balances, reserves, and financial conditions
- There has been a marked increase in current account deficits in NFC exporters since 2017, financed by a mix of FDI and access to external capital markets.
- Foreign reserve positions show little trend movement: in the bottom quartile of countries, reserves cover less than two months of prospective imports.
- Inflation levels have been easing, helped by limited increases in import prices and the fading of pass-through effects of earlier exchange rate depreciations.
- Interest rates have been declining in countries with monetary autonomy, with the multi-year decline in the growth of credit to the private sector beginning to turn around.
- IMF staff assessments point to current financial stress in close to 40 percent of LIDCs (on an upward trend), highlighting the need for proactive regulatory actions (and clearance of government payment arrears, where relevant).

### Productivity, investment, and human capital
- Analysis highlights the drag of low and falling TFP levels on productivity.
- Policy priorities:
  - Higher levels of public investment are warranted, but only if directed to the right projects and executed efficiently.
  - Create a business environment conducive to boosting private investment—some countries have made impressive strides.
  - Improve human capital: most LIDCs have been making progress in tackling infrastructure gaps and improving school enrollments, although strengthening the quality of education is an immediate and pressing concern.

### Annex: LIDC grouping and subgroups
- The LIDC group was introduced in 2014 and updated in late 2017, resulting in the current 59 countries.
- Subgroup definitions:
  - Export types: Fuel exporters (fuel > half of export earnings), Non-fuel commodity (NFC) exporters (primary products > half of export earnings), and Diversified exporters.
  - Financial development: “Frontier markets” and “Fragile states.”
  - “Fragile states” defined as those with less than 3.20 of the CPIA rating or where there is a peacekeeping operation in the preceding three years.

### The VAT experience in LIDCs — role and performance
- The VAT is central to revenue mobilization in developing countries, including LIDCs, but remains contentious in some respects.
- Fiscal context:
  - LIDCs face median additional spending needs for them of around 17 percent of GDP to reach the SDGs.
  - Strengthening the VAT is important both as a source of revenue and in catalyzing wider administration reform.
- VAT adoption and revenue:
  - Around three-quarters of LIDCs have adopted a VAT.
  - Where adopted, the VAT on average raises around 30 percent of their total tax revenue.
  - LIDCs with a VAT raise significantly more total revenue than those without do (2000–2017 comparison).
- Contribution to increased total revenue since 2000:
  - Increased average ratio of total revenue to GDP in LIDCs since 2000: 2.1 percent of GDP.
  - LIDC increase largely reflects increased VAT revenue: 1.5 percent of GDP.
  - There were modest gains in personal income tax and corporate income tax and declining trade tax revenue.
- Drivers of VAT revenue growth:
  - The increased revenue from the VAT in LIDCs mainly reflects improvements in C-efficiency rather than changes in the standard tax rate or levels of consumption.
  - Decomposition: the average 4 percent annual increase in the ratio of VAT revenue to GDP suggests it has been driven mainly by increases in C-efficiency while the average standard rate has remained broadly constant.
  - Possible explanations for higher C-efficiency include improved compliance, increases in reduced rates of tax or elimination of exemptions on final consumption goods, or an increasing denial of VAT credits and refunds. More work is needed to understand precise drivers.

### Box 4 — A primer on the VAT (key points and numeric example)
- Key features:
  - Broad-based tax levied at multiple stages of production with taxes on inputs credited against taxes on output (refunded or carried forward if excess credit).
  - Secures revenue throughout production without distorting production decisions as a turnover tax would.
- Numeric illustration:
  - Firm A sells output for $100 (excluding tax) to Firm B. Firm B sells to final consumers for $400 (excluding tax).
  - VAT rate: 10 percent.
  - Firm A charges Firm B $110, remitting tax of $10 to the government.
  - Firm B charges final consumers $440, remitting tax of $30: output tax of $40 less a credit for the $10 of tax charged on its inputs.
  - Government collects a total of $40 in revenue.
- Definitions:
  - “Zero-rating”: rate of tax applied to sales is zero, though credit is still given for taxes paid on inputs (firm due a full refund of taxes paid on inputs).
  - “Exemption”: tax not charged on outputs and tax paid on inputs cannot be reclaimed (no refunds payable), which may affect production decisions.

_International Monetary Fund — MACROECONOMIC DEVELOPMENTS AND PROSPECTS LIDCS—2019_

### 44.      There remain, nonetheless, large

### 44.      There remain, nonetheless, large shortfalls in many LIDCs between actual VAT revenue and the revenue that would be expected with full compliance and the application of a single rate to all final consumption—closing which offers the prospect of significant additional revenue.

