## egrsigea

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---

### Executive Summary — Introduction and context
- Reforms to improve economic governance and reduce corruption vulnerability are key to fostering higher and more inclusive growth as countries recover from the COVID-19 pandemic.
- Evidence links strong governance to higher economic growth, lower inequality, higher government revenues, more efficient spending, and higher private investment.
- The paper focuses on countries of the Middle East, North Africa, and the Caucasus and Central Asia (MECA).
- Methodology draws on recent IMF work and covers governance of the public sector related to economic policy.

### Executive Summary — Diagnosis of governance challenges in MECA
- Public perceptions and indicators show weak governance and corruption are serious problems; low scores on public services quality, civil service, policy formulation and implementation, independence from political pressures, and credibility of commitment to policies.
- Indicators cited:
  - Government Effectiveness: scale –2.5 [weak] to 2.5 [strong], 2018.
  - Control of Corruption: scale –2.5 [weak] to 2.5 [strong], 2018.
  - Corruption Perceptions (Transparency International): scale 0 [highly corrupt] to 100 [very clean], 2019.
- Key sectoral vulnerabilities:
  - Fiscal governance: transparency and accountability weaknesses.
  - Financial sector: gaps in supervisory practices and AML/CFT frameworks.
  - Business environment: complex regulation and enforcement gaps that enable bribery and rent seeking.
  - Anti-corruption frameworks: prevention and enforcement under-developed.
- Opportunities identified: strengthen fiscal institutions; improve transparency and accountability; enhance central bank and supervisor autonomy and accountability; improve AML/CFT frameworks and implementation; streamline business regulations and enforcement; establish robust anti-corruption legislation with fair enforcement.

### Executive Summary — Governance challenges from COVID-19 (Box 1 highlights)
- Crisis governance safeguards emphasized:
  - Design: balance speed with transparency in selecting and explaining policy responses.
  - Implementation: monitor, execute, and control spending to ensure transparent, efficient use while retaining flexibility.
  - Oversight: transparent reporting, empower oversight institutions, and public access to information to build trust.
- Example — Jordan’s Rapid Financing Instrument engagement:
  - Created specific budget lines for crisis-related expenditures and linked the emergency fund to its Treasury Single Account.
  - Committed to publish procurement plans, notices, awarded contracts, including beneficial ownership of awarded entities.
  - Jordanian Audit Bureau to undertake ex post audits of all crisis-mitigating inflows and spending and publish the results.
- Recovery-phase governance needs: vaccine procurement and vaccination programs, targeting continued financial support, planning, clear communication, fair implementation, oversight; digitalization opportunities.

### Executive Summary — Core recommendations
- Fiscal institutions: simplify operations; limit discretion; increase transparency; improve internal controls and auditing processes.
- Accountability and transparency: publish economic and social data; provide access to information.
- Central bank and financial sector: enhance autonomy and accountability of central banks and supervisors; increase transparency and accountability in central bank governance.
- AML/CFT: strengthen frameworks and implementation to better detect proceeds of corruption.
- Business regulation: simplify regulatory frameworks; ensure enforcement capacity.
- Anti-corruption frameworks: develop prevention and enforcement capacities; enact robust, well-enforced legislation.
- Digitalization: use digital tools across fiscal transparency, public procurement, service delivery, and oversight.
- Leadership and inclusivity: political leaders, businesses, unions, and civil society are critical to sustain reforms.

### Executive Summary — Benefits of improved governance
- Improved governance and lower corruption risks:
  - Improve macroeconomic stability via more effective use of public resources.
  - Improve investors’ confidence and competitiveness.
  - Make growth more inclusive.
  - Improve or restore trust in government and strengthen social cohesion and political stability.
  - Favor greener economic growth.
- Costs of weak governance: high economic and social costs when widespread.

---

### Box 1 — Transparency and accountability in fiscal institutions
- Corruption weakens states’ capacity to tax and harms tax compliance; countries with higher perceived corruption collect less tax and spend less efficiently (IMF 2019b; Figures 4 to 7).
- Fiscal governance performance by subregion:
  - MENA LICCs: lag peers in fiscal transparency; weak spending outcomes in health and education and procurement; better in revenue collection efficiency and PFM controls.
  - MENA EMs: lag peers in fiscal transparency and revenue outcomes; stronger PFM systems and spending outcomes.
  - CCA economies: perform as well as peers except in procurement.
  - MENA advanced economies: lower scores than peers in all areas of fiscal governance.
- Fiscal transparency metrics:
  - Open Budget Survey: surveyed MENA countries average score 22, surveyed CCA countries 51, Latin America and the Caribbean 50, Eastern European countries 56, and western Europe 72. MENA scores range from 0 to 61.
  - Public participation in the budget process: surveyed MENA countries score 4.5 (out of 100), CCA countries 19; eastern Europe 11, Latin America and the Caribbean 16, western Europe 22.
- Procurement and auditing weaknesses: uneven application of procurement legislation; in most surveyed countries the head of the Supreme Audit Institution can be removed by the Executive without judiciary or legislature assent; in more than half the surveyed countries SAIs have not conducted or made available compliance, financial, or performance audits.

