By Uche Usim
Developing countries, which include Nigeria, are confronting a growing fiscal crunch as income from natural resource extraction declines and support from richer nations weakens.
This has raised fresh concerns about their ability to fund development priorities.
This worry was amplified in the latest annual update of the International Monetary Fund’s World Revenue Longitudinal Database. According to the update, revenues from extractive industries and foreign aid grants for general government spending have dropped sharply over the past two decades. Combined, these sources have fallen by 3.8 percentage points of gross domestic product since 2000.
While many countries have stepped up tax collection, gains of 2.6 percentage points of GDP have only offset about two-thirds of the losses, leaving a widening gap in public finances.
The data show that falling proceeds from non-tax revenues tied to extractive industries, such as oil, gas, and mining, have been the single largest driver of the decline across both low-income countries and emerging markets. These revenues typically include royalties, profit-sharing arrangements, and dividends from state-owned enterprises.
At the same time, a steady drop in foreign aid grants for general spending has compounded the pressure, further tightening fiscal space for governments already grappling with rising development needs.
Closing the gap, the IMF notes, will require a stronger and more reliable domestic tax base. Without significantly improving tax collection, many affected countries risk falling short of their economic development goals. “To succeed, they need sustained investment in domestic tax policy and tax administration, supported by effective institutions,” the report emphasised.
The IMF is supporting member countries through targeted capacity development programmes, offering technical assistance and training, often in collaboration with donor nations and international organisations, to strengthen tax systems and institutions.
Such efforts are aimed at reducing dependence on volatile revenue streams like commodity earnings and external aid, while boosting what is known as domestic revenue mobilisation. This, in turn, enhances fiscal resilience and supports more stable long-term growth.
The Fund also highlighted the importance of robust, high-quality data in shaping effective policy responses. Its database, covering 195 economies over several decades, provides detailed insights into both tax and non-tax revenue trends, offering policymakers and researchers a critical tool for benchmarking performance and identifying reform priorities.
As traditional revenue lifelines weaken, the IMF is emphasising that developing economies must urgently build stronger internal revenue systems or risk deeper fiscal strain in the years ahead.
Leave a comment