### Shortfalls, C-efficiency, and potential revenue gains
- Shortfalls commonly amount to around 9 percent of GDP.
- Confidential IMF country work suggests these gaps reflect in roughly equal parts noncompliance and deviations from uniform treatment of all consumption items.
- Raising C-efficiency to 100 percent is not feasible (and perhaps not desirable).
- If LIDCs in the lower quartile by C-efficiency were to raise it to the LIDC median, additional revenue would be around 3.5 percent of GDP.
- VAT policy tools and diagnostics referenced include the Tax Policy Assessment Framework module on VAT.

### Recent country experiences with VAT elimination or repeal debates
- Two countries have recently eliminated the VAT or seriously considered doing so for different reasons:
  - Zambia contemplated repealing the VAT because of difficulty in managing VAT refunds; the recently approved budget retained it and the authorities plan to address administrative challenges.
  - Malaysia eliminated VAT amidst concerns with its impact on prices and thus the poor.
- Historical pattern: countries that previously removed a VAT subsequently reintroduced it (examples cited: Belize, Grenada, Malta, Vietnam), suggesting improvement rather than removal is typically the wiser response.

### H. Implementation Challenges — overview
- Improving VAT implementation is a centerpiece of wider tax administration reform in many LIDCs.
- More effective VAT management can realize the VAT’s potential as a productive and efficient revenue source and act as a catalyst for wider administrative reform.
- Spillover effects on other taxes can be considerable (example: VAT stimulated registration of small enterprises in India).
- Effective VAT management requires fundamentals and is symptomatic of broader tax administration capacity rather than inherent flaws in the VAT.

### Core administrative competencies required
- Gathering and using information.
- Identifying, measuring, and treating compliance risks.
- Managing core processes.
- Focus areas for VAT-specific issues in LIDCs: managing VAT credits and taxpayer registration.

### Dealing with VAT credits
- The management of credits is one of the most challenging aspects of the VAT for all countries, including LIDCs.
- Excess credits arise when input tax credits exceed tax due on sales; government paying money to taxpayers is especially problematic.
- Excess credits are most pervasive for exporters (since exports are zero rated) but can also arise for startups, heavy investment, and multiple VAT rates.
- Reported magnitudes of excess credits in LIDCs:
  - Anywhere from 0.3 percent of GDP to perhaps as high as 0.7 percent of GDP.
- Evidence suggests in some countries the stock of excess credits continues to grow, indicating regimes that severely limit refunds or other access to credits.
- Failure to pay proper refunds to exporters can turn VAT into a tax on exports, with evidence of real damage in lower-income countries.

### Fraud, administrative responses, and consequences
- Credit fraud example: a missing electronic cash register scheme estimated to have cost one LIDC two percent of GDP.
- To guard against fraud, many LIDCs limit VAT refunds, require carrying forward credits, or subject all refund claims to audit without risk profiling — processing times can be months or years.
- Special tax treatments adopted by some LIDCs (withholding by buyer, reverse charge) aim to secure VAT due but:
  - Tend to complicate administration, affect taxpayer cashflow, and often increase the number of taxpayers in a net credit position.
  - Increase complexity, likelihood of errors, risk distortions (e.g., between imports and domestic suppliers), and require innovative control mechanisms.
- Stocks of excess VAT credits represent a large, unfunded, and unaccounted government liability.
- Attention to refunds in isolation can detract from wider VAT compliance issues; a comprehensive risk-based strategy is required.

### Funding for refunds and macro-fiscal risks
- Ensuring the Treasury has enough funding for timely payment of refunds is one of the most challenging aspects in LIDCs.
- Few LIDCs allocate sufficient Treasury funding to meet approved, risk-assessed VAT refund claims.
- One approach: setting aside part of VAT revenue to cover expected refunds (example: one Southern African country used tax returns to estimate refund needs, segregated funds at the central bank, then later dismantled the mechanism in 2013/14 leading to accumulated claims).
- Accumulated refund claims can:
  - Jeopardize sound macro fiscal policies.
  - Create an inflated impression of government receipts.
  - Understate the fiscal deficit and create a significant contingent liability.

### Managing registration
- The threshold for compulsory VAT registration is a critical anchor and varies widely across LIDCs.
- Common IMF advice: set a high registration threshold as a transitory measure until tax administration capacity strengthens.
- Rationale: concentration of potential VAT revenue in the largest taxpayers justifies focusing scarce administrative resources.
- VAT gap studies with IMF assistance: the top 20 percent of taxpayers by declared sales account for 87 percent of total VAT collection (data for five countries).
- Example: in one East African LIDC, the top 10 percent of taxpayers by turnover account for 90 percent of total VAT revenues.
- Increasing the threshold has helped improve VAT management in LIDCs (example: Uganda raised the VAT registration threshold by 200 percent in 2015; outcomes included a 30 percent fall in registered taxpayers, increased percent of VAT ‘payment’ returns, offset claims fell by more than 25 percent, administration efficiency improved, and VAT/GDP ratio rose from 4.1 percent in FY2014/15 to 4.5 percent in FY2017/18).