### Box 1 — SOEs, SWFs, and information sharing
- SOEs: large employers and economic actors; operational goals mix commercial and public policy objectives; governance structures allow conflicts of interest; listed SOEs often disclose only minimum information.
- Natural-resource SOEs: of 23 MECA companies surveyed by the Natural Resource Governance Institute, most disclose very partial commodity sales information; 8 of the 23 do not provide any information at all. About a quarter of companies publishing their annual report in 2018 report their production.
- Sovereign wealth funds: scope to improve transparency on deposit/withdrawal rules, investment, and financial reporting; few assessed funds fulfill 8 or more aspects of transparency (Azerbaijan, Bahrain, Kazakhstan and the UAE are noted as fulfilling 8 or more).

### Box 1 — Information sharing and digital government
- Publication of economic and social data is key to accountability and inclusiveness; regional performance could improve (transparency indicator from the Global Competitiveness report).
- New technologies and e-government: all income groups lag peers except the CCA, which is on par with other EMs.
- World Bank (2019) ministry surveys: opportunities to expand consultations on planned regulations and better reflect feedback; MENA LICCs and advanced economies could make laws more user friendly.

### Box 1 — Financial sector supervision and central bank governance
- Assessed countries comply on average with about 30 percent of the core Basel principles, less than most other regions except sub-Saharan Africa.
- Strengths: defining permissible activities and controlling the use of the word “bank”.
- Supervisory improvement areas: supervisory governance and cross-border coordination; independence and resourcing of supervisors; integrated supervisory approaches to bank risk profiles; analysis of banks’ resolvability and frameworks for handling banks in distress.
- Central bank governance: autonomy and governance matter for macroeconomic stability and anti-corruption efforts.

---

### 1. Responsibilities, objectives, and powers
- Content scope: section headings only, enumerating items 1 through 28.

---

### 29. Abuse of financial services — Central bank governance and risks
- Transparency and accountability counterbalance autonomy needed for central banks to fulfill their mandate.
- Risks from weak controls: misappropriation of assets and funds, diversion of funds by public officials, use of public office for private benefits—especially when central bank doubles as financial supervisor.
- Quasi-fiscal activities create inefficiencies and vulnerabilities; "six central banks do both subsidized lending to the financial sector and lending to the government." No information was available for five central banks.
- Oversight findings and governance statistics:
  - "A significant proportion (27 percent) of central banks’ boards have a majority, or sole membership, of central bank executives."
  - A large majority of oversight boards are chaired by the governor, often also responsible for executive management.
  - A large majority of the region’s central banks have weak or no eligibility criteria for selection of non-executives.
- Financial statement transparency:
  - "Currently, only about 60 percent of the region’s central banks publish full annual financial statements."
  - "Eight central banks do not publish their financial statements."
  - "Fewer than 40 percent of MECA central banks that publish their financial statements have adopted International Financial Reporting Standards (IFRS) in its entirety."
  - "About 20 percent have adopted standards that differ from IFRS as issued by the International Accounting Standards Board to a certain degree."
  - Global rate of full adoption of IFRS: "50 percent."
  - Auditing: among the 19 central banks that publish a set of financial statements, "18 include their audit opinion." Two central banks that publish abbreviated statements also included audit opinions. "Three-quarters of these audited central banks complete their audit within four months."

### 29. Abuse of financial services — AML/CFT frameworks and weaknesses
- Effective AML/CFT regimes require strengths in four areas: preventive measures by reporting entities; entity transparency (basic and beneficial ownership information); criminal justice capacity to criminalize, investigate, seize/confiscate proceeds; international cooperation and asset recovery.
- Regional assessment findings:
  - FATF assessments: countries overall have weak effectiveness on criminal justice indicators; weaknesses in preventive measures and entity transparency, though a few countries have high ratings.
  - International cooperation indicators: most countries need major to moderate improvements.
  - "Out of the 61 countries that the FATF has included in its list of jurisdictions with serious AML/CFT deficiencies since 2010, one-third have come from the region."
- Recommendations and examples:
  - Risk understanding: national risk assessments help prioritize AML/CFT (example: "Saudi Arabia’s national risk assessment showed a good understanding of its AML/CTF risks").
  - Asset recovery: effective tracing, seizure/confiscation, and return mechanisms are fundamental; political transitions pose information and speed challenges.
  - Supervision improvements: fit-and-proper monitoring, beneficial owner identification, risk-based supervision (including PEPs), enforcement actions.
  - Entity transparency: ensure ownership information is accessible (example: Armenia provides basic ownership information publicly and maintains a beneficial ownership register).
  - International cooperation: enhance mutual legal assistance; example: Bahrain uses international cooperation and informal mechanisms for seizure/freezing of bank accounts related to corruption charges abroad.

### 29. Abuse of financial services — Business regulation reform and implementation gaps
- Progress: many countries designed modern laws and streamlined regulations, reducing procedures and time for construction permits, electricity connections, property registration, and improved electronic processing of trade documents.
- Persistent challenges: uneven implementation across geography, firm size, or connections can incentivize corruption through selective application, nepotism, or weak administrative capacity.
- Policy measures:
  - Streamline regulations and remove red tape (examples: Egypt, Georgia).
  - Increase transparency and enforceability, publish tariffs and property registration information.
  - One-stop shops and digital public service windows reduce interactions enabling petty corruption (example: Kazakhstan “Public Service Centers”; Azerbaijan ASAN used by "5 million people over the last four years").
  - Engage civil society in regulatory reform (example: Tunisia and Digital Tunisia 2020).

