## sdnea2021003bn

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### 1. Rwanda’s COVID-19 Crisis Response — development trends and SDG financing (chapter highlights)
- Development and economic trends
  - GDP per capita more than tripled between 2000 and 2019.
  - Poverty fell from 60 to 38 percent between 1990s/2000s and 2019.
  - Human development score doubled between 1990 and 2019.
  - Primary education enrollment nearly universal; secondary enrollment less than 40 percent.
  - Vision 2050 targets:
    - Upper-middle-income status by 2035: per capita income of US$ 4,035.
    - High-income status by 2050: per capita income of US$ 12,476.
  - NST1 (2017–24) targets:
    - Increase total annual investment from 23 percent of GDP in 2017 to 31 percent in 2024.
    - Increase public investment (including PPPs) from 8.3 percent of GDP in 2017 to 9.9 percent in 2024.
- Pre-COVID SDG financing prospects (staff/Gaspar et. al. (2019) estimates)
  - Additional annual spending needed to achieve 2030 SDGs (health, education, water and sanitation, roads, electricity): 18.7 percent of GDP.
  - Sectoral annual SDG investment needs:
    - Education: 6.1 percent of GDP.
    - Health: 2.2 percent of GDP.
    - Water and sanitation: 4.5 percent of GDP.
    - Roads: 3.9 percent of GDP.
    - Electricity: 2 percent of GDP.
  - Fiscal anchors:
    - Program fiscal deficit rule: 5.5 percent of GDP (adjusted program rule).
    - Public debt projected to remain below Eastern African Community debt convergence criterion of 50 percent of GDP in net present value (NPV) terms (pre-pandemic projections).
- Pre-COVID policy levers to shorten SDG payback
  - Medium-Term Revenue Strategy (MTRS) boosting revenues by 7 percent of GDP could shorten the SDG timeframe by 6 years.
  - Reallocating 1 percent of GDP of public expenditures to SDGs while increasing spending efficiency could cut the timeframe by 4 years.
  - Combined fiscal measures could abridge the SDG path by at least 8 years.
  - Attracting private investment to reach FDI pace of the top quartile of peers would enable meeting SDGs by 2035.
- COVID-19 macro impacts on Rwanda
  - Pandemic onset: mid-March 2020; compounded by heavy rains earlier in the year.
  - Real GDP growth projections fell to -0.2 percent in 2020 and 5.7 percent in 2021 (from above 8 percent pre-COVID).
  - Over the medium term, recovery toward potential expected but at a real GDP level on average ten percentage points lower than the pre-COVID trend (2018=100 index reference).
  - Gross public debt (excluding government guarantees) set to end 2021 some 13 percentage points of GDP higher than in pre-COVID projections.
  - Financial assistance and relief: IMF RCF requests, World Bank and other IFI support, debt relief under IMF’s Catastrophe Containment and Relief Trust.
- Post-pandemic fiscal space implication
  - Post-pandemic outlook substantially reduces available fiscal space to invest in SDGs over the medium and long terms.

### 2. Rwanda — pandemic widening of the 2030 SDG financing gap
- Headline changes and decomposition
  - Pandemic widened Rwanda’s SDG financing gap by 5.6 percentage points of GDP (difference between Pre-COVID and Post-COVID additional grants needed).
  - Pre-COVID additional grants needed: 15.7 percent of GDP.
  - Post-COVID additional grants needed: 21.3 percent of GDP (presented elsewhere as "21¼ percent of GDP per year").
  - Of the 5.6 percentage points widening:
    - Effect of lower nominal GDP: 3.2 percentage points of GDP.
    - Effect of lower fiscal space: 2.4 percentage points of GDP, decomposed as:
      - change in revenues (-)1.3
      - change in fiscal balance 2.2
      - change in interest expenses 0.5
      - change in non-SDG spending -1.3
      - change in subsidies for private investment 0.0
      - change in identified grants (-) -0.3
- By sector
  - Health & Education additional need increased by 1.2 percentage points of GDP (from 4.8 to 5.9).
  - Infrastructure additional need increased by 4.4 percentage points of GDP (from 11.0 to 15.4).
- Output and income impacts
  - Pandemic expected to impose output losses on the tune of 10 percent in real terms, translating into the 3.2 percentage point effect from lower nominal GDP.
  - Projected declines in per capita income associated with the pandemic: 18 percent in 2030 and 26 percent in 2050 (post-COVID baseline compared to pre-COVID projections).
- Scarring scenario
  - Illustrative scarring would further widen the 2030 SDG gap by 1.6 percentage points of GDP, pushing the 2030 SDG financing gap to near 23 percent of GDP per year in that scenario.
  - Scarring calibration increases human capital depreciation rate, lowers elasticity of new human capital formation to education spending, and reduces human capital diffusion parameter for about five years with lasting negative TFP spillovers.
  - Potential impacts:
    - Stock of human capital could end the decade one-quarter lower than pre-COVID projections under illustrative scarring.
    - Real GDP growth rate could drop below 6 percent under illustrative scarring.
    - Illustrative scarring could reduce projected per capita income by about one quarter in the long run if unaddressed.
  - Financing effect: scarring entails additional financing needs of 1.6 percentage points of GDP (mostly due to higher infrastructure needs relative to smaller economy).
- Policy recommendations (Rwanda priorities)
  - Implement an ambitious MTRS swiftly and mobilize revenue gains (targeting up to 7 percentage points of GDP between 2023 and 2029).
  - Reallocate public expenditures by at least one percentage point of GDP toward SDG priorities and improve public spending efficiency to peer levels.
  - Promote policies to attract private investment to SDG projects, including de-risking instruments and private participation in health and education where public resources are constrained.
  - Maintain prudent debt sustainability policies (aiming to bring public debt below 50 percent of GDP in NPV terms) while using active fiscal and investment policies to offset pandemic effects and scarring.
  - Pursue combined strategy (revenue mobilization, expenditure reallocation, spending efficiency improvements, private participation) to cover more than one third of the post-pandemic SDG financing gap and accelerate progress.