### Voluntary registration tradeoffs and challenges
- Voluntary registration below the threshold eases unrecovered VAT on purchases but:
  - Imposes burdens on tax administration for services, education, verification, and enforcement.
  - Diverts resources from larger taxpayers who produce most revenue.
  - Provides opportunities for “bogus traders” producing invoices to claim fraudulent VAT recovery.
  - Increases non-filing risks and weakens VAT administration across the value chain.
- Illustration from an LIDC in Francophone Africa: of 3,685 VAT registered taxpayers:
  - 916 administered (24%)
  - 670 active in the database (16%)
  - 556 expected to file (15%)
  - 357 filers (9%)
  - 199 in a VAT debt position (5.4%)

### Box 5 — Elements of a Comprehensive VAT Compliance Strategy
- Controlled and monitored registration.
- On time-and full filing: VAT returns should support assessment and provide information to control the VAT value chain.
- Prompt and full payment: non-payment risks creating unmatched credit claims.
- Verification using third party information, such as customs data, government acquisitions, and large taxpayers’ transactions.
- Controlled issuance of invoices:
  - Examples: Paraguay’s risk-based criteria for the number of VAT-invoices authorized to be printed; Cabo Verde requires printing companies to report electronically the sequencing of invoices printed to each taxpayer, and taxpayers must report invoices issued and received.
- Facilitation of compliance with reporting requirements:
  - Several Francophone African countries (including Benin, Cameroon, Chad) publicized a list of active taxpayers authorized to issue VAT-credit-generating invoices in 2016–18, improving compliance and making audits easier; VAT collection in these countries improved by 5–15 percent in real terms.
- Effective use of technology:
  - IT is essential but not sufficient; examples include electronic invoicing and electronic fiscal devices.
  - Only a few administrations use the data to cross-check tax returns; without this, long-run benefits on compliance may be limited.
  - Evidence: Dabla-Norris and others (2019) find VAT e-invoicing in Peru increased firm sales, purchases and value-added by almost 10 percent, mostly among relatively smaller firms and in sectors with higher non-compliance; aggregate effects on actual VAT collections are small.
- Treating taxpayers according to their risk-profile:
  - Low-risk: facilitate compliance (pre-filled returns, guidance).
  - High-risk: close monitoring (frequent verification, in-depth reviews, repeated visits, invoice monitoring, comprehensive audits, requiring guarantees).
  - Compliant taxpayers: prioritize queries and offer cooperative arrangements to reduce compliance costs.

*International Monetary Fund — Macroeconomic Developments and Prospects LIDCs—2019*

### 59.      A robust program to ensure integrity in registration reduces the space for fraud and

### 59.      A robust program to ensure integrity in registration reduces the space for fraud and tax evasion

### Registration integrity and administration
- Properly checking and identifying the bona fides of new registrants prevents fraudsters from accessing the VAT value-chain and reduces opportunities for tax evasion and fraud.  
- Paraguay improved the registration process by incorporating biometric data and linking the taxpayer address to Global Positioning System coordinates.  
- De-registering taxpayers who are defunct helps address fraud through the issuance of false invoices in their name.  
- While de-registering taxpayers has a critical role to play in VAT management, LIDCs often pay limited attention to maintaining a robust tax register (which means keeping the register up-to-date, complete and ensuring the quality of its data).

### Self-enforcing nature of the VAT and registration interactions
- Registration issues are closely related to the ‘self-enforcing’ nature of the VAT:  
  - If buyers are registered, suppliers have an incentive to register so that no unrecovered input VAT passes to the final stage.  
  - If buyers are not registered, suppliers have an incentive not to register.  
- Evidence suggests both ‘good’ and ‘bad’ chains of VAT compliance can emerge, with implications for production efficiency.  
- Results are mixed on whether compliance is best promoted by strengthening enforcement downstream (at or close to retail stage) or upstream; some studies suggest downstream enforcement is more effective while others find upstream enforcement better.  
- The traditional appeal for tax administration of withholding mechanisms aligns more with upstream enforcement, though not necessarily of the add-on type.