### 29. Abuse of financial services — Anti-corruption frameworks and enforcement
- Four priority areas:
  - International initiatives: almost all countries are state parties to UNCAC; all Arab states ratified the Arab Convention against Corruption, but implementation is challenging.
  - Preventive measures: limited public-sector information access, weak whistleblower protections, weak application of conflict-of-interest rules; financial disclosure adoption in MENA is early relative to global adoption.
    - Financial disclosure: periodic submission of income, assets, liabilities, and interests to a government authority; enforcement often weak (low compliance, lack of verification, absence of sanctions, non-publication).
  - Enforcement: convictions and confiscation of illegal proceeds are necessary; weak enforcement enables impunity and favoritism.
    - Example: Afghanistan since late 2017 prosecuted "1,635 cases, leading to 468 people sentenced to prison terms and collection of more than $14 million in fines."
  - Asset recovery and cooperation: implementation of UNCAC and Arab Convention asset recovery provisions is rare; Arab Spring cases rarely resulted in recovery due to legal and practical complexities and information-sharing obstacles.
- Institutional measures:
  - Adopt anti-corruption frameworks, whistleblower protection, conflict-of-interest rules, and asset/financial declaration regimes (examples: Afghanistan, Kyrgyz Republic, Tunisia Asset Declaration Law 2018).
  - Establish independent and resourced anti-corruption bodies with investigative powers.
  - Facilitate domestic and international information-sharing and involve civil society.

### 29. Abuse of financial services — IMF and international community support
- IMF modalities: program conditionality, surveillance, technical assistance, and voluntary in-depth governance evaluations.
- IMF engagement examples:
  - Anti-corruption and AML/CFT: IMF CD helped countries exit FATF monitoring and leave the public list of strategic AML/CFT deficiencies (examples: Afghanistan, Iraq, Kuwait, Sudan); CD helped ease correspondent banking pressures (example: Sudan).
  - Fiscal governance: Article IV consultations in 2019 discussed fiscal transparency for Bahrain, Kuwait, Turkmenistan, and Saudi Arabia; programs addressed PFM and revenue mobilization (example: Mauritania).
  - Monetary and financial sector governance: safeguard assessments and Financial Sector Assessment Programs diagnose and strengthen central bank governance and oversight.
  - Regulatory environment: more than 70 percent of country teams in the region advise improving the business environment.
- International community: conventions and benchmarks (UNCAC, OECD anti-bribery, Extractive Industries Transparency Initiative, Open Government Partnership) provide peer learning, technical assistance, scrutiny, and reform incentives.

### 29. Abuse of financial services — Overarching reform principles and enablers
- Reforms should be country-tailored and rest on:
  - Strong leadership and political will.
  - Well-designed laws and regulations.
  - Dedicated, skilled civil service with appropriate incentives and capacity building.
  - Technology and digitalization: e-procurement, e-tax filing, biometric digital payments, machine learning, automated exchange of information.
- Key priorities:
  - For all countries: greater transparency and accountability, especially in government policies and SOE functioning.
  - For most countries: improve implementation of existing laws and remove red tape.
  - For some countries: strengthen laws, regulations, and institutions targeting corruption and related vulnerabilities.

---

### Box 2 — Foundations of Good Economic Governance and IMF framework
- Technological opportunities and risks: AI can help detect fraud; crypto currency can facilitate anonymous corruption and money laundering.
- Institutions should act across four levels: organizational structures/processes, control frameworks, external audits and oversight, transparency mechanisms.
- IMF enhanced engagement framework (2018): assesses governance weaknesses across six state functions:
  - (1) fiscal governance;
  - (2) financial sector oversight;
  - (3) central bank governance and operations;
  - (4) market regulation;
  - (5) rule of law;
  - (6) AML/CFT.
- Analytical grouping for the paper: fiscal policy (1); central banking and financial supervision ((2) and (3)); AML/CFT frameworks (6); regulatory environment ((4) and (5)); cross-cutting issues: transparency, accountability, anti-corruption quality.
- Definitions:
  - Corruption: the abuse of public office for private gain.
  - Economic governance: the accountability, transparency, and effectiveness of institutions involved in economic policymaking and implementation.
- Region and country groupings:
  - MECA region per IMF Middle East and Central Asia Department; abbreviation MECA per October 2019 WEO classification.
  - Country groupings: MENA LICCs, MENA EMs, MENA advanced economies, CCA, and rest-of-world comparator groupings as listed.

*Source: egrsigea*

### Executive Summary

### Executive Summary

### Introduction and context
- Reforms to improve economic governance and reduce corruption vulnerability are key to fostering higher and more inclusive growth—factors gaining importance as countries recover from the COVID-19 pandemic and aim to build forward better.
- Evidence suggests that strong governance is associated with better economic performance—higher economic growth, lower inequality, higher government revenues, more efficient spending, higher private investment.
- Conversely, weak governance and corruption diminish public trust in government and institutions and could feed public anger, triggering uprisings and political instability.
- The paper focuses on countries of the Middle East, North Africa, and the Caucasus and Central Asia (MECA).
- Examples of progress in the region: Georgia implemented large-scale governance and anti-corruption reforms and dramatically raised tax revenue.
- The paper’s methodology draws on recent IMF work (see IMF 2016a, 2017d, 2018a) and covers governance of the public sector related to economic policy (Annex 1 and Annex 2 referenced in source).