### 3. Pakistan — pandemic adds some 2 percentage points of GDP per year to SDG financing needs
- Headline implication
  - This implies additional financing needs of some 2 percentage points of GDP per year due to the pandemic.
- Recent performance and pre-pandemic SDG assessment
  - Growth averaged 4.3 percent over last two decades; South Asia average 6.5 percent.
  - Real GDP per capita rose from US$820 in 2000 to US$1,185 in 2019.
  - Poverty headcount fell from 64 percent in 2000 to 24 percent in 2015.
  - Achieving SDGs in critical sectors would require additional annual spending of about 16.1 percent of GDP in 2030.
  - Pre-COVID additional resources needed to reach SDGs by 2030: 8 percent of GDP each year (Scenario “Baseline+grants” in pre-COVID assessment).
- COVID-19 macro effects and post-pandemic baseline
  - Real GDP provisionally contracted by 0.4 percent in FY20 (vs expected 2.4 percent).
  - Government primary fiscal deficit widened by 1 percentage point of GDP relative to pre-pandemic projections.
  - Authorities implemented fiscal and monetary stimulus package worth 2.8 percent of GDP.
  - Central bank cut policy rate by 625 basis points.
  - Post-pandemic near-term recovery expected subdued: real GDP growth expected to recover to 1 percent in FY 2021 and return to 4½-5 percent over medium term.
  - Real GDP level will remain below pre-pandemic projections implying permanent output loss of almost six percentage points.
- Quantified change in SDG financing needs (Table 11)
  - Total Unidentified Financing Needs: Pre-COV 8.0; Post-COV 9.0; Difference 1.0
  - of which: health and education: Pre-COV 6.3; Post-COV 6.5; Difference 0.2
  - of which: infrastructure: Pre-COV 1.6; Post-COV 2.4; Difference 0.8
  - Decomposition of total change (percent of GDP):
    - Total change 1.0
    - Denominator effect (effect on infrastructure of GDP) 0.2
    - Lower available nominal amounts — Public Resources 0.8 (of which change in revenue 1/ 1.1; change in the deficit -0.6; change in interest expense 0.2; change in non-SDG spending 0.1; change in subsidies for private investment 0.0; change in identified grants 0.0)
- Policy reforms and quantified impacts (selected)
  - Revenue mobilization: Tax revenues 11.8 percent of GDP as of 2018/2019; baseline includes increase by 3.2 percent of GDP over 2000-2023; an additional 2 percent of GDP in revenue mobilization between 2024 and 2026 would reduce the financing gap by 1.9 ppt (Scenario “MTRS+grants”).
  - SOE and energy sector reforms: Better SOE management assumed to improve fiscal position by 1 percent of GDP by 2030 and could reduce SDG funding gap by 1.3 ppt (Scenario “SOEs+grants”).
  - Private financing: Reforms raising FDI to peer average imply gradual increase of 3.7 percent of GDP in private financing over next 10 years, narrowing gap by 2 ppt (Scenario “Private Financing+grants”).
  - Efficiency: Improving public spending efficiency would further reduce the gap by 0.3 ppt (Scenario “Efficiency+grants”).
- Combined reform outcomes (Table 12 excerpts, post-COVID scenarios)
  - Baseline+grants: SDGs met by 2030; Additional grants per year 9.0; Per capita income 2,160; Real GDP growth rate 7.4; Public debt 95.1
  - MTRS+grants: SDGs met by 2030; Additional grants per year 7.2; Per capita income 2,142; Real GDP growth rate 7.4; Public debt 95.0
  - Private Financing+grants: SDGs met by 2030; Additional grants per year 7.1; Per capita income 2,186; Real GDP growth rate 9.1; Public debt 85.6
  - All Reforms: SDGs met by 2045; Additional grants per year 0.0; Per capita income 2,121; Real GDP growth rate 9.5; Public debt 56.8
  - All Reforms+grants: SDGs met by 2030; Additional grants per year 3.9; Per capita income 2,196; Real GDP growth rate 8.8; Public debt 96.3
- Policy priorities (Pakistan)
  - Advance domestic revenue mobilization, reform energy sector and SOEs, improve business climate to attract private investment, improve public spending efficiency and prioritize health/education/infrastructure.

### 4. Cambodia — SDG needs, pandemic impact, and sequencing of reforms
- Pre-pandemic SDG spending needs
  - Additional annual spending needs to achieve 2030 SDGs (health, education, water and sanitation, roads, electricity): 7.4 percentage points of projected 2030 GDP (Zdzienicka (2020)).
  - Distribution of 7.4 percent of GDP:
    - Health: 3.1 percent of GDP per year.
    - Educational services: 1.5 percent of GDP per year.
    - Roads: 1.2 percent of GDP per year.
    - Water and sanitation: 0.4 percent of GDP per year.
    - Electricity sector: 1.2 percent of GDP per year.
  - Under current policies (Baseline), Cambodia can meet SDGs by 2038; to meet by 2030 would require additional financing of around 6.9 percent of GDP per year (Baseline + Grants).
- COVID-19 impacts and post-pandemic gaps
  - GDP projected to decline by 2.8 percent in 2020.
  - Total revenues projected to be 2.1 percent of GDP lower y-o-y.
  - Budget deficit widened by 1.6 percentage points.
  - Total public debt estimated to be 3.1 percent of GDP higher than projected prior to the pandemic.
  - Pandemic-induced permanent output loss projected to reach 6 percent by 2025.
  - Pandemic widens annual SDG resource gap from 6.9 to 8.1 percent of GDP (post-COVID Baseline + Grants).
  - With pre-pandemic additional funding, Cambodia could meet SDGs in 2031 post-COVID (one year delay).
- Sequencing and marginal effects of reforms (post-COVID)
  - Revenue mobilization simulated: additional 3 percentage points of revenue mobilized over 2022-2027.
    - Effect: SDG targets achieved by 2035 instead of 2041; funding need reduction 1.9 percent of GDP.
  - Spending reallocation (reallocate 1 percentage point of GDP to SDGs): timetable shortened to 2034; funding need reduction 1.2 percent of GDP per year.
  - Additional private investment: additional 2 percentage points of private investment (equally shared between infrastructure and Health and Education) reduces funding need by 0.9 percent of GDP and, combined with other reforms, allows meeting SDGs by 2033.
  - If additional funding of 4.1 percent of GDP becomes available (Baseline + Fiscal + Private Invest + Grants), Cambodia can meet SDG targets by 2030.
- Longer-term macro impacts under sustained reforms
  - By 2050 under continued reforms:
    - Per capita incomes increase by 16 percent.
    - Human capital increases by 20 percent.
- Scarring scenario
  - Long-term potential growth returns to just 75 percent of pre-pandemic levels caused by scarring.
  - Effect on per capita income: reduces per capita income by some 31 percent by 2050.
  - Financing needs: push up additional financing needs from 8.1 percent of GDP to 10.3 percent of GDP per annum.
- Policy recommendations (Cambodia)
  - Continue revenue mobilization (MTRS), reallocate 1 percent of GDP from non-SDG to SDG spending, catalyze private investment of about 2 percent of GDP into SDG sectors, and seek grants/concessional financing to fill remaining gaps.

### 5. Modeling framework and tax capacity estimation (methodology and key numeric results)
- Framework features
  - Dynamic macroeconomic framework up to 2050 modeling public and private roles in funding five SDG areas: education, health, roads, electricity, water and sanitation.
  - Framework enforces accounting identities as policies/assumptions change.
  - Focuses on long-run dynamics; inflation path exogenously determined; real exchange rate assumed to appreciate with increases in GDP per capita (Rodrik, 2008).
- Tax capacity: definition, data, and models
  - Tax capacity (tax frontier): maximum theoretical level of tax revenues a country can achieve given characteristics.
  - Tax effort = ratio of actual tax revenue to tax capacity; Tax potential = difference between current revenue and tax capacity.
  - Panel dataset: 116 countries from 1991 to 2017.
  - Natural-resource dependent economies in sample: 17 (for these the dependent variable is non-natural resource tax revenues to non-natural resource GDP).
  - Models used: Mundlak random effect model (MREM); Truncated Normal Heterogeneous in Mean and Decay Inefficiency model (TNH); robustness checks with half normal (HN) and truncated normal (TN).
- Empirical findings (preserved verbatim)
  - Most coefficients and the lambda factor are statistically significant at 1 percent level (Table 19).
  - For African countries, average tax potential (Tax Capacity - Current Revenue):
    - MREM: 5.7 percent of GDP.
    - TNH: 9.8 percent of GDP.
  - Lambda parameter across models: greater than 2.8.
  - Robustness checks: almost all coefficients statistically significant at 5 percent level; sensitivity to omission of extreme countries minimal.
- Modeling notes
  - Stochastic frontier panel formulation includes inefficiency component u_it (non-negative) and residual v_it (symmetric); tax effort defined with exponential formulation as in source.
  - TNH model allows observable environmental variables (inflation, corruption) to influence stochastic component and time-varying inefficiency.
  - MREM separates inefficiency from unobserved individual-specific effects via Mundlak auxiliary formulation.

*Italic: Source — IMF staff estimates and analysis in "A POST-PANDEMIC ASSESSMENT OF SUSTAINABLE DEVELOPMENT GOALS: BACKGROUND NOTES" (excerpts provided).*

### 1. Rwanda’s COVID-19 Crisis Response_________________________________________________________________ 11

### 1. Rwanda’s COVID-19 Crisis Response

### Development and Economic Trends
- Rwanda achieved rapid and inclusive growth since 1995; GDP per capita more than tripled between 2000 and 2019.
- Poverty fell from 60 to 38 percent between 1990s/2000s and 2019.
- Human development score doubled between 1990 and 2019.
- Outcomes are above the median of peers in health, education, water and sanitation, and infrastructure.
- Primary education enrollment is nearly universal; secondary enrollment is less than 40 percent.
- Healthcare expanded through extensive primary care by rural clinics.
- Vision 2050 targets:
  - Upper-middle-income status by 2035: per capita income of US$ 4,035.
  - High-income status by 2050: per capita income of US$ 12,476.
- NST1 (2017–24) targets:
  - Increase total annual investment from 23 percent of GDP in 2017 to 31 percent in 2024.
  - Increase public investment (including PPPs) from 8.3 percent of GDP in 2017 to 9.9 percent in 2024.
  - A significant share of increased investment directed to education and health.

