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World Bank Support for Domestic Revenue Mobilization


Domestic revenue mobilization (DRM) has become an increasingly important part of international and country-level development policy agendas. Since the 2015 International Conference on Financing for Development in Addis Ababa, DRM has risen in importance in the international policy agenda, figuring prominently in successive International Development Association (IDA) replenishments and the International Bank for Reconstruction and Development capital package commitment. In the years leading up to the COVID-19 pandemic, high fiscal deficits and already high and rising debt levels made enhancing DRM a significant priority for developing economies, particularly lower-income countries. Since the onset of the pandemic, tax revenues have dropped by 12 percent in real terms and, in many countries, ratios of tax to GDP have fallen below 15 percent (considered the minimum necessary to finance a state’s basic functions).

This evaluation assessed the relevance and effectiveness of World Bank–supported strategies and interventions between fiscal year (FY)16 and FY19 to help client countries enhance DRM. The period of analysis, though relatively short, covers a major elevation in the importance assigned to DRM by the international community. The period of analysis also allows for a comparison of performance with the previous period of FY12–15. After the 2015 deadline for attainment of the Millennium Development Goals, the World Bank and the development community recognized that official development assistance was unlikely to be adequate to achieve the newly articulated and more ambitious Sustainable Development Goals, and resources from other sources would be needed, including domestic revenue.

Main Findings

The World Bank has intensified its DRM work, particularly since 2018 and especially to IDA-eligible countries and to Sub-Saharan Africa. The increase in support was greatest in countries with lower ratios of revenue to GDP. This has been especially pronounced in development policy operations (DPOs), in which prior actions frequently supported changes in tax rates (value-added taxes, corporate income tax, and personal income tax) or reductions in tax expenditures. Much of the increase in DRM analytical support was due to the Global Tax Program, established in June 2018 with funding from development partners. The program enabled a significant increase in World Bank engagement in DRM, with about 81 percent of its resources supporting expansion and improvement in the quality of DRM country-level work and the remaining resources supporting development of tax diagnostic tools, assessment frameworks, and research.

The availability of Global Tax Program funding has allowed the World Bank to increase its analytical support for DRM, and that has intensified pressure on limited staff and an increasing large cadre of short-term consultants. Significant turnover in staff and management working on tax issues has exacerbated these pressures, along with several shifts in responsibility for tax between units within the World Bank Group. On the positive side, collaboration with development partners improved markedly over the evaluation period, aided by the establishment of the Platform for Collaboration on Tax.

Green and corrective health taxes on harmful products became more prominent in the evaluation period, though from a low level. The work of the Global Tobacco Control Program has had particular impact, making extensive and effective use of collaboration across Global Practices and with external partners (for example, the World Health Organization) to provide leadership on the role of tobacco taxation in offsetting the costs of tobacco use to health systems. This work informed country-level policy advice and operations in an integrated way and in a growing number of countries.

World Bank interventions and priorities in support of DRM at the country level were generally well grounded in analytical and diagnostic work, which identified major country-specific constraints to DRM. The number of tax tools and diagnostics has increased significantly in recent years both from within and outside the World Bank. Each focuses on a distinct dimension of DRM and has potentially important value added in informing policy dialogue, operational design, and priority setting, but their proliferation presents challenges for task team leaders (many of whom are not tax experts) to effectively identify and prioritize the reforms and constraints with the greatest impact at the country level. Medium-term revenue strategies prepared under the Platform for Collaboration on Tax provide a potentially valuable framework for improving DRM over the medium term through a whole-of-government approach, although they have been completed for only a few countries. Therefore, they fall short of providing a regular and practical framework to set priorities across tax objectives and promote progressivity of fiscal systems to directly inform Country Partnership Frameworks, Country Partnership Framework updates, and the identification of prior actions in DPOs.

Attention to the expected distributional implications of DRM interventions has increased, particularly in low-income countries, but less so in middle-income countries, and ex post impact is rarely discussed in completion reports. This increase in attention was partly a result of greater focus on the progressivity of tax systems in the 20th Replenishment of IDA and the Bank Group’s more recent Green, Resilient, and Inclusive Development initiative. However, a clear framework and consensus for assessing the most effective channel for achieving progressive distributional impact in individual countries are lacking, and so is significant analytical work at the country level on the incidence of proposed tax reforms (that is, which groups are most likely to shoulder the effective burden of proposed tax reforms). In addition, it is important to ensure that the incidence of taxes supported by World Bank advice and operations is understood and that distributional impact is assessed at the level of the fiscal system rather than on taxes alone.

Results from investment projects supporting DRM were generally favorable. The share of projects rated satisfactory was 41 percent, and 35 percent of projects were rated moderately satisfactory. Performance of tax administration projects was generally better in IDA-eligible countries than in non-IDA-eligible countries. (Too few projects were completed and evaluated in countries facing fragility, conflict, and violence to draw clear conclusions.)

There was a marked improvement in achievement of DRM-related objectives in DPOs, although the indicators used to measure impact were often inadequate. Targets for DRM-related results indicators were largely achieved, and the achievement of DRM-related objectives increased markedly. However, the results indicators measuring impact were often too high level or did not adequately capture either the impact of prior actions or progress toward objectives.