### Diagnosis of governance challenges in MECA
- Citizens and businesses view weak governance and corruption as serious problems in the region; countries score low on the perceived quality of public services, the civil service, policy formulation and implementation, independence of governments from political pressures, and credibility of commitment to policies (dimensions captured in the government effectiveness indicator).
- Indicators cited:
  - Government Effectiveness: scale –2.5 [weak] to 2.5 [strong], 2018.
  - Control of Corruption: scale –2.5 [weak] to 2.5 [strong], 2018.
  - Corruption Perceptions (Transparency International): scale 0 [highly corrupt] to 100 [very clean], 2019.
- Key governance weaknesses and sectoral vulnerabilities identified:
  - Fiscal governance: remaining weaknesses notably in transparency and accountability can bring large dividends if addressed.
  - Financial sector: gaps in supervisory practices and in the frameworks for anti-money laundering and combating terrorism financing (AML/CFT).
  - Business environment: overly complex regulatory frameworks create environments prone to bribery and rent seeking; enforcement gaps exist even where laws are strengthened.
  - Anti-corruption frameworks: prevention and enforcement remain under-developed in many countries.
- The paper identifies opportunities to improve governance in key government functions related to economic policy, including strengthening fiscal institutions, improving government transparency and accountability, enhancing central bank and financial supervisor autonomy and accountability, improving AML/CFT frameworks and implementation, streamlining business regulations and enforcement, and establishing robust anti-corruption legislation with fair enforcement.

### Governance challenges arising from the COVID-19 pandemic (Box 1 highlights)
- Good governance is key to the effective management of the COVID-19 crisis: strong fiscal governance ensures effective use of resources for health and economic fallout.
- In the immediate crisis phase, key governance safeguards requirements to which governments committed (for example through Letters of Intent) included:
  - Design: Balancing a quick response with being transparent in selecting and explaining policy responses.
  - Implementation: Monitoring, executing, and controlling spending to ensure that money is spent transparently and efficiently for its intended purpose while retaining the flexibility to change policies as the crisis developed.
  - Oversight: Putting in place transparent reporting and public accountability procedures and empowering oversight institutions such as parliaments and audit institutions to oversee the process; access to information by civil society organizations and the public at large helps build trust.
- Example: Jordan’s crisis effort under the IMF Rapid Financing Instrument:
  - Allocated additional funds to contain and treat COVID-19.
  - Created specific budget lines for tracking and reporting crisis-related expenditures.
  - Linked the emergency fund to its Treasury Single Account.
  - Committed to publish procurement plans, notices, awarded contracts, including beneficial ownership of awarded entities, for emergency responses.
  - The Jordanian Audit Bureau will undertake ex post audits of all crisis-mitigating inflows and spending and will publish the results.
- As crisis response shifts to recovery, governments face new governance decisions (e.g., vaccine procurement and vaccination programs, identifying target groups for continued financial support) that require planning, clear communication of objectives, fair implementation, and oversight. Digitalization presents opportunities in these areas.

### How to improve economic governance — core recommendations
- General principles for strengthening fiscal institutions:
  - Simplify operations.
  - Limit discretion in decision-making.
  - Increase transparency.
  - Improve internal controls and auditing processes.
- Make governments more accountable and transparent:
  - Publish economic and social data.
  - Provide access to information.
- Strengthen central bank and financial sector governance:
  - Enhance autonomy and accountability of central banks and financial sector supervisors.
  - Increase transparency and accountability in central bank governance.
- Improve AML/CFT frameworks:
  - Strengthen frameworks and implementation to better detect proceeds of corruption.
- Streamline business regulation and enforcement:
  - Simplify regulatory frameworks to reduce opportunities for bribery and rent seeking.
  - Ensure enforcement capacity to implement strengthened laws and regulations.
- Strengthen anti-corruption frameworks:
  - Develop prevention and enforcement capacities.
  - Enact robust, well-enforced legislation targeting corruption.
- Leverage digitalization:
  - Digital tools can play a critical role across fiscal transparency, public procurement, service delivery, and oversight mechanisms.
- Emphasize leadership and inclusivity:
  - Political leaders, in collaboration with businesses, unions, and civil society organizations, are critical to carry forward ambitious and sustainable reforms to foster investor confidence, public trust, and social cohesion, and to spur strong, inclusive, sustainable growth.

### Benefits of improved governance (evidence cited)
- Improved governance and lower corruption risks:
  - Improve macroeconomic stability by increasing government effectiveness in using public resources and providing services.
  - Improve investors’ confidence and countries’ competitiveness in the global market.
  - Make growth more inclusive by spreading benefits among all members or groups in society.
  - Improve or restore trust in government and strengthen social cohesion, thereby strengthening political stability.
  - Favor greener economic growth.
- Costs of weak governance: impose high economic and social costs, especially when widespread.

### Paper scope and organization
- The paper diagnoses main governance weaknesses and vulnerabilities to corruption in the MECA region and proposes actions governments can take, recognizing country-specific priorities.
- Chapter 2 provides a diagnosis of governance challenges comparing outcomes to international peer groups.
- Chapter 3 provides policy recommendations to improve governance, uses country examples, and discusses the role of the IMF and other international financial institutions in supporting country efforts in this area.