### Distributional aspects of the VAT in LIDCs
- Concerns over VAT regressivity have been raised (examples: Malaysia, Bhutan); some civil society organizations argue that IMF advice emphasizes tax collection and efficiency over progressivity.  
- In practice, the VAT may not be as regressive as supposed:
  - Reduced rates and exemptions often reduce regressivity, but are a very poorly targeted way of helping vulnerable groups.  
  - Some studies find the VAT distributionally neutral (examples cited: Namibia, Ethiopia, Togo).  
  - Other mitigating effects:
    - The VAT registration threshold implies sales by small retailers—where the poorest often buy—are VAT exempt; available data show the moderating impact can be substantial. Where benefits of non-registration are not passed to consumers, they likely remain with the seller, who is also likely of relatively low income.  
    - Food production for home consumption is de facto exempt.  
    - Studies that assume equal incidence of noncompliance across consumption/income deciles overstate VAT regressivity; for a sample of 15 countries Bachas (2019) finds the top decile has 27 percent less untaxed consumption than the bottom one.  
    - Assessing regressivity relative to aggregate consumption (rather than income) can show the VAT to be close to neutral or slightly progressive due to untaxed consumption. Alavoutunki, Haapanen, and Pirttila (2019) find VAT adoption has not led to increased inequality when measured on consumption, whereas measuring on disposable income suggests VAT introduction raises inequality.  
    - Empirical work often assumes full pass-through of VAT to consumers; for advanced economies there are signs reduced-rate benefits are less than fully passed on. There is little if any evidence for LIDCs on this point.
- The VAT’s contribution to poverty and inequality reduction must be evaluated in the context of the overall tax and spending system:
  - VAT is efficient at raising revenue but—being based on anonymous transactions—is hard to tailor for equity.  
  - Equity objectives are primarily pursued through public spending (in-kind: health and education; and cash transfers).  
  - CEQ, IMF and World Bank studies stress VAT is an important tool to finance social spending programs for poor households and other public goods.  
  - Model-based analyses of fiscal reform packages including VAT increases (examples: Honduras, Uganda; applied also to Benin, Senegal, Cambodia) indicate VAT is a preferred reform option regarding economic and distributional impact if complemented by mitigating spending measures.
- Alternatives and limitations:
  - No other more progressive and practicable instrument capable of raising comparable revenue has been identified as an alternative to VAT.  
  - The personal income tax (PIT) often has weak revenue performance in many developing countries.  
  - Arguments for heavier reliance on tariffs neglect that VAT is also levied on imports; limited evidence suggests tariffs may be more regressive than VAT.  
  - Revenue from addressing evasion by the wealthy, avoidance by multinationals, and property taxation is unlikely to substantially replace VAT in the near future.

### Reduced rates, exemptions, and targeting
- Reduced rates and exemptions are widely used in LIDCs to mitigate regressivity but are poorly targeted:
  - Examples among LIDCs: Ethiopia, Malawi, Mozambique.  
  - Preferential rates reduce poverty but are expensive and much of their benefit accrues to better-off individuals.  
  - IMF analysis for a prospective VAT in Bhutan: with a uniform VAT the poorest three deciles pay only 9 percent of overall VAT while 60 percent of all VAT would be collected from the three top deciles—enough to compensate the poor through targeted transfers.  
  - If prioritizing the poorest and lacking compensating instruments, rate reliefs and exemptions may be warranted on equity grounds, but finding more effective ways to support the poorest is preferable.

### Digitalization and targeted compensation mechanisms
- Advances in digitalization may enable better-targeted ways to temper VAT regressivity while retaining advantages of a broad-based single-rate VAT:
  - Proposals: individualized VAT (‘digital VAT’ or ‘D-VAT’) using biometric ID for VAT-free purchases; personalized VAT crediting an e-card with a presumptive monthly VAT liability equivalent. These approaches can amplify VAT refunds.  
  - A more direct approach is using biometric identification to target cash compensation. Examples and mechanisms:
    - India’s Direct Benefit Transfer (DBT) system linked to Aadhaar (unique identity number) covering 93 percent of the adult population. Ahead of GST introduction, it was estimated that a DBT of Rs 2,000 per annum to every individual below the poverty line (BPL) would more than offset GST’s incremental impact, at a cost less than 20 percent of exemptions; India opted for exemptions and reduced rates instead.  
    - Thailand (late 2018): State Welfare Smartcard (SWS) holders swipe cards at e-data-capture terminals and receive 5 percentage points of the 7 percent VAT returned to their e-wallet, 1 percentage point to the National Savings Fund or holder’s savings account, and the rest to the Revenue Department; the rebate is capped at around US$16 equivalent per month. Five months after launch there were 14.5 million smartcard holders and the Government had transferred around US$650 thousand to e-wallets and an additional around US$120 thousand to holders’ savings accounts.  
  - Other possibilities: targeted transfers to bank accounts, VAT rebates using digital wallets, or using part of VAT receipts to finance an equal poll subsidy to all adults.

### Key implementation priorities and recommendations (conclusion)
- The VAT is central in many LIDCs, raising a large share of overall revenues; its performance has been improving, but implementation remains challenging and concerns about regressivity persist.  
- Two key areas to improve implementation:
  - Treatment of VAT credits: adopt a comprehensive risk-based strategy to address VAT compliance more widely rather than focusing excessively on VAT refunds; ensure sufficient funding for timely payment of refunds.  
  - Management of the VAT threshold: set the registration threshold in line with tax administration capacity and consider increasing the threshold until capacities have strengthened; voluntary registration below the threshold can impose burdens and divert resources from large taxpayers.  
- Building institutional capacity to properly manage VAT supports upgrading wider tax administration competencies.