### SDG Financing: Pre-COVID Prospects
- Prior SDG costing (Gaspar et. al. (2019)) estimated additional annual spending needed of 18.7 percent of GDP to achieve 2030 SDGs in health, education, water and sanitation, roads, and electricity.
- Staff’s dynamic financing framework (pre-COVID) projects the SDG gap would be met by 2045 in the baseline.
- Sectoral annual SDG investment needs (pre-COVID estimates):
  - Education: 6.1 percent of GDP.
  - Health: 2.2 percent of GDP.
  - Water and sanitation: 4.5 percent of GDP.
  - Roads: 3.9 percent of GDP.
  - Electricity: 2 percent of GDP.
- Fiscal context and policy anchors:
  - Program fiscal deficit rule: 5.5 percent of GDP (adjusted program rule).
  - Public debt projected to remain below Eastern African Community debt convergence criterion of 50 percent of GDP in net present value (NPV) terms (pre-pandemic projections).
- Policy levers explored to shorten SDG payback period:
  - Implementing a Medium-Term Revenue Strategy (MTRS) that boosts revenues by 7 percent of GDP could shorten the SDG timeframe by 6 years.
  - Reallocating 1 percent of GDP of public expenditures towards SDGs while increasing spending efficiency could cut the timeframe by 4 years.
  - Combined fiscal measures could abridge the SDG path by at least 8 years.
  - Attracting private investment to reach FDI pace of the top quartile of peers would enable meeting SDGs by 2035.
- Financing assumptions and constraints:
  - Limited scope for revenue mobilization vis-à-vis SDG needs and downward trends in ODA imply reliance on additional public borrowing and private sector participation.
  - NST1 costs expected to be shared 60-40 between government and private sector.
  - Non-concessional private resources often incur subsidy costs and do not have identical impact as grants.

### The COVID-19 Impact on Rwanda’s Cyclical Position
- Pandemic onset: mid-March 2020; compounded by heavy rains earlier in the year.
- Macroeconomic impacts:
  - Disruption of international trade, business travel, and tourism; large losses of international reserves.
  - Widening current account deficit from drops in export receipts, remittances, and grants.
  - Lower tax revenues and new spending pressures created a large financing gap.
- Financial assistance and relief received:
  - Authorities requested IMF Rapid Credit Facility (RCF) budget support; requested a second RCF as crisis intensified.
  - Additional budget support and health-project resources from the World Bank and other IFIs.
  - Debt relief under the IMF’s Catastrophe Containment and Relief Trust.
- Policy responses:
  - Revenue-side: temporary tax deferrals; personal income tax exemptions; softened tax arrears collection; extended filing and payment deadlines for corporate taxpayers; accelerated VAT refunds for SMEs.
  - Expenditure-side: emphasis on cost-effectiveness, better targeting, and preventing crowding out of other priority areas.
- Growth and debt outcomes:
  - Real GDP growth projections fell to -0.2 percent in 2020 and 5.7 percent in 2021 (from above 8 percent pre-COVID).
  - Over the medium term, recovery toward potential is expected but at a real GDP level on average ten percentage points lower than the pre-COVID trend (2018=100 index reference).
  - Gross public debt (excluding government guarantees) set to end 2021 some 13 percentage points of GDP higher than in pre-COVID projections.
- Fiscal space:
  - The post-pandemic outlook substantially reduces available fiscal space to invest in SDGs over the medium and long terms.

### SDG Financing: Post-COVID Gap and Policy Measures
- The pandemic widened Rwanda’s 2030 SDG gap from the pre-COVID estimate of 18.7 percent of GDP per year to 21.3 percent of GDP per year according to staff’s dynamic financing framework.
- Implication: continuing reform momentum is critical to narrow the widened SDG gap and recover lost output.
- Role of policy measures (as identified pre-COVID and relevant post-COVID):
  - Revenue mobilization (MTRS) remains central to create fiscal space.
  - Expenditure reprioritization and efficiency gains (including use of technology) to free resources for SDG priorities.
  - Greater private sector participation and de-risking instruments to attract non-concessional investment, recognizing different fiscal impacts relative to grants.
  - Combining fiscal measures and higher private participation could more than halve Rwanda’s SDG financing gap relative to baseline projections.

*Source: IMF staff analysis as presented in the chapter “1. Rwanda’s COVID-19 Crisis Response” of the PDF content provided.*

### 12. We estimate the pandemic has widened Rwanda’s financing gap to meet its 2030 SDG

### 12. We estimate the pandemic has widened Rwanda’s financing gap to meet its 2030 SDG targets by 5.6 percentage points of GDP

### Key findings and headline statistics
- The pandemic widened Rwanda’s SDG financing gap by 5.6 percentage points of GDP (difference between Pre-COVID and Post-COVID additional grants needed).
- Pre-COVID additional grants needed: 15.7 percent of GDP.
- Post-COVID additional grants needed: 21.3 percent of GDP (presented elsewhere in the chapter as "21¼ percent of GDP per year").
- Of the 5.6 percentage points widening:
  - Effect of lower nominal GDP: 3.2 percentage points of GDP.
  - Effect of lower fiscal space: 2.4 percentage points of GDP, decomposed as:
    - change in revenues (-)1.3
    - change in fiscal balance 2.2
    - change in interest expenses 0.5
    - change in non-SDG spending -1.3
    - change in subsidies for private investment 0.0
    - change in identified grants (-) -0.3
- By sector:
  - Health & Education additional need increased by 1.2 percentage points of GDP (from 4.8 to 5.9).
  - Infrastructure additional need increased by 4.4 percentage points of GDP (from 11.0 to 15.4).
- The pandemic is expected to impose output losses on the tune of 10 percent in real terms, translating into the 3.2 percentage point effect from lower nominal GDP.
- Projected declines in per capita income associated with the pandemic: 18 percent in 2030 and 26 percent in 2050 (post-COVID baseline compared to pre-COVID projections).
- The illustrative scarring scenario would further widen the 2030 SDG gap by 1.6 percentage points of GDP, pushing the 2030 SDG financing gap to near 23 percent of GDP per year in that scenario.

### Fiscal space, debt, and consolidation dynamics
- Rwanda’s fiscal space to invest in SDGs is set to decline by 2.4 percent of GDP per year relative to pre-pandemic levels (2020-2030 average impacts).
- Drivers of reduced fiscal space:
  - Lower tax and non-tax revenues reduce fiscal space by 1.3 percent of GDP.
  - Higher interest expenses absorb another 0.5 percent of GDP over the decade.
  - A backloaded but more stringent consolidation reduces the average overall fiscal deficit: excluding policy lending the 2020-2030 average overall fiscal deficit is projected to narrow from 4.7 percent of GDP (pre-COVID baseline) to 2.5 percent of GDP (post-COVID projections).
- Debt sustainability objective: authorities committed to bring Rwanda’s public debt below 50 percent of GDP (in net present value terms) to meet the Eastern African Community debt convergence criterion, motivating fiscal consolidation.

### Policy scenarios and projected impacts
- Medium-Term Revenue Strategy (MTRS):
  - Authorities consider raising up to 7 percentage points of GDP in total revenues between 2023 and 2029 (gains of up to 1 percentage point per year on top of baseline projections).
  - Enacting an MTRS that raises the total revenues-to-GDP ratio by 7 percentage points during 2023-29 could fulfill about one fifth of Rwanda’s SDG gap in the post-pandemic projections and shorten the development path by 6 years or more.
- Reallocation and efficiency:
  - Reallocating one percentage point of GDP in public expenditures towards SDGs and boosting spending efficiency to the level of peers would provide valuable support.
  - Together with the MTRS, these fiscal measures could cover more than one quarter of Rwanda’s 2030 SDG financing gap, helping the country to meet its SDGs by 2041.
- Private investment and additional resources:
  - Bringing annual foreign direct investment in line with the top quartile of peers could gradually attract an extra 2¾ percent of GDP of private resources, which could cover up to one tenth of Rwanda’s 2030 SDG financing gap.
  - Combined active policies (MTRS, reallocation, efficiency, and higher private sector participation) could fulfill more than one third of Rwanda’s post-pandemic SDG financing gap and enable the country to meet its SDG targets by 2040.
  - Nevertheless, even with active policies, meeting SDGs by 2030 would require about 13¾ percentage points of GDP in additional resources annually until then.