*Source: egrsigea - Executive Summary*

### Box 1. Governance Challenges Arising from the COVID-19 Pandemic

### Box 1. Governance Challenges Arising from the COVID-19 Pandemic

### Introduction
- The IMF has given guidance on the fiscal transparency aspects of crisis spending, including a public message from Managing Director Kristalina Georgieva that governments should “do what it takes but keep the receipts.”
- The IMF has produced a factsheet describing promotion of transparent and accountable use of COVID-19 financial assistance.
- The Fiscal Affairs Department has published a blog and two related policy notes: “Keeping the Receipts: Transparency, Accountability, and Legitimacy in Emergency Responses” and “Budget Execution Controls to Mitigate Corruption Risk in Pandemic Spending.”
- Further work will be forthcoming as the crisis unfolds.

### Transparency and Accountability in Fiscal Institutions
- Weak governance and corruption weaken the states’ capacity to tax, leading to lower revenue collection.
- Corruption harms tax compliance, increasing tax evasion, and reduces efficiency of public spending through cost inflation and low-quality outcomes.
- Empirical evidence confirms that countries with higher perceived corruption are less able to collect taxes and spend public resources more inefficiently (IMF 2019b; Figures 4 to 7).
- Areas of focus for fiscal governance across country groups:
  - MENA low-income and conflict countries (LICCs): lag peers in fiscal transparency; spending outcomes especially in health and education; and procurement; perform better in efficiency of revenue collections and PFM controls.
  - MENA emerging markets (EMs): lag peers in fiscal transparency and revenue outcomes; tend to have stronger PFM systems and spending outcomes.
  - Caucasus and Central Asia (CCA) economies: perform as well as peers except in procurement.
  - MENA advanced economies: tend to have lower scores than peers in all areas of fiscal governance.
- Fiscal transparency is the area where the region can advance the most on average; publishing government accounts can improve trust and public ownership of policies.
- Specific fiscal transparency weaknesses documented:
  - Public access to budget information is uneven. Open Budget Survey: surveyed MENA countries have an average score of 22, against 51 in surveyed CCA countries, 50 in Latin America and the Caribbean, 56 in Eastern European countries, and 72 in western Europe. MENA scores range from 0 to 61.
  - Public participation in the budget process is limited. Public participation score: surveyed MENA countries score a low 4.5 (out of 100), CCA countries score 19; comparisons: eastern Europe 11, Latin America and the Caribbean 16, western Europe 22.
  - Procurement practices exhibit potential costs tied to inefficient procurement, absence of uniform application of procurement legislation, and limited transparent dissemination of tender offers above thresholds.
  - Auditing: in most surveyed countries the head of the Supreme Audit Institution (SAI) can be removed by the Executive without judiciary or legislature assent; in more than half the surveyed countries the SAI has not conducted or made available compliance, financial, or performance audits.

### Governance and Accountability of State-Owned Enterprises
- SOEs are economically important: they tend to employ a large share of the labor force and in some countries dominate economic activity; three of the region’s SOEs are among the 500 largest companies in the world.
- SOEs provide services including infrastructure, logistics, finance, manufacturing, and real estate; natural-resource-based SOEs can generate large fiscal revenue and attract foreign investment.
- Governance vulnerabilities highlighted:
  - Operational goals often mix commercial and public policy goals, complicating performance evaluation.
  - Governance structures allow conflicts of interest: SOEs audited by state audit institutions and often owned by line ministries that regulate their markets.
  - Listed SOEs often disclose only basic minimum exchange-required information.
- Natural-resource SOEs: most of the 23 MECA companies surveyed by the Natural Resource Governance Institute disclose very partial commodity sales information; 8 of the 23 do not provide any information at all.
- Reporting of oil and gas production is limited: about a quarter of companies publishing their annual report in 2018 report their production.
- Sovereign wealth funds (SWFs): scope to improve transparency in deposit and withdrawal rules, investment, and financial reporting; few assessed funds fulfill 8 or more aspects of transparency (Azerbaijan, Bahrain, Kazakhstan and the UAE are noted as fulfilling 8 or more).

### Information Sharing and Civil Engagement
- Publishing economic and social data is key to citizen accountability, monitoring public services, limiting corruption, and fostering inclusiveness.
- Indicators show countries in the region could improve publication of economic and social data (transparency indicator from the Global Competitiveness report; Figure 8; World Bank 2020).
- Subregions, especially MENA high-income, have on average lower scores than peer groups.
- Countries could better leverage new technologies to improve online services, human capacity, and telecommunication connectivity (UN e-government index); all income groups lag peers except the CCA, which is on par with other EMs.
- World Bank (2019) ministry surveys show opportunities to expand consultations on planned and proposed regulations and better reflect feedback and impact evaluations; MENA LICCs and advanced economies could make laws more user friendly.

### Financial Sector Supervisory and Regulatory Frameworks and Central Bank Governance
- Weak financial sector regulations and supervision can facilitate corruption and misallocation of resources (examples: lax supervision, tolerating connected lending involving public officials, inadequate AML/CFT infrastructure).
- Assessed countries in the region have on average good compliance with about 30 percent of the core Basel principles, complying with fewer core principles on average than countries assessed in other regions except sub-Saharan Africa.
- Assessed countries perform particularly well in defining permissible activities and controlling the use of the word “bank” in names.
- Areas for supervisory improvement:
  - Supervisory governance and cross-border coordination.
  - Independence and resourcing of supervisors (assessed MECA countries are below international standards).
  - Supervisory approaches sometimes do not support a fully integrated view of individual banks’ risk profiles.
  - Analysis of banks’ resolvability, especially for systemic banks, and comprehensive frameworks for handling banks in distress are lacking.
- Central bank governance: central bank autonomy and governance are important for macroeconomic stability and can help with anti-corruption efforts.