*International Monetary Fund — MACROECONOMIC DEVELOPMENTS AND PROSPECTS LIDCS—2019*

### 69.      Concerns with the regressivity of the VAT are sometimes over-stated, and risk leading

### ppea2019039 - 69.      Concerns with the regressivity of the VAT are sometimes over-stated, and risk leading

### VAT regressivity, distributional assessment, and mitigation
- Concerns with the regressivity of the VAT are sometimes over-stated, and risk leading to even less pro-poor policies.
- Reduced rates and exemptions can somewhat mitigate the adverse distributional impact, but they do so at a high cost and in a poorly targeted way.
- Equity concerns need to be assessed and addressed in the context of the overall tax and benefit system, integrating the effect of the VAT with the contribution of other taxes and the social safety net.
- Targeted benefit programs can be efficient tools to mitigate the distributional effects.
- Advances in digitalization may also provide innovative ways to offset some of the distributional impact.
- The VAT can be highly effective in raising revenues, and no alternative less regressive and practicable revenue sources for LIDCs have been identified that are capable of raising as much (much-needed) revenue.

### Financial safety nets in LIDCs — observed vulnerabilities and costs
- In the absence of strong financial safety nets, LIDCs are highly vulnerable to financial instability, which may result in high fiscal costs.
- Bank instability has been experienced recently in several LIDCs; examples cited include Ghana and Moldova.
- Historical evidence: 38 of the 54 LIDCs included in Laeven and Valencia (2018) have experienced full-blown banking crises since 1976.
- Laeven and Valencia estimate the median net fiscal costs of banking crises in low- and middle-income countries at approximately 10 percent of GDP and 22 percent of financial sector assets; and the corresponding figures for high-income countries were 3.3 percent and 3 percent respectively.
- The median increase in public debt over the three years following the banking crises in low- and middle-income countries was 16 percent of GDP, severely straining debt sustainability in many cases.
- Given the smaller size of the financial system in LIDCs as compared to advanced economies (as a percentage of GDP), costs in LIDCs would be lower if efficient financial safety nets were in place.

### Box 8 — Four pillars of an effective financial safety net for banks
- An effective financial safety net supports the orderly recovery and resolution of weak and failing banks.
- The financial safety net comprises four pillars:
  - Powers for early intervention: Bank supervisors need strong powers for intervention and enforcement, as delays in addressing bank problems typically lead to greater losses and risks (including of contagion).
  - Effective powers and tools for resolving failing banks: A well-designed resolution regime allows authorities to resolve failing banks quickly and maintaining financial stability without exposing taxpayers to loss.
  - Deposit insurance: Effective deposit insurance system (DIS), along with depositor preference, enhances depositor confidence and reduces the risk of deposit runs and contagion.
  - Emergency liquidity assistance (ELA): An effective ELA framework enables central banks to provide liquidity, while protecting their balance sheets, to mitigate the risk that temporary bank illiquidity leads to insolvency or financial instability.
- Complementarity and supporting arrangements:
  - A well-designed financial safety net can minimize the risks of system-wide financial distress and the four pillars complement each other—for example, effective early intervention combined with ELA provision and depositor confidence induced by a DIS can reduce the risk that a temporary shock leads to bank runs.
  - For a country’s safety net to work, it must also have a formal mechanism for information sharing and coordination among safety net participants.
  - Inter-agency contingency planning should address coordination, decision making and communication in a crisis scenario and be tested in crisis simulations.

### International standards, observed weaknesses, and reform needs
- International financial standards were strengthened following the global financial crisis (GFC) to reduce the likelihood that public funds need to be deployed to preserve financial stability and should underpin reform in LIDCs.
- Key international benchmarks cited:
  - The Financial Stability Board (FSB) Key Attributes of Effective Resolution Regimes for Financial Institutions (Key Attributes).
  - The International Association of Deposit Insurers (IADI) Core Principles for Effective Deposit Insurance Systems (IADI Core Principles).
  - The Basel Committee revised the Core Principles for Effective Banking Supervision, including strengthening early intervention powers.
- Recent weaknesses revealed by bank failures in LIDCs include:
  - (i) the absence of options to resolve banks without resorting to public bail-outs;
  - (ii) insufficient arrangements to protect small depositors without taxpayer funds; and
  - (iii) inadequate arrangements on the provision of central bank liquidity to banks at times of stress.
- These shortcomings raise the cost of bank failures and the risk of financial instability and taxpayer bailouts.
- Many LIDCs still need to make significant further progress in all three areas to move closer to international best practice.
- Reforms should be guided by international standards and good practices in bank resolution, deposit insurance, and emergency liquidity assistance (ELA), but adapted proportionally to country-specific circumstances, including the complexity of the financial system and the capacity of authorities.