### Economic scarring: calibration and consequences
- Scarring calibration: the model increases the human capital depreciation rate, lowers the elasticity of new human capital formation to education spending, and reduces the human capital diffusion parameter for about five years, with lasting negative spillovers to total factor productivity growth.
- Potential human capital and growth impacts:
  - Rwanda’s stock of human capital could end the decade one-quarter lower than pre-COVID projections under illustrative scarring.
  - Real GDP growth rate could drop below 6 percent under the illustrative scarring scenario.
  - The illustrative scarring could reduce projected per capita income by about one quarter in the long run if unaddressed.
- Financing effect: scarring entails additional financing needs of 1.6 percentage points of GDP (mostly due to higher infrastructure needs relative to smaller economy), increasing the 2030 SDG financing gap accordingly.

### Policy recommendations and priorities
- Implement an ambitious MTRS swiftly and mobilize revenue gains (targeting up to 7 percentage points of GDP between 2023 and 2029).
- Reallocate public expenditures by at least one percentage point of GDP toward SDG priorities and improve public spending efficiency to peer levels.
- Promote policies to attract private investment to SDG projects, including investments in health and education where public resources are constrained.
- Maintain prudent debt sustainability policies (aiming to bring public debt below 50 percent of GDP in NPV terms) while using active fiscal and investment policies to offset pandemic effects and scarring.
- Pursue a combined strategy of revenue mobilization, expenditure reallocation, spending efficiency improvements, and private sector participation to cover more than one third of the post-pandemic SDG financing gap and accelerate progress toward SDGs.

*Source: IMF staff estimates and analysis from "A Post-Pandemic Assessment of Sustainable Development Goals: Background Notes" (Rwanda case study).*

### 30. The authorities plan to increase revenues from 7 percent of GDP in 2019 to 15 percent

### 30. The authorities plan to increase revenues from 7 percent of GDP in 2019 to 15 percent of GDP in the medium term to create fiscal space for priority spending.

### Background and revenue target
- Authorities’ medium-term revenue objective: increase revenues from 7 percent of GDP in 2019 to 15 percent of GDP in the medium term.
- Strategy guided by Strategic Revenue Growth Initiatives (SRGI) announced January 2019: improve tax collection, broaden tax base, reform VAT, improve compliance.
- Measures already introduced via Finance Bill 2019 include an increase in the standard VAT rate and higher and broader excises.
- Implementation challenges: limited capacity; additional reforms needed to reach target.

### Pre-COVID baseline, methodology and assumptions
- Costing methodology: Gaspar et. al. (2019) expressing SDG needs in terms of 2030 GDP.
- Baseline cut-off: January 2020 WEO data to separate pre-pandemic situation.
- Baseline macro assumptions:
  - Gradual pickup in growth rate to 4–4½ percent (long-term trends).
  - Inflation assumed to stabilize at 11 percent.
  - SDGs government spending assumed to remain at 2019 level.
  - Private sector expected to maintain same spending on health and education and contribute an additional 0.7–1 percent of GDP in infrastructure investment.
- Under the pre-pandemic baseline:
  - Spending on health and education would stay at about half of the level required to achieve the SDGs by 2030.
  - Stock of water, sanitation and power infrastructure would increase but reach only ⅓rd of the target level.
  - To meet SDGs by 2030 would require additional grant-like resources of 16 percent of GDP every year (Table 7, scenario A).
  - Every five-year extension on the SDGs planning horizon reduces unidentified grants by 1.2 percent of GDP on average.
  - Even extending target horizon to 2050, Nigeria would still require additional annual resources of 11 percent of GDP per year to meet its SDGs (Table 7, scenario E).

### COVID-19 impact and post-COVID baseline
- COVID-19 macro impact (selected facts):
  - Real GDP declined by 6 percent (y/y) in Q2 2020 after modest Q1 expansion.
  - Headline inflation reached 15.8 percent in end-October 2020.
  - Unemployment rate reached 27 percent in Q2 2020; youth unemployment increased to 41 percent.
  - Federal Government revised budget: budgeted oil price at $28 per barrel (compared to $57 in the original budget); N500 billion (approx. USD 1.3 billion) COVID-19 support package.
  - Deficit financing relied on external borrowing including IMF RFI and domestic issuance.
- Staff forecasts (WEO October 2020):
  - 2020 real GDP growth revised to -4.3 percent (from 2.5 percent).
  - Recovery to medium-term growth rate of 2.5 percent in 2022.
  - Output loss by 2025 projected at 9 percent.
  - Fiscal deficit expected to widen from 4.8 to 6.0 percent of GDP in 2020.
  - Public debt projected to increase to 35 percent of GDP in 2020 but remain below 40 percent of GDP over medium term.
- Post-COVID baseline assumptions:
  - Long-run growth pickup to 3½ percent by 2030 (½ percentage point lower than pre-COVID baseline); convergence to 4½ percent by 2050.
  - Fiscal revenue lower in near-to-medium term but converging to pre-COVID baseline by 2030.
  - Public debt surges in 2020 but converges to pre-COVID level by 2025.
- Table 8 (selected post-COVID baseline figures):
  - Real GDP growth: 2019 = 2.2-4.3; 2020 = 3.5; 2030 = 4.5
  - Inflation (percent): 11.4 12.9 11.0 11.0
  - Total revenue (percent of GDP): 7.9 5.9 8.5 9.7
  - Total expenditure (percent of GDP): 12.6 11.9 12.9 12.9
  - o.w. SDG spending (percent of GDP): 3.9 2.2 4.3 4.2
    - health and education: 1.8 1.0 2.0 2.0
    - infrastructure: 2.2 1.1 2.2 2.2
  - Overall fiscal balance (percent of GDP): -4.8 -6.0 -4.4 -3.3
  - Public debt (percent of GDP): 29.1 35.0 56.0 46.0
  - Private financing (percent of GDP): 9.0 7.0 8.7 10.0
  - Total financing for SDGs (percent of GDP): 12.9 27.3 12.8 14.1

