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Background

Transparent public finances – a stable foundation for sustainable development

Employee in the Ministry of Finance in Accra, Ghana

A legitimate, transparent and development-oriented system of public finance provides the stable foundation necessary to secure long-term success in development. Such a system requires efficient and accountable government bodies for financial administration, functioning supreme audit institutions and control mechanisms enshrined in policy and society.

Germany works to promote these principles of good governance in public finance and played a key role in coining the term "good financial governance" – a term that is gradually gaining international currency.

Mobilisation of domestic revenues

The vital role of domestic revenues in sustainable development was highlighted at the UN conferences on financing for development (Monterrey 2002, Doha 2008 and Addis Ababa 2015). The aim of the "Addis Tax Initiative", launched in Addis Ababa in July 2015, is to ramp up cooperation in the area of public finance and to support developing countries’ efforts to install tax and customs systems. The topic was also focused on at the forums on aid effectiveness (Paris 2005, Accra 2008 and Busan 2011).

However, many developing countries do not have sufficient tax revenues to be able to perform all the tasks incumbent upon a state. One problem is that a large portion of economic activity occurs in the informal sector, resulting in an inadequate tax base. Another is that essential revenues are lost due to tax evasion and avoidance plus corruption. Often, loans are necessary to make up the shortfall, putting an additional burden on the public purse.

Moreover, tax evasion/avoidance and corruption mar the relationship between the nation and its government, with the public losing confidence in public institutions and the legitimacy of government actions.


Support from Germany

Developing countries can only gain long-term independence from external aid and assume ownership of their development goals if they have adequate domestic revenues. To help them achieve this, Germany supports its partner countries’ efforts to reform their fiscal systems and contributes to international efforts to curb tax evasion and avoidance.

More information on the factors involved can be found in the following sections:


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