### Bank resolution frameworks in LIDCs — objectives and requirements
- An effective resolution regime allows the authorities to manage bank failures while preserving financial stability and protecting taxpayers.
- Corporate bankruptcy or general insolvency frameworks are ineffective for dealing with failing banks; resolution must be quick to prevent contagion and preserve financial stability.
- Retail deposit services and other critical functions provided by systemic banks need to be preserved (although the bank itself need not be).
- A special legal regime for bank resolution is the best way to address these public policy objectives and deliver the overarching objective of maintaining financial stability.
- Once the supervisor deems a bank to be not viable (e.g., in serious breach of, or judged to have little prospect of restoring compliance with regulatory requirements), decisive and rapid actions are required to ensure depositor confidence in the financial system is maintained and losses do not continue to accrue.
- Financial stability risks are minimized by ensuring that small depositors—typically, the bulk of bank liabilities in LIDCs—maintain access to their funds.
- Economic losses can be minimized by preserving critical functions of systemic failed banks, which ensures that performing assets are managed on a going-concern basis by acquiring or successor entities.

*Italic: International Monetary Fund — MACROECONOMIC DEVELOPMENTS AND PROSPECTS LIDCS—2019 (excerpt).*

### 75.      Best resolution practices were published by the FSB in 2011 as the Key Attributes of

### 75.      Best resolution practices were published by the FSB in 2011 as the Key Attributes of Effective Resolution Regimes for Financial Institutions.

### Key Attributes: scope and tools
- Prescribe powers and resolution tools exercisable swiftly and permanently by the administrative resolution authority without requiring shareholder or creditor consent and without courts being able to overturn or stay the resolution authority's decisions.
- Prescribe creditor safeguards, including ex post judicial review and redress; redress should be limited to monetary compensation if creditors are made worse off than they would have been if, instead, the entity had been liquidated.
- Resolution toolkit elements include:
  - ability to transfer ownership of the troubled financial entity, or its assets and liabilities, directly to a private purchaser (Purchase & Assumption or P&A) or via a bridge bank;
  - ability to recapitalize or ‘bail-in’ a failing systemic bank by reducing the nominal value of some liabilities and converting creditors to shareholders.
- Include requirements for recovery and resolution planning and formal arrangements for international cooperation for cross-border institutions.

### Shortcomings in many LIDCs
- Many LIDCs lack a special bank resolution regime with effective resolution powers and are typically limited to (court-based) liquidation without other resolution powers (Figure 31).
- Consequences of limited powers:
  - authorities are often left with nationalization of a failing system bank and bailing out its creditors to preserve financial stability;
  - closure of small, non-systemic banks can be inefficient and cost-intensive, leading to protracted court procedures and low recovery rates.
- Other observed shortcomings:
  - overall inadequacy of the legal framework;
  - lack of capacity impeding authorities from preparing for resolution in advance;
  - inadequate mechanisms to facilitate information exchange and cooperation for cross-border bank resolution in countries with significant foreign-owned banks.
- Note on sample underlying Figure 31: The sample consists of 39 countries out of a total of 59 LIDCs (Low-income Developing Countries). * P&A refers to purchase & assumption.

### Tailoring the Key Attributes to LIDCs
- The resolution regime should be proportionate to the size, structure, and complexity of the jurisdiction’s banking system, and to the capacity (expertise, governance, independence) of its authorities.
- Staff considers that all countries should adopt a special resolution regime with powers to:
  - remove management;
  - appoint an administrator;
  - operate and resolve a bank;
  - override shareholder rights;
  - transfer assets and liabilities (P&A powers) including to a bridge bank;
  - suspend creditor payments; and
  - liquidate a bank.
- Minimum recommended toolkit for LIDCs: time-tested and cost-effective P&A and bridge bank tools.
  - For P&A transactions, resolution authorities need power to transfer select assets and liabilities from the failed bank to a third-party institution or to a newly established bridge bank.
  - A bridge bank should be used only in the absence of an acquirer to continue critical functions and viable operations temporarily until a sale to a private-sector party can be completed.
  - P&A offers an efficient and less disruptive way for a DIS to ensure depositors retain access to insured deposits, avoiding lengthy payout procedures.
- Caution on bail-in: statutory bail-in powers can be complex to execute and are relatively untested; executing a bail-in requires real-time valuation and determination of haircuts, which may be challenging in an LIDC environment.

### Designation and characteristics of a resolution authority in LIDCs
- LIDCs should designate an administrative resolution authority that can build expertise and preparations to resolve banks.
- Characteristics of the resolution authority:
  - clearly identified administrative authority;
  - operational autonomy from government officials, shareholders, and the industry;
  - transparent processes, sound governance, and adequate resources;
  - legal protection for resolution authority staff due to potential legal challenges from private interests.
- Often suitable option: vesting the mandate in the central bank and the supervisor to leverage capacity and legal protection of the central bank, while implementing adequate firewalls and governance to mitigate conflicts of interest.
- Empirical note: Two LIDCs (Kenya and Nigeria) have given resolution powers to their independent deposit insurance agencies; in most LIDCs, administrative resolution powers currently reside with central banks.