### Financing gaps, scenarios and timing to meet SDGs
- Pandemic effect on SDG financing needs:
  - To meet SDGs by 2030, the pandemic increases additional annual resource needs by 2.1 percentage points: from 16.2 to 18.3 percent of GDP every year between now and 2030 (Table 9, scenario A1).
  - Sources of the 2.1 percentage point increase:
    - Reallocation to COVID-related non-SDG areas in 2020.
    - Lower public resources in medium term (0.4 percent of GDP) due to lower revenues and lower oil prices.
    - Reduced private sector financing due to weakened activity (1.2 percent of GDP).
    - Additional infrastructure ambition (0.5 percent of GDP) as nominal Naira costs become larger share of post-COVID GDP.
  - If annual funding of 16 percent of GDP remains available post-pandemic, it will take 6 more years for Nigeria to reach its SDGs.
- Scarring scenario:
  - If real GDP growth remains 25 percent lower than baseline, additional resources of about 21 percent of GDP per year would be needed to achieve SDGs by 2030 (Table 9, Scenario B1).
- Scenario summary (selected entries from Table 9):
  - A. Post-COVID Baseline: SDGs met by >2050; Additional grants per year = 0.0
  - A1. Post-COVID Baseline + Grants: SDGs met by 2030; Additional grants per year = 18.3
  - B1. (Downside): SDGs met by 2030; Additional grants per year = 20.7
  - C1. Reform-MTRS + Grants: SDGs met by 2030; Additional grants per year = 14.0
  - E1. Reform-Oil Sector + Grants: SDGs met by 2030; Additional grants per year = 15.7
  - F1. Reform-SOEs and Efficiency + Grants: SDGs met by 2030; Additional grants per year = 15.3
  - G1. Reform-Private Sector + Grants: SDGs met by 2030; Additional grants per year = 15.6
  - H. Reform-Full: SDGs met by 2043; Additional grants per year = 0.0
  - H1. Reform-Full + Grants: SDGs met by 2030; Additional grants per year = 11.9
  - I. Reform-Full (with Donor Support): SDGs met by 2036; Additional grants per year = 8.2
  - I1. Reform-Full (with Donor Support) + Grants: SDGs met by 2030; Additional grants per year = 8.2
- Combined reform impacts and timing:
  - With successful implementation of all reforms and budget balance, Nigeria could raise total revenue to 17.2 percent of GDP by 2030 and 19.7 percent of GDP by 2050 (tax revenue at 11.7 percent of GDP) and meet SDGs by 2043 without external grants (Table 9, Scenario H).
  - Even with full reforms, meeting SDGs by 2030 would still require additional resources of about 12 percent of GDP annually (Table 9, Scenario H1).
  - If donor countries meet GNI UN target of 0.7 percent distributed equally across low-income developing countries and Nigeria pursues all reforms, SDGs could be met by 2036 (Table 9, Scenario I); additional grants of 8.2 percent of GDP per year would be needed to meet SDGs by 2030 (Table 9, Scenario I1).

### Policy reforms and estimated fiscal impacts
- Tax reforms (Medium-Term Revenue Strategy, MTRS):
  - Key measures: increase VAT rate from 7.5 percent to at least 10 percent by 2022 and 15 percent by 2025; increase rates and broaden excise base (e.g., fuel, telecom airtime); streamline tax incentives and exemptions; tackle evasion and avoidance.
  - Tax administration priorities: develop high-integrity taxpayer register, improve filing and arrears management, continue customs reforms; objective to double tax compliance rates (e.g., from 25% for VAT) over the medium term.
  - Estimated tax revenue gain by 2030: 5.6 percent of GDP (including import-related revenue gain from exchange rate movement of 0.5 percent of GDP).
  - Additional non-tax revenue gain of 1 percent of GDP estimated from exchange rate movement.
  - Under continuing reform, total revenue expected to increase to 17.2 percent of GDP by 2050, with tax revenue about 11 percent of GDP.
  - Impact on SDG external grant need: reduces requirement by 4.2 percent of GDP to 14 percent of GDP (Table 9, Scenario C1). Without fiscal consolidation, tax reform could bring external grant requirement to 11.2 percent of GDP (Table 9, Scenario D1).
- Oil sector reform:
  - Move to flexible exchange rate to increase Naira value of oil revenue.
  - Reform policy, institutional and regulatory frameworks including fiscal regime; adoption of Petroleum Industry Bill expected in 2021Q2 to revamp regulatory structure and realign fiscal terms.
  - Estimated revenue increase by 2030 relative to post-COVID baseline: 2.2 percent of GDP (1.1 percent from exchange rate liberalization and 1.1 percent from fiscal regime reform).
  - Impact: reduces external grant need to 15.7 percent of GDP (Table 9, Scenario E1).
- SOEs and public spending efficiency reform:
  - Improve financial oversight, governance, transparency and efficiency of SOEs to increase profitability and public sector revenues.
  - Public investment efficiency gap estimated at 77 percent relative to frontier (Seiwald et. al. 2019).
  - Strengthen institutions for project appraisal, selection and management.
  - Estimated revenue increase by 2030: 1 percent of GDP relative to baseline.
  - Impact: reduces external grant need to 15.3 percent of GDP (Table 9, Scenario F1).
- Private sector participation and FDI:
  - Strengthen PPP framework and conditions for private investors; much investment will need to come from abroad.
  - Reform that brings Nigeria in line with peers assumed to increase FDI by 3.5 percent of GDP by 2030, available for health, education and infrastructure.
  - If realized and spent on SDG projects, additional resources required to meet SDGs by 2030 decline to 15.6 percent of GDP (Table 9, Scenario G1).

### Key takeaways
- Under current policies and identified resources, Nigeria requires additional resources of more than 18 percent of GDP per year post-COVID to meet its SDGs by 2030 (versus some 16 percent of GDP per year in pre-COVID projections).
- Comprehensive reforms across tax policy and administration, oil sector, SOEs and public investment efficiency, and private sector mobilization could materially reduce but not fully eliminate external grant needs by 2030.
- Full reform plus donor support materially improves timing: SDGs could be reached by 2036 with reform plus donor support; by 2043 with full reform without external grants.

*Source: IMF staff estimates and analysis in A Post-Pandemic Assessment of Sustainable Development Goals: Background Notes (Nigeria chapter).*

### 2030. This implies additional financing  needs of some 2 percentage points of GDP per year due to

### sdnea2021003bn - 2030. This implies additional financing  needs of some 2 percentage points of GDP per year due to the pandemic.

### Key post-pandemic implication (headline)
- This implies additional financing needs of some 2 percentage points of GDP per year due to the pandemic.

### Pakistan: recent economic and development performance
- Growth averaged 4.3 percent over the last two decades, compared with South Asia’s average of 6.5 percent.
- Population growth averaged 2.3 percent over the last twenty years.
- Real GDP per capita rose from US$820 in 2000 to US$1,185 in 2019.
- Poverty headcount (national poverty line) fell from 64 percent in 2000 to 24 percent in 2015.
- Human Development Index increased from 0.45 in 2000 to 0.56 in 2018, ranking Pakistan 152 of 189 countries and territories.
- Capital expenditure averaged 3.7 percent of GDP over the last 20 years.
- Public spending on education was 2.3 percent of GDP in 2019.
- Public spending on health averaged 0.9 percent of GDP in the last eight years, reaching 1.1 percent of GDP in 2019.
- Primary gross enrollment rate increased significantly over the last 15 years.
- Adult literacy rate increased from 55 percent in 2011 to 59 percent in 2017.
- Access to basic sanitation facilities increased to 73 percent of the population, compared to 36 percent in 2018.
- Only 44 percent of the population has access to non-contaminated drinking water.
- 77 percent of the population has access to the electricity grid.
- Achieving the SDGs in critical sectors (health, education, roads, electricity infrastructure and water and sanitation) would require additional annual spending of about 16.1 percent of GDP in 2030.

### Pre-pandemic SDG financing assessment (Pakistan)
- Pre-COVID baseline scenario assumed continued implementation of EFF reforms and allocation of available public resources for SDGs equally between infrastructure and health and education needs.
- Under the pre-COVID baseline, health and education spending would have reached only 40 percent of its target by 2030; capital stock would reach ¾ of the required stock.
- To reach the SDGs by 2030 pre-pandemic, Pakistan would have needed additional resources of 8 percent of GDP each year between now and 2030 (Scenario “Baseline+grants”).
- Even with horizon extended to 2050, additional resources remain significant, amounting to 4.4 percent of GDP per year in 2050.

### Covid-19 impact on Pakistan’s economy and SDG financing
- Real GDP provisionally estimated to have contracted by 0.4 percent in FY20, versus previously expected growth of 2.4 percent.
- The government’s primary fiscal deficit widened by 1 percentage point of GDP relative to pre-pandemic projections.
- The authorities implemented a fiscal and monetary stimulus package worth 2.8 percent of GDP.
- The central bank cut its policy rate by 625 basis points.
- Early EFF results: domestic tax revenues increased by 25 percent y-o-y and the general government registered a primary surplus of 0.7 percent of GDP during the first six months of the EFF.
- Post-pandemic near-term recovery expected subdued: real GDP growth expected to recover to 1 percent in FY 2021 and to return to a pre-pandemic trajectory of 4½-5 percent annual growth over the medium term.
- Real GDP level will remain below pre-pandemic projections, implying a permanent output loss of almost six percentage points.