*Source: egrsigea - Box 1. Governance Challenges Arising from the COVID-19 Pandemic*

### 1. Responsibilities, objectives, and powers

### 1. Responsibilities, objectives, and powers

### Content scope
- The supplied source content consists of section headings only, enumerating items 1 through 28.

*Source: egrsigea - 1. Responsibilities, objectives, and powers*

### 29. Abuse of financial services

### 29. Abuse of financial services

### Central bank governance and risks
- Transparency and accountability act as counterweights to autonomy, which is important for central banks to effectively carry out their mandate.
- Lack of robust internal controls and transparency can create opportunities for corruption including misappropriation of assets and funds, diversion of funds by public officials, and use of public office for private benefits—especially when the central bank is also the financial supervisory body.
- Involvement in quasi-fiscal activities can lead to inefficiencies, accountability issues, and vulnerabilities to corruption.
- Governance improvements recommended (see Rossi and Bossu 2021; Cardoso and others 2021):
  - Oversight
    - "A significant proportion (27 percent) of central banks’ boards have a majority, or sole membership, of central bank executives."
    - A large majority of oversight boards are chaired by the governor, often also responsible for executive management, raising autonomy concerns.
    - A large majority of the region’s central banks have weak or no eligibility criteria for selection of non-executives.
  - Financial statements
    - "Currently, only about 60 percent of the region’s central banks publish full annual financial statements."
    - "Eight central banks do not publish their financial statements."
    - "Fewer than 40 percent of MECA central banks that publish their financial statements have adopted International Financial Reporting Standards (IFRS) in its entirety."
    - "About 20 percent have adopted standards that differ from IFRS as issued by the International Accounting Standards Board to a certain degree."
    - Global rate of full adoption of IFRS: "50 percent."
    - Auditing: among the 19 central banks that publish a set of financial statements, "18 include their audit opinion." Two central banks that publish abbreviated statements also included audit opinions. "Three-quarters of these audited central banks complete their audit within four months."
  - Autonomy of central banks
    - Financial autonomy helps sustain credibility and avoid recourse to external financial assistance.
    - Quasi-fiscal activities in the region are associated with reduced autonomy and potential recapitalization needs.
    - Main quasi-fiscal activities: subsidized lending to the financial sector and to the government; "six central banks do both subsidized lending to the financial sector and lending to the government." No information was available for five central banks.

### AML/CFT frameworks and weaknesses
- An effective AML/CFT regime helps prevent, deter, and detect laundering of corruption proceeds. Four key areas: (1) preventive measures by reporting entities; (2) entity transparency (basic and beneficial ownership information); (3) criminal justice capacity to criminalize, investigate, seize/confiscate proceeds; (4) international cooperation and asset recovery.
- Preserving correspondent banking relationships is important because high compliance costs of due diligence can burden correspondent banks.
- Regional assessment findings:
  - Countries in the region are overall assessed by the FATF as having weak effectiveness on criminal justice indicators.
  - Weaknesses also exist in preventive measures and entity transparency, though a few countries have high ratings.
  - Regarding international cooperation indicators, most countries need major to moderate improvements.
  - "Out of the 61 countries that the FATF has included in its list of jurisdictions with serious AML/CFT deficiencies since 2010, one-third have come from the region."
- Specific recommendations and examples:
  - Understanding risks: robust national risk assessments help prioritize AML/CFT policies; "Saudi Arabia’s national risk assessment showed a good understanding of its AML/CTF risks."
  - Asset recovery: effective tracing, seizure/confiscation, and return mechanisms are fundamental to UNCAC principles; political transitions highlighted challenges such as lack of information and slow responses.
  - Addressing vulnerabilities:
    - Supervision: enhance monitoring of fit-and-proper requirements, identification of beneficial owners, coverage of designated non-professionals and businesses, risk-based supervision (identification of politically exposed persons), and enforcement actions.
    - Entity transparency: ensure ownership information of legal entities and legal arrangements is accessible to prevent abuse; Armenia provides an example where basic ownership information is publicly available and beneficial ownership register is maintained.
    - International cooperation: improve mutual legal assistance to enhance investigative and prosecutorial approaches; Bahrain uses international cooperation and informal mechanisms for mutual legal assistance including seizure/freezing of bank accounts in relation to corruption charges abroad.

### Business regulation reform and implementation gaps
- An attractive, predictable business environment is key to private sector dynamism; complex or unevenly enforced regulations create incentives for corruption and impose costs on businesses (bribes, delays).
- Progress made:
  - Many countries designed first-best laws and streamlined business regulations, reducing number of procedures and time to perform them over the past decade.
  - Examples: reductions in time for construction permits, electricity connections, property registration in specific countries; improved electronic submission and processing of export/import documents in specified countries.
- Persistent challenges:
  - Uneven implementation across geography, firm size, or connections can impair reforms and incentivize corruption via selective rule application, nepotism, or weak administrative capacity.
- Policy measures to improve outcomes:
  - Streamline regulations and remove red tape (examples: Egypt, Georgia).
  - Increase transparency and enforceability of regulations, including publishing tariffs and property registration information.
  - One-stop shops and digital public service windows reduce interactions that enable petty corruption (example: Kazakhstan “Public Service Centers”; Azerbaijan ASAN used by "5 million people over the last four years").
  - Engage civil society in regulatory reform (example: Tunisia and Digital Tunisia 2020).