### Recovery and Resolution Planning (RRPs)
- Key Attributes require Recovery and Resolution Plans (RRPs) to be prepared in all jurisdictions, at minimum for all banks that could be systemically significant or critical if they were to fail.
- Recovery plans:
  - developed and maintained by bank management and reviewed and approved by the supervisor;
  - should include measures at pre-identified triggers to bolster capital and liquidity (e.g., divestiture of business lines, restructuring of liabilities prior to resolution).
- Resolution plans:
  - develop and regularly update by resolution authorities;
  - ensure impediments to effective resolution are removed;
  - facilitate orderly resolution to protect critical functions without severe disruptions or losses for taxpayers.
- Staff advice:
  - Fund staff usually advise requiring all banks to produce recovery plans;
  - resolution plans should be in place, at least, for systemic banks or banks with significant cross-border operations;
  - RRP requirements should be subject to proportionality reflecting complexity, interconnectedness, size, and extent of cross-border operations.

### Cross-border cooperation and foreign-owned banks
- Growing importance of foreign-owned banks in LIDCs, especially in Africa, makes cross-border cooperation arrangements crucial.
- Cooperation should include arrangements for sharing information and coordinating RRPs to manage cross-border failures.
- Risks and contingency:
  - host LIDCs may be affected by home authority resolution decisions, potentially with severe consequences if home authorities do not consider the systemic importance of the foreign bank in the host country;
  - authorities should work together on a common resolution strategy, but diverging interests can impede this outcome.
  - host authorities should prepare a “Plan B” to safeguard domestic financial stability and have their own resolution strategy if joint planning fails.
- Progress note: Many LIDCs have made little progress in cross-border resolution planning and should seek to leverage existing supervisory arrangements for cross-border coordination, including supervisory colleges, where they exist.

### Resolution funding
- Resolution powers require adequate resolution funding because, at failure, bank buffers of liquidity and capital will typically have been eroded.
- Uses of resolution funding:
  - backing a transfer of deposits to another bank;
  - purchasing impaired assets;
  - injecting liquidity after a bail-in of creditors.
- Pre-established arrangements should allow resolution authorities to promptly mobilize necessary financial resources, so authorities are not constrained to rely on public funds.
- Funding options accepted by the Key Attributes include:
  - industry-financed deposit insurance fund;
  - a special resolution fund; and
  - a funding mechanism for ex post recovery from the industry of public costs of temporary resolution funding from the official sectors.
- In LIDCs, priority should be to make the DIS adequately funded and operationally available to fund bank resolution, particularly where a DIS is ex post-funded or underfunded, rather than creating a separate fund that would levy the same institutions as the DIS.
- Use of public resources should be a last resort, only when financial stability is severely threatened and subject to strict conditions, such as first recognizing losses to avoid bailing out shareholders.

### Deposit Insurance Systems (DIS) in LIDCs: role and design
- A well-designed DIS enhances depositor confidence and reduces the risk of bank runs by protecting small depositors and preserving bank deposits as a safe means of payment.
- A well-designed scheme should:
  - ensure sufficient coverage to protect the maximum number of retail depositors, not the maximum amount of deposits (exclude high-value corporate and sophisticated investor deposits);
  - have a well-endowed deposit insurance fund raising regular contributions from all deposit-taking institutions, with a credible line of back-up funding (commercial credit lines are likely unreliable during system-wide stress).

### Current DIS coverage and mandates in LIDCs
- DISs exist in over half of all LIDCs with different mandates (Figures 32 and 33).
- Staff awareness: a further 12 LIDCs are taking steps toward establishing a DIS.
- DIS mandate spectrum (IADI differentiation):
  - pay box: reimbursement of insured deposits once a bank is closed;
  - pay box plus: reimbursement and additional responsibilities, such as providing resolution funding;
  - loss minimizer: insurer engages in selection of least-cost resolution strategies when also the resolution authority;
  - risk minimizer: comprehensive risk minimization including risk assessment, early intervention and resolution powers, and sometimes prudential oversight.
- In LIDCs:
  - DISs operate mainly under a narrow “paybox” or “paybox plus” model;
  - two-thirds are set up as an independent body;
  - broader loss minimizer mandates (deposit insurer also the resolution authority) exist only in Kenya and Nigeria.
- Institutional setup notes:
  - most LIDCs have set up DISs as independent agencies legally separated from existing institutions such as the central bank;
  - some DISs use seconded staff from, or the office infrastructure of, the central bank.