### Quantified change in SDG financing needs (Pre-COVID vs Post-COVID)
- Table 11 (summary figures, percent of GDP):
  - Total Unidentified Financing Needs: Pre-COV 8.0; Post-COV 9.0; Difference 1.0
  - of which: health and education: Pre-COV 6.3; Post-COV 6.5; Difference 0.2
  - of which: infrastructure: Pre-COV 1.6; Post-COV 2.4; Difference 0.8
- Decomposition of change (percent of GDP):
  - Total change 1.0
  - Denominator effect (effect on infrastructure of GDP) 0.2
  - Lower available nominal amounts:
    - Private Resources 0.0
    - Public Resources 0.8
      - of which: change in revenue 1/ 1.1
      - change in the deficit -0.6
      - change in interest expense 0.2
      - change in non-SDG spending 0.1
      - change in subsidies for private investment 0.0
      - change in identified grants 0.0
- In the post-COVID baseline, resources required to meet the SDGs by 2030 rise to 9 percent of GDP per year (1 ppt higher than pre-COVID). If only the pre-COVID additional spending were financed, the same amount now would achieve SDGs by 2034 rather than 2030.
- Downside scenario (scarring): growth rate remains at ¾ of its pre-pandemic potential, long-run human capital accumulation 13 percent lower relative to baseline, income per capita drops by 36 percent, financing required to meet SDGs by 2030 increases to 9.9 percent of GDP per year.

### Policy reforms and their quantified impacts (Pakistan)
- Revenue mobilization:
  - Tax revenues were 11.8 percent of GDP as of 2018/2019.
  - Baseline scenario includes increase in tax revenues by 3.2 percent of GDP over 2000-2023.
  - An additional 2 percent of GDP in revenue mobilization between 2024 and 2026 (inclusive) would help reduce the existing financing gap by 1.9 ppt (Scenario “MTRS+grants”).
- SOE and energy sector reforms:
  - Energy subsidies estimated around 0.5-1 percent of GDP and are poorly targeted.
  - Better management of SOE assets assumed to improve fiscal position by 1 percent of GDP by 2030.
  - Comprehensive energy sector reform could half energy sector subsidies.
  - These reforms could reduce the SDG funding gap by 1.3 ppt (Scenario “SOEs+grants”).
- Private financing and investment:
  - FDI inflows less than 1 percent of GDP; total private investment 13 percent of GDP.
  - Assuming reforms to raise FDI to peer average implies a gradual increase of 3.7 percent of GDP in private financing over next 10 years, narrowing the financing gap by 2 ppt (Scenario “Private Financing+grants”).
- Efficiency of spending:
  - Improving efficiency of public spending would further reduce the gap by 0.3 ppt (Scenario “Efficiency+grants”).
- Combined reforms:
  - Scenario results (selected entries from Table 12, Post-COVID scenarios):
    - Baseline: SDGs met by >2050; Additional grants per year 2,041; Per capita income 7,209; Real GDP growth rate 5.0; Public debt 58.5
    - Baseline+grants: SDGs met by 2030; Additional grants per year 9.0; Per capita income 2,160; Real GDP growth rate 7.4; Public debt 95.1
    - MTRS+grants: SDGs met by 2030; Additional grants per year 7.2; Per capita income 2,142; Real GDP growth rate 7.4; Public debt 95.0
    - SOEs+grants: SDGs met by 2030; Additional grants per year 7.8; Per capita income 2,149; Real GDP growth rate 7.4; Public debt 95.0
    - Private Financing+grants: SDGs met by 2030; Additional grants per year 7.1; Per capita income 2,186; Real GDP growth rate 9.1; Public debt 85.6
    - Efficiency+grants: SDGs met by 2030; Additional grants per year 8.8; Per capita income 2,199; Real GDP growth rate 8.2; Public debt 95.4
    - All Reforms: SDGs met by 2045; Additional grants per year 0.0; Per capita income 2,121; Real GDP growth rate 9.5; Public debt 56.8
    - All Reforms+grants: SDGs met by 2030; Additional grants per year 3.9; Per capita income 2,196; Real GDP growth rate 8.8; Public debt 96.3
  - Note: Table 12 entries preserve the presentation format and numeric values as provided.

### Policy recommendations (prioritized areas)
- Swiftly implement reforms to further mobilize oil and non-oil revenue, improve SOE governance and spending efficiency, and promote private sector participation.
- Pursue comprehensive revenue mobilization: full harmonization of sales tax across federal and provincial levels; broaden tax base to include agricultural sector; expand services tax base; strengthen property tax system; strengthen revenue administration.
- Implement energy sector reform to reduce quasi-fiscal losses and half energy subsidies, and reform other large SOEs to reduce fiscal burdens.
- Attract private investment (including FDI) by improving macroeconomic stability, governance, business climate, simplifying procedures and regulations, streamlining FDI approval and tax payment processes, and improving investment planning and project preparation.
- Improve efficiency of public spending and prioritize spending for health, education, roads, electricity infrastructure and water and sanitation to narrow SDG financing gaps.

*Source: IMF staff estimates, A Post-Pandemic Assessment of Sustainable Development Goals: Background Notes.*

### 58. The implementation of such ambitious reform will allow Pakistan to meet its SDG

### 58. The implementation of such ambitious reform will allow Pakistan to meet its SDG

### Pakistan: Financing gap and timelines
- Additional funding of 3.9 percent of GDP would still be needed each year (Table 12, Scenario “All Reforms+grants”) to achieve the goals by 2030.
- Extending the horizon beyond 2030 shows that Pakistan would be able to meet its SDGs without additional funding by 2045 (Table 12, Scenario “All Reforms”).
- Reforms could cover more than half of the financing gap to meet the development goals by 2030 (Figure 22).
- The main challenge is significant needs in recurrent health and education spending; performance on the infrastructure side is notably better and a strong reform push would make the infrastructure goals achievable by 2032.

### Pakistan: Long-run development impact of reforms
- Implementation of comprehensive reforms beyond those already assumed in the baseline scenario would:
  - Lift income per capita over the long-term period by 33 percent (Figure 23a).
  - Generate additional accumulation of human capital of 38 percent (Figure 23b).
- Reforms would create space for more spending on human and capital investment, translating into higher economic growth, improved living standards, and reduced poverty, despite the remaining financing gap.

### Pakistan: Concluding synthesis and policy priorities
- Under current policies, the country will need 9 percent of GDP in additional financing each year to close the existing performance gaps by 2030.
- Key reform priorities to create a stable macroeconomic environment and mobilize resources:
  - Advancing domestic revenue mobilization.
  - Tackling the weaknesses in the energy sector.
  - Reforming SOEs.
  - Improving the business climate to attract private investment.
- The analysis demonstrates substantial long-term benefits from accelerating such reforms.

---

### IV. CASE STUDY CAMBODIA

### Cambodia: Pre-pandemic performance and structural features
- Cambodia averaged real GDP growth of 7.3 percent over the last two decades, following the end of the internal conflict in 1998 (Figure 24).
- Total government revenue more than tripled over the past two decades (Figure 25).
- Gini coefficient reduced from 0.41 to 0.29 over the last two decades.
- Consumption levels of the bottom 40 percent grew twice as fast as those of the top 60 percent; extreme poverty was practically eradicated by 2020.
- Private investment in infrastructure accounts for a larger share of the total capital stock than public investment (Figure 26).
- By 2018:
  - Almost 75 percent of Cambodia’s population had access to electricity.
  - Based on the rural access index, 81 percent of the rural population had access to decent roads.
  - Access to clean water and sanitation is available to 54 percent of population (Figure 27).

### Cambodia: SDG spending needs and composition
- Zdzienicka (2020) estimates additional annual spending needs to achieve the 2030 SDGs in health, education, water and sanitation, roads, and electricity at 7.4 percentage points of projected 2030 GDP (Figure 28).
- Distribution of the 7.4 percent of GDP:
  - Human capital: two-thirds of total additional spending.
    - Health: 3.1 percent of GDP per year.
    - Educational services: 1.5 percent of GDP per year.
  - Physical capital: remaining one-third.
    - Roads: 1.2 percent of GDP per year.
    - Water and sanitation: 0.4 percent of GDP per year.
    - Electricity sector: 1.2 percent of GDP per year.
- Cambodia’s total required SDG spending is less than a half of the average for its low-income and developing country peers, with physical capital needs less than 40 percent of the peer average.

