IMF forecasts that WAEMU will fall short of hitting a 20% tax-to-GDP ratio before 2048 due to slow progress in reforms.
The West African Economic and Monetary Union (WAEMU) is grappling with the goal of reaching a tax revenue target of 20% of GDP, as the region faces numerous economic and structural hurdles within member states. These obstacles include limited tax base coverage, economic vulnerabilities such as a reliance on specific sectors, ongoing security issues, and administrative inefficiencies in tax and customs collection.
For instance, Mali continues to grapple with mining sector disruptions and security risks, which hinder growth and tax performance despite some resilience and efforts in revenue mobilization.
Other factors contributing to the difficulty in reaching the tax revenue target include tight financing conditions in WAEMU countries, the prevalence of tax exemptions, a narrow tax base, inflation dynamics, and external shocks impacting economic activity and taxable incomes.
To address these issues, WAEMU countries, with support from the IMF and other partners, have been implementing a series of strategic reforms. One such initiative is the Medium-term Revenue Mobilization Strategy (MTRS), which aims to broaden the tax base by reducing exemptions, streamlining VAT tax expenditures, and enhancing taxpayer compliance.
Additional reforms include strengthening the efficiency and transparency of tax and customs services, aligning fiscal deficits within the WAEMU target ceiling of 3% of GDP, focusing on economic diversification and growth, and enhancing public finance management and debt sustainability.
Despite these efforts, the union may not reach its tax revenue target before 2048 or even 2061. The region's tax revenues rose from 10% to 14% of GDP from 2001 to 2023, but the IMF considers this growth modest. WAEMU still lags behind other sub-Saharan and low-income African countries in average tax performance.
Countries like Benin, Côte d'Ivoire, Togo, Burkina Faso, and Mali have substantial untapped revenue potential. In Benin, for example, the gap between actual and potential revenue exceeds six percentage points of GDP.
The reduced resilience to external shocks is a result of underperformance in tax mobilization, which heightens dependency on expensive regional debt markets. The continued underperformance in tax mobilization weakens states' ability to finance development, making it crucial for WAEMU to address these challenges to secure a sustainable economic future.
The tight financing conditions within WAEMU countries and the narrow tax base are significant barriers in the finance sector, impacting business growth due to limited revenue generation. The low tax revenue target of 20% of GDP is challenging to reach, as demonstrated by the union's slow progress, with tax revenues rising from 10% to 14% of GDP since 2001 and still lagging behind other low-income African regions.