Case study evidence suggests that tax policy reforms supported by DPOs were often reversed after disbursement, even for operations that recorded significant achievements shortly after closing. Project documents identified related risks (with varying degrees of specificity); risks often materialized, even though project preparation regularly involved political economy analyses. Although informed risk taking should not be discouraged, this suggests the need to articulate and put in place more concrete mitigating measures. For example, sequencing and complementarity of instruments supporting DRM need to be considered more strategically, and prior actions should be designed with an eye to making their reversal more difficult.

Policy reversals were particularly notable for prior actions supporting reductions in tax expenditures or tax exemptions (which account for about one-quarter of DRM-related prior actions). Of these, 30 percent required the publication of the inventory of tax exemptions and expenditures or a tax expenditure statement (ostensibly to strengthen accountability in granting tax exemptions), and 40 percent required a specific reduction or elimination of tax exemptions and expenditures. Most of the rest required changes to the governance framework for granting new exemptions. Case studies suggest that the formulation of a prior action can have implications for how easily the associated reforms can be reversed. For tax exemptions, changes in governance frameworks that made it more difficult to grant exemptions tended to be the most resilient, whereas eliminating specific exemptions was frequently overridden over time under pressure from vested interests.

The ease with which some World Bank–supported tax policy reforms can be reversed points to a possible tension between countries that fail to make concrete and sustained progress on DRM and the successive provision of budget support to those countries. Specifically, the provision of budget financing can reduce how urgently and ambitiously clients approach DRM and the importance they assign to avoiding backsliding. This suggests that a failure to make and sustain progress on DRM should be considered more explicitly in deciding on the size and frequency of subsequent DPOs, at least outside the context of countercyclical support during a crisis.

Staff self-evaluations of operations and projects yielded few DRM-related lessons: only 3 of 60 closed operations and projects that focused on DRM had DRM-specific lessons. Moreover, when reported, the lessons were relatively generic, suggesting minimal value added in informing future interventions supporting DRM. This suggests scope for greater attention on learning from experience with DRM-focused projects and operations.


Given the central role of DRM in achieving national and global development objectives, reducing debt stress, and recovering from the COVID-19 pandemic, the Independent Evaluation Group makes the following recommendations to improve and enhance the impact of World Bank support to client countries. These recommendations are consistent with and build on the “IBRD/IDA Board Briefing on Domestic Resource Mobilization (DRM): Supporting Green, Resilient and Inclusive Development (GRID),” as presented to the World Bank Board of Executive Directors in June 2021. World Bank management pointed to the need to increase human and financial resources dedicated to DRM. More resources may be warranted, but there is scope for the World Bank to make better use of the resources it currently has for supporting DRM. In this spirit, the following recommendations are made:

  1. On a country-by-country basis, regularly take stock of the findings of the broad range of tax diagnostics tools and instruments to (i) identify knowledge gaps and (ii) more systematically inform priority setting for country-level policy dialogue, capacity building, and operations to improve DRM. Rigorous analysis and diagnostics are needed to inform country-specific DRM strategy and operational priorities, particularly in IDA-eligible countries. The range of specialized DRM tools and diagnostics from within and outside the World Bank is wide and increasing. Each may serve a useful purpose, but their proliferation risks complicating the ability of task team leaders (many of whom are not tax experts) to distill and set DRM reform priorities for inclusion in country strategies and budget support operations. Therefore, there is a need for a periodic country-specific stocktaking of diagnostic findings to identify information gaps and set priorities for analytical and operational World Bank support to improve DRM. The outcome of this exercise should be timed and used to inform Country Partnership Frameworks, Country Partnership Framework updates, and the articulation of prior actions in DPOs.
  2. Given the potentially large and regressive fiscal impact of tax exemptions, the World Bank should regularly assess the effectiveness and efficiency of tax exemptions in achieving country-specific policy objectives, with an eye to more actively supporting the sustainable reduction of regressive tax exemptions through policy advice and prior actions in DPOs. World Bank staff should be equipped with and regularly make use of tools to assess the merits of the existing stock of tax exemptions and tax expenditures in individual countries—particularly those with low ratios of tax to GDP—and the results should inform policy priorities in Country Partnership Frameworks, policy analysis, and prior actions in DPOs.
  3. The frequency with which tax policy reforms are reversed calls for strengthening incentives for sustaining reforms and making reversal more challenging. As part of this effort, the World Bank should seek to support not only the publication of tax exemptions and expenditures but also ways to control the future proliferation of new tax expenditures and exemptions that undermine longer-term growth, equity, and accountability objectives. In efforts to reduce tax exemptions, and where feasible, prior actions should prioritize measures that improve the governance framework for granting exemptions. These efforts would also help alleviate the potential tension between the incentives for a country with a low ratio of tax to GDP to improve DRM performance and the repeated provision of significant budget support by the World Bank.
  4. Provide clearer guidance to staff on the choice of results indicators to measure the impact of DRM support, facilitate learning from experience, improve monitoring of progress toward DRM-related objectives, and promote an outcome orientation in the World Bank’s support for DRM. Given how often shortcomings were identified in results indicators intended to capture progress on DRM, the World Bank staff needs more concrete and targeted guidance on good practice in defining results indicators for tracking the impact of World Bank DRM interventions at the country level. Improving the quality of DRM results indicators will facilitate learning from experience and strengthen the outcome orientation of World Bank support in this area.