### Cambodia: Pre-pandemic policy settings and reforms
- Public debt around 30 percent of GDP (2018), suggesting low risk of debt stress (Table 13).
- Authorities adopted a new 5-year Revenue Mobilization Strategy envisioning:
  1. Strengthen property tax bases through updates of real-estate valuations.
  2. Develop comprehensive excise tax legislation, reviewing excise bases and rates.
  3. Improve tax system efficiency by eliminating inefficient tax incentives and exemptions.
  4. Redesign the investment incentives framework to support capital-intensive private sector participation.
  5. Reform the personal income tax to better support inclusion and fairness considerations (IMF, 2019c).
- Further modernization and re-engineering of tax business processes and strengthening institutional structures to improve tax administration effectiveness.

### Cambodia: Baseline and reform scenarios (pre-COVID)
- Under current policies (Baseline), Cambodia can meet its SDGs by 2038.
- To meet SDG targets by 2030 additional financing of around 6.9 percent of GDP per year would be needed (Baseline + Grants).
- Impact of specific reforms relative to baseline (Table 14):
  - MTRS (medium-term revenue strategy raising tax revenue by 3 percentage points of GDP over 2022–2027) could shorten SDG achievement by 4 years to 2034.
  - Reallocating 1 percent of GDP from non-SDG spending toward SDGs could save 2 years (2036).
  - Additional private sector participation of about 2 percent of GDP (shared equally between infrastructure and health and education) could advance SDG achievement to 2036.
  - Combination (Baseline + Fiscal + Private Invest) could shorten achievement by 6 years to 2032 without additional resources.
  - With active policy reforms plus grants (Baseline + Fiscal + Private Invest + Grants), additional funds needed drop to 2.3 percent of GDP per year between now and 2030.
- Selected numeric entries from Table 14 (Pre-COVID scenarios):
  - Baseline: SDGs met by 2038; Additional grants per year 0.0; Per capita income 2,586; Real GDP growth rate 4.8; Public debt 32.2.
  - MTRS: SDGs met by 2034; Additional grants per year 0.0; Per capita income 2,621; Real GDP growth rate 5.1; Public debt 31.9.
  - Baseline + Grants: SDGs met by 2030; Additional grants per year 6.9; Per capita income 2,793; Real GDP growth rate 5.6; Public debt 30.7.
  - Baseline + Fiscal + Private Invest + Grants: SDGs met by 2030; Additional grants per year 2.3; Per capita income 2,722; Real GDP growth rate 6.6; Public debt 31.1.

### Cambodia: COVID-19 impact and post-pandemic scenarios
- COVID-19 effects:
  - GDP projected to decline by 2.8 percent in 2020.
  - Total revenues projected to be 2.1 percent of GDP lower y-o-y.
  - Budget deficit widened by 1.6 percentage points.
  - Total public debt estimated to be 3.1 percent of GDP higher than projected prior to the pandemic.
  - Pandemic-induced permanent output loss projected to reach 6 percent by 2025 (Figure 29).
- Pandemic widens Cambodia’s annual SDG resource gap from 6.9 to 8.1 percent of GDP (Table 16, “Baseline + Grants”).
  - With the same amount of additional funding as pre-pandemic, Cambodia could meet its SDG targets in 2031 in the post-COVID state, indicating COVID-19 delays development agenda by one year ceteris paribus.
- Post-COVID reform scenarios (Table 16 highlights):
  - Baseline (post-pandemic): SDGs met by 2041; Additional grants per year 0.0; Per capita income 2,468; Real GDP growth rate 4.6; Public debt 34.2.
  - MTRS: SDGs met by 2035; Additional grants per year 0.0; Per capita income 2,503; Real GDP growth rate 6.1; Public debt 33.9.
  - Spending reallocation: SDGs met by 2037; Additional grants per year 0.0; Per capita income 2,475; Real GDP growth rate 5.8; Public debt 34.2.
  - Additional private investment: SDGs met by 2037; Additional grants per year 0.0; Per capita income 2,493; Real GDP growth rate 6.0; Public debt 34.0.
  - Baseline + Fiscal + Private Invest: SDGs met by 2033; Additional grants per year 0.0; Per capita income 2,533; Real GDP growth rate 6.3; Public debt 33.6.
  - Baseline + Grants: SDGs met by 2030; Additional grants per year 8.1; Per capita income 2,695; Real GDP growth rate 6.7; Public debt 32.4.
  - Baseline + Fiscal + Private Invest + Grants: SDGs met by 2030; Additional grants per year 4.1; Per capita income 2,646; Real GDP growth rate 6.8; Public debt 32.7.
  - Scarring: SDGs met by 2046; Additional grants per year 0.0; Per capita income 2,218; Real GDP growth rate 4.2; Public debt 36.7.
  - Scarring + Grants: SDGs met by 2030; Additional grants per year 9.3; Per capita income 2,446; Real GDP growth rate 5.2; Public debt 34.5.
- Policy implications post-pandemic:
  - Continuation and acceleration of revenue mobilization (e.g., MTRS) significantly reduce additional financing needs and shorten the time to meet SDGs.
  - Reallocating 1 percent of GDP from non-SDG to SDG spending and catalyzing additional private investment of 2 percent of GDP in priority SDG sectors materially improve the outlook.
  - Grants and concessional financing remain an important lever to close pandemic-exacerbated gaps and restore pre-pandemic SDG timelines.

*Source: IMF staff calculations and estimates as presented in the provided content.*

### 76. Combining the additional private  SDG spending with the fiscal measures discussed

### 76. Combining the additional private  SDG spending with the fiscal measures discussed

### Transformational impact of combining private SDG spending with fiscal measures
- Combining additional private SDG spending with fiscal measures allows Cambodia to generate enough resources to meet its SDG targets by 2033 in the post-pandemic world (Table 16, “Baseline + Fiscal + Private invest”).
- Under this scenario the additional financing needed to reach its SDGs by 2030 reduces substantially, to 4.1 percent of GDP per year (Table 16, “Baseline + Fiscal + Private Invest  + Grants”).

### Sequencing of active policy options and marginal effects
- Revenue mobilization simulated: additional 3 percentage points of revenue mobilized over the course of five years (2022-2027).
  - Effect: SDG targets achieved by 2035 instead of 2041 in the baseline.
  - Funding need reduction: 1.9 percent of GDP.
- Spending reallocation (in addition to MTRS): reorientation of spending priorities from non-SDG to SDG expenditures with additional spending of 1 percentage point of GDP directed to SDGs.
  - Effect: timetable shortened to 2034.
  - Funding need reduction: 1.2 percent of GDP per year.
- Increase in private sector participation (added to previous reforms): Additional private investment simulated.
  - Note: Additional 2 per centage points of private investment—equally shared between investment in infrastructure and Health and Education sectors is simulated.30
  - Effect: Cambodia is able to meet SDG targets by 2033 in the post-pandemic environment.
  - Funding need reduction: 0.9 percent of GDP.
- If additional funding in the amount of 4.1 of GDP becomes available, Cambodia can meet its SDG targets by 2030.

### Longer-term macroeconomic impact of sustained active reforms
- Sustained reforms implemented in the post-COVID environment allow the country to overcome the negative pandemic-induced shock on key development indicators in the long-term.
- Projected long-term impacts by 2050 under continued reforms:
  - Per capita incomes increase by 16 percent.
  - Human capital increases by 20 percent.

### COVID-19 scarring scenario and its implications
- Key scarring channels simulated: firm closures (especially SMEs), unemployment, loss of workers’ skills, schooling disruption, and labor quality deterioration.
  - Context: SMEs employ more than two-thirds of the working age population and generate about 60 percent of GDP.
- Scarring simulation: long-term potential growth returns to just 75 percent of pre-pandemic levels caused by scarring of the human capital stock and lower total factor productivity.
  - Effect on per capita income: reduces per capita income by some 31 percent by 2050.
  - Effect on financing needs: pushes up additional financing needs from 8.1 percent of GDP to 10.3 percent of GDP per annum.