### Anti-corruption frameworks and enforcement
- Four priority areas for reducing corruption vulnerabilities:
  - Participation in international initiatives: almost all countries in the region have become state parties to the UN Convention Against Corruption (UNCAC); all Arab states have ratified the Arab Convention against Corruption. Implementation remains challenging despite legal transpositions.
  - Preventive measures: public-sector information access is limited, whistleblower protections are often weak, and conflict-of-interest rules are not properly applied. Financial disclosure is increasingly relevant but adoption in MENA remains early compared to global adoption.
    - Financial disclosure requires periodic submission of income, assets, liabilities, and interests to a government authority.
    - Even where required, enforcement can be weak: low compliance, lack of verification, absence of sanctions, and non-publication of declarations.
  - Enforcement: convictions and confiscation of illegal proceeds are necessary to bolster accountability; weak enforcement enables impunity and favoritism.
    - Example: since late 2017 in Afghanistan, after the National Strategy for Combating Corruption was adopted, the Attorney General’s Office prosecuted "1,635 cases, leading to 468 people sentenced to prison terms and collection of more than $14 million in fines."
  - Asset recovery and international cooperation: implementation of UNCAC and Arab Convention provisions for asset recovery is rare; few Arab Spring cases resulted in recovery—limited by legal and practical complexities and information-sharing obstacles.
- Institutional and legislative measures:
  - Adopt explicit anti-corruption frameworks, protection of whistleblowers, conflict-of-interest rules, and asset/financial declaration regimes (examples: Afghanistan, Kyrgyz Republic, Tunisia Asset Declaration Law 2018).
  - Establish sufficiently independent and resourced anti-corruption bodies, especially those with investigative powers.
  - Facilitate domestic and international information-sharing and interagency cooperation; involve civil society to bolster legitimacy.

### How the IMF and international community support reforms
- IMF engagement modalities: program conditionality, surveillance, technical assistance (capacity development), and voluntary in-depth governance evaluations.
- IMF promotes disclosure of documents related to IMF engagement and assesses compliance with selected international transparency standards.
- Areas of IMF engagement in the region:
  - Anti-corruption and AML/CFT frameworks
    - IMF capacity development helped countries exit FATF monitoring and be removed from the public list of countries with strategic AML/CFT deficiencies (examples: Afghanistan, Iraq, Kuwait, Sudan).
    - CD also helped ease correspondent banking relationship pressures (example: Sudan).
    - IMF staff provided CD to implement measures under IMF-supported programs or bilateral surveillance (examples: Iraq, Tunisia, Djibouti, Oman, Qatar, Saudi Arabia).
  - Fiscal governance
    - Article IV consultations in 2019 discussed fiscal transparency and potential solutions for Bahrain, Kuwait, Turkmenistan, and Saudi Arabia.
    - IMF-supported programs and partnerships addressed PFM and revenue mobilization (example: Mauritania).
  - Monetary and financial sector governance
    - Safeguard assessments and Financial Sector Assessment Programs diagnose and strengthen central bank governance and financial sector oversight.
  - Regulatory environment
    - Surveillance work focuses on improving the regulatory environment to foster private sector activity and job creation; more than 70 percent of country teams in the region advise on improving the business environment, often including legal framework strengthening.
- International community role:
  - Conventions and benchmarks (UNCAC, OECD anti-bribery, Extractive Industries Transparency Initiative, Open Government Partnership) provide peer learning, technical assistance, scrutiny, and incentives to sustain reforms.

### Overarching reform principles and enablers
- Governance reforms should be tailored to country circumstances and hinge on:
  - Strong leadership and political will to confront vested interests and model integrity.
  - Well-designed laws and regulations as the backbone of reform.
  - Dedicated, skilled civil service with appropriate incentives and capacity building (internal control, audit practitioners, external auditors).
  - Technology and digitalization to reduce discretion, improve transparency, and enable efficient service delivery (examples: e-procurement, e-tax filing, biometric digital payments, machine learning, automated exchange of information).
- Key reform priorities summarized:
  - For all countries: greater transparency and accountability, especially in government policies and SOE functioning.
  - For most countries: improve implementation of existing laws and remove red tape.
  - For some countries: strengthen laws, regulations, and institutions targeting corruption and related vulnerabilities.

*Source: egrsigea - 29. Abuse of financial services*

### Box 2. The Foundations of Good Economic Governance

### Box 2. The Foundations of Good Economic Governance

### Governance challenges and technological context
- New technologies can improve transparency and accountability; artificial intelligence can help identify fraud and white-collar crime more effectively.
- New technologies also present challenges: for example, crypto currency comes with anonymity, which can facilitate corrupt and money-laundering transactions.
- To detect, prevent, and deter corruption, economic institutions need to engage at four levels that can applied in all state functions: organizational structures and processes, control frameworks, external audits and oversight, and transparency mechanisms.

