## ppea2023015 ## Source details **Canonical URL:** [ppea2023015](https://www.imf.org/-/media/files/publications/pp/2023/english/ppea2023015.pdf) ## Other formats - [Markdown version](/-/media/files/publications/pp/2023/english/ppea2023015.pdf.md) - [Structured JSON version](/-/media/files/publications/pp/2023/english/ppea2023015.pdf.json) --- ### EXECUTIVE SUMMARY — Framework, scope, and overall finding - The 2018 Framework comprises four elements: - (i) a systematic assessment of the nature and severity of corruption and governance vulnerabilities for all members; - (ii) the assessment of the economic impact of the identified vulnerabilities; - (iii) the provision of policy advice in circumstances where Fund engagement is justified