### Policy recommendations (three-prong approach)
- Continue strong revenue mobilization efforts:
  - Focus on tax policy reforms to broaden the tax base, improve efficiency and fairness of the tax system, and strengthen fiscal governance by furthering tax administration reforms.
- Maintain a prudent fiscal stance with respect to non-development current spending:
  - Restrain non-development current spending in favor of additional spending directed towards development needs—priority infrastructure investment, and spending on health and education.
- Continue reforms to facilitate economic transformation and incentivize private sector involvement in priority SDG sectors:
  - Measures include investment promotion and facilitation, addressing financial sector vulnerabilities, encouraging SME development, trade facilitation, and labor market reforms.
- With reforms continuing in these areas, Cambodia could appeal to development partners to fill the remaining financing gap to meet the SDGs by 2030.

### Context on modelling and framework (relevant mechanisms referenced)
- The analysis is embedded in a dynamic macroeconomic framework up to 2050 that models public and private roles in funding five SDG areas: education, health, roads, electricity, water and sanitation.
- Key modelling features referenced in the text:
  - Sequencing experiments assess the marginal effects of revenue mobilization, spending reallocation, and increased private investment on the timeline to achieve SDGs and the additional funding required.
  - Private investment simulation included an additional 2 percentage points of private investment, equally shared between infrastructure and Health and Education sectors.30

*Source: IMF staff estimates and text from the chapter "76. Combining the additional private  SDG spending with the fiscal measures discussed" in the provided IMF PDF.*

### 93. The framework ensures that a set of accounting identities are always satisfied, as

### sdnea2021003bn - 93. The framework ensures that a set of accounting identities are always satisfied, as

### Accounting identities and model structure
- The framework enforces accounting identities as policies and assumptions are changed by the user.
- Core equations included:
  - Accumulation of physical and human capital and the balance of payments (text reference).
  - The aggregate resource constraint:
    - 푌푌=퐶퐶+휖휖+퐺퐺+푁푁푁푁                   (9)
  - The overall fiscal balance (rendered in source as corrupted text):
    - 푁푁푒푒퐸퐸 퐸퐸푟푟 푝푝푝푝 푖푖푟푟 푝푝푟푟푟푟푟푟푟푟  푏푏푖푖푛푛푙푙=푅푅푒푒푅푅푒푒푛푛푟푟푒푒  −퐸퐸퐸퐸퐸퐸 푒푒푛푛 퐸퐸푖푖퐸퐸 푟푟푟푟푒푒  (10)Type equat ion here .

### Prices and the real exchange rate
- Inflation path is exogenously determined in the framework.
- Price-level changes affect the real value of debt.
- Exchange rates determine the real cost of external debt.
- Assumptions on real exchange rate dynamics:
  - The real exchange rate is assumed to appreciate with increases in GDP per capita, consistent with empirical observation (Rodrik, 2008).
  - Nominal exchange rate movements are determined by real exchange rate movements and inflation.
- Modeling scope and abstraction:
  - The framework focuses on long-run rather than cyclical dynamics.
  - Because there is no non-tradable sector in the framework, feedback from exchange rates to output or from output to inflation is abstracted away.

### Tax capacity: definition, data, and models
- Definition and decomposition:
  - Tax capacity (or the tax frontier) is the maximum theoretical level of tax revenues a country can achieve given its characteristics.
  - Tax capacity is estimated using a stochastic frontier model based on country characteristics: per capita income, inequality, level of education, sectoral composition, and institutional factors (governance indicators).
  - Tax effort = ratio of actual tax revenue to tax capacity.
  - Tax potential = difference between current revenue and tax capacity; may reflect policy factors (low tax rates, narrow bases), inefficient collection, or societal preference for small government.
- Data:
  - Panel dataset of 116 countries from 1991 to 2017.
  - 17 countries classified as natural-resource dependent economies; for these, the dependent variable is non-natural resource tax revenues to non-natural resource GDP.
- Models presented:
  - Mundlak random effect model (MREM).
  - Truncated Normal Heterogeneous in Mean and Decay Inefficiency model (TNH).
  - Additional specifications used for robustness checks: half normal model (HN) and truncated normal model (TN).
- Empirical findings summary:
  - Most coefficients and the lambda factor are statistically significant at 1 percent level and have expected signs (Table 19).
  - Higher public expenditure on education and higher per-capita GDP are associated with being nearer tax capacity (Tanzi 1987; Lotz and Mors (1967)).
  - Agricultural sector size, GINI coefficient, and corruption are highly significant with inverse relationships to tax capacity and tax effort (Tanzi and Davoodi (1997); Davoodi and Grigorian (2007); Lotz and Mors (1967)).
  - The natural resource variable (Oil) is not significant under MREM.
- Specific numeric findings for African countries:
  - According to the MREM model, the difference between tax capacity and current revenue is 5.7 percent of GDP on average.
  - According to the TNH model, this difference is 9.8 percent.
  - For countries with the lowest per capita GDP and natural resource dependent economies, MREM estimates of tax capacity are below TNH estimates; MREM appears to better control for ‘short term’ tax capacity for those groups.

### Estimation strategy (Box 2) and heterogeneity treatment (Box 3)
- Stochastic frontier formulation (panel version):
  - General form in source (symbols preserved):
    - 푝푝푛푛휏휏
      푝푝푝푝
      =  훼훼+훽훽
      휋휋
      퐸퐸
      푝푝푝푝
      +푅푅
      푝푝푝푝
      −푟푟
      푝푝푝푝
      (1)
  - u_it represents inefficiency (non-negative); τ_it represents tax revenue to GDP; x_it are independent variables; β is parameter vector; v_it is residual (symmetric distribution).
  - Tax effort definition preserved in source equation (2) with exponential formulation and notation as presented.
- Dealing with heterogeneity:
  - Observed heterogeneity: TNH model (truncated normal, heterogeneous in mean and decay inefficiency). Allows observable environmental variables (e.g., inflation, corruption) to influence the stochastic component and time-varying inefficiency.
  - Unobserved heterogeneity: Mundlak random effect model (MREM) to separate inefficiency from unobserved individual-specific effects; auxiliary Mundlak formulation preserved (equations 5 and 6 in source).
- Robustness checks (summary of methods and results):
  - Three stochastic frontier specifications used: HN, TN, TNH.
  - Almost all coefficients statistically significant at 5 percent level with expected signs.
  - Lambda parameter λi (σui /σvi) is quite large (greater than 2.8) and statistically significant in the three models.
  - Sensitivity analyses:
    - Omitting the three countries with highest per capita GDP.
    - Omitting the three countries with lowest per capita GDP.
    - Omitting the three countries with lowest GINI coefficient.
  - Results are not significantly impacted by these omissions.
  - Tax effort for the 96 non-natural resource countries does not change significantly when estimated on that subsample versus the full sample including 17 natural resource-producing countries.

### Key statistics and numeric results (preserved verbatim)
- Panel sample: 116 countries from 1991 to 2017.
- Natural-resource dependent economies in sample: 17.
- Average tax potential (Tax Capacity - Current Revenue) for African countries:
  - MREM: 5.7 percent of GDP.
  - TNH: 9.8 percent of GDP.
- Statistical significance statements:
  - Most coefficients and the lambda factor are statistically significant at 1 percent level (Table 19).
  - Almost all coefficients are statistically significant at 5 percent level in robustness checks.
- Lambda parameter across models: greater than 2.8.
- References to tables in source: Table 19, Table A12, Table 20 (as reported in source).

*Italic: Source — IMF staff estimates and analysis in "A POST-PANDEMIC ASSESSMENT OF SUSTAINABLE DEVELOPMENT GOALS: BACKGROUND NOTES" (excerpts provided).*

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_Source: https://www.imf.org/-/media/files/publications/sdn/2021/english/sdnea2021003bn.pdf_