### IMF framework for diagnosing governance weaknesses
- In 2018 the IMF launched a framework for enhanced engagement to more systematically diagnose governance weaknesses and their links to corruption in IMF-supported arrangements, surveillance, and technical assistance (IMF 2018).
- Under this framework, the IMF assesses governance weaknesses in six state functions identified as most relevant to economic activity:
  - (1) fiscal governance: the institutional framework and practices that support revenue administration, public financial management, and fiscal transparency;
  - (2) financial sector oversight: the supervisory agency, and the regulatory and supervisory frameworks of the financial system;
  - (3) central bank governance and operations: the mandate, decision-making structure, and autonomy of the central bank; the accountability and transparency frameworks, and the internal control environment;
  - (4) market regulation: the regulatory environment for private businesses;
  - (5) rule of law: the property and contractual rights frameworks and their enforcement;
  - (6) AML/CFT: the legal and institutional frameworks and their implementation.

### Analytical grouping used in this paper
- The paper uses the IMF framework and groups state functions into four broad policy areas for exposition:
  - fiscal policy (1),
  - central banking and financial sector supervision ((2) and (3)),
  - AML/CFT frameworks (6),
  - regulatory environment ((4) and (5)).
- Cross-cutting issues addressed: government transparency and accountability and the quality of anti-corruption frameworks.
- Definitions used:
  - Corruption: the abuse of public office for private gain.
  - Economic governance: the accountability, transparency, and effectiveness of institutions involved in economic policymaking and implementation.
- Note: Governance weaknesses in institutions, mechanisms, and practices through which governmental power is exercised in a country may exist alongside or independently of perceived corruption and may result in macro-critical impacts on economic performance.

### Methodological notes and regional scope
- The region discussed in this paper, which encompasses the Middle East, North Africa, Afghanistan, Pakistan, Caucasus, and Central Asia, is covered by a single IMF department: the Middle East and Central Asia Department.
- As per the new classification from the October 2019 World Economic Outlook, the abbreviation for the region is MECA.
- To complement information gathered through operational experience and to make meaningful international comparisons, the paper uses third-party indicators.
  - These indicators are based on questionnaires administered to national sources; some are based on perception and/or subjective views of respondents; others are based on assessments of renowned international bodies.
  - All the indicators used in the paper are widely recognized and used across the world.
  - When available, the paper uses several indicators from different sources to evaluate each dimension of governance.

### Country groupings referenced
- MENA LICCs include Afghanistan, Djibouti, Iraq, Libya, Mauritania, Somalia, Sudan, Syria, and Yemen.
- MENA EMs include Algeria, Egypt, Iran, Jordan, Lebanon, Morocco, and Tunisia.
- MENA advanced economies include Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates.
- The CCA includes Armenia, Azerbaijan, Georgia, Kazakhstan, Kyrgyz Republic, Tajikistan, Turkmenistan, and Uzbekistan.
- Rest-of-the-world LICs (comparator for MENA LICCs) includes Bangladesh, Benin, Bhutan, Burkina Faso, Burundi, Cambodia, Cameroon, Central African Republic, Chad, Comoros, Democratic Republic of the Congo, Republic of Congo, Côte d’Ivoire, Eritrea, Ethiopia, The Gambia, Ghana, Guinea, Guinea-Bissau, Haiti, Honduras, Kenya, Kiribati, Lao P.D.R., Lesotho, Liberia, Madagascar, Malawi, Mali, Moldova, Mozambique, Myanmar, Nepal, Nicaragua, Niger, Nigeria, Papua New Guinea, Rwanda, São Tomé and Príncipe, Senegal, Sierra Leone, Solomon Islands, South Sudan, Tanzania, Timor-Leste, Togo, Uganda, Vietnam, Zambia, and Zimbabwe.
- Rest-of-the-world EMs (comparator for MENA EMs and CCA) includes Albania, Angola, Antigua and Barbuda, Argentina, Aruba, The Bahamas, Barbados, Belarus, Belize, Bolivia, Bosnia and Herzegovina, Botswana, Brazil, Brunei Darussalam, Bulgaria, Cabo Verde, Chile, China, Colombia, Costa Rica, Croatia, Dominica, Dominican Republic, Ecuador, El Salvador, Equatorial Guinea, Eswatini, Fiji, Gabon, Grenada, Guatemala, Guyana, Hungary, India, Indonesia, Jamaica, Kosovo, Macedonia FYR, Malaysia, Maldives, Marshall Islands, Mauritius, Mexico, Micronesia, Mongolia, Montenegro, Namibia, Nauru, Pakistan, Palau, Panama, Paraguay, Peru, Philippines, Poland, Romania, Russia, Samoa, Serbia, Seychelles, South Africa, Sri Lanka, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Suriname, Thailand, Tonga, Trinidad and Tobago, Turkey, Tuvalu, Ukraine, Uruguay, Vanuatu, and Venezuela.
- Rest-of-the-world advanced economies (comparator for MENA advanced economies) includes Australia, Austria, Belgium, Canada, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hong Kong SAR, Iceland, Ireland, Israel, Italy, Japan, South Korea, Latvia, Lithuania, Luxembourg, Macao SAR, Malta, Netherlands, New Zealand, Norway, Portugal, San Marino, Singapore, Slovak Republic, Slovenia, Spain, Sweden, Switzerland, the United Kingdom, and the United States.

*Box 2. The Foundations of Good Economic Governance (continued).*

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_Source: https://www.imf.org/-/media/files/publications/dp/2021/english/egrsigea.pdf_