### Challenges when introducing deposit insurance in LIDCs
- Key prerequisite: ensure a conducive operating environment per IADI Core Principles — stable macroeconomic and healthy financial sector structure, effective banking regulation, supervision and resolution, and well-functioning legal, accounting, and disclosure systems.
- Fund staff does not recommend establishing a DIS in countries with weak banking supervision, ineffective resolution regimes, and identifiably weak or undercapitalized banks because:
  - it exposes a nascent scheme to significant risk of losses before adequate funding and operational capacity are built;
  - it would erode depositor confidence in the scheme on inception.
- Authorities should make significant progress in addressing deficiencies before introducing deposit insurance.

### Interim measures: depositor preference
- As an interim and complementary measure to deposit insurance, authorities should adopt depositor preference.
- Benefits of depositor preference:
  - reduces costs of protecting retail depositors in countries with DIS (savings accrue to DIS) and without DIS (facilitates preferential disbursement of asset recoveries or advance payments to retail depositors);
  - tiered or general depositor preference offers most advantages in jurisdictions with a DIS by preferring all eligible deposits over other senior and more sophisticated creditors.
- Design guidance: depositor preference rules should not prefer depositors based on nationality, location of the deposit claim, or jurisdiction in which the claim is payable, to avoid impeding cross-border cooperation among resolution authorities.

### Choosing an appropriate DIS mandate and institutional setup
- Country-specific circumstances should inform the DIS mandate choice.
- For smaller, less complex financial systems, a “paybox plus” mandate may be best suited, allowing reimbursement of insured depositors in liquidation and funding certain resolution measures (such as P&A).
- Financial support for resolution should be on a least-cost basis (less costly than a payout of insured deposits) to avoid overburdening the deposit insurance fund.
  - Advantages of least-cost approach:
    - continuity of service for depositors transferred to another bank;
    - reduced deposit insurance outlays because only the gap between assets and liabilities transferred is covered, not the full amount of insured deposits;
    - maximized asset values as performing loans are managed as a going concern by the acquiring bank.
- Broader loss or risk minimizer mandates may be less suitable for LIDCs because they can duplicate tasks assigned to other safety-net agencies (typically the central bank), raising coordination and competition issues for qualified personnel and resources.

### Institutional form: independent agency vs. within an existing authority
- Many LIDCs have set up DISs as independent agencies, but establishing a new DIS within an existing authority can be justified.
- Considerations:
  - stand-alone agency requires its own infrastructure (personnel, IT, housing) funded from collected funds and may be appropriate only for countries with large banking sectors able to fund such an organization;
  - in LIDCs, locating the DIS within the central bank (or banking supervisor) could be more appropriate if operational independence of the deposit insurance function is secured (including separate decision-making process and separate budget).

*Source: Excerpt from IMF chapter on Macroeconomic Developments and Prospects LIDCs—2019.*

### Box 9. Depositor Preference

### Box 9. Depositor Preference

### Purpose and effects
- Depositor preference grants deposit liabilities a higher claim class than other general creditors against the proceeds of liquidation of an insolvent bank’s assets.
- Depositors must be paid in full before remaining creditors can collect on their claims, resulting in a higher (often full) recovery rate for the preferred claims.
- It helps reduce the costs of protecting retail depositors:
  - In countries with deposit insurance, savings accrue to the DIS.
  - In countries without deposit insurance, it can facilitate preferential disbursement of asset recoveries or advance payment of retail depositors (cash flows from asset recoveries in liquidation can be used to quickly first repay insured depositors).

### Benefits
- Reducing the cost of protecting depositors in liquidation or resolution:
  - Preferring deposits—and subrogating the DIS in place of insured deposits—reduces the cost of deposit payouts or the DIS contribution to a resolution, bolstering credibility of the scheme.
- Facilitating resolution:
  - By creating clear legal grounds for preferential treatment of deposits over other unsecured creditors, deposit preference may help reduce legal challenges in case of a transfer of deposits to another institution, or the bail-in of non-deposit creditors.
- Protecting payments and economic activity:
  - Deposits are often used as a means of payment rather than a store of value. Deposits of nonfinancial firms and public entities may be used for paying wages and suppliers, and uninterrupted access ensured through a transfer of deposits will avoid payments disruptions.

### Forms of depositor preference
- Insured depositor preference:
  - Gives preference to insured depositors (and the deposit insurer under subrogation).
- Tiered depositor preference:
  - Eligible, but uninsured deposits have a higher ranking than claims of ordinary unsecured, nonpreferred creditors, and insured depositors have a higher ranking than eligible depositors.
- General depositor preference:
  - All deposits have a higher ranking than claims of ordinary unsecured, nonpreferred creditors, regardless of their status (insured/uninsured or eligible/not eligible).

### Footnote clarifications (as in source)
- Subrogation: Substituting the DIS to receive recoveries from liquidation in place of insured depositors reimbursed by the DIS.
- Example of eligible uninsured deposits: the amount of deposits an insured depositor holds in excess of the coverage level of the DIS.

*Source: ppea2019039 - Box 9. Depositor Preference*

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_Source: https://www.imf.org/-/media/files/publications/pp/2019/ppea2019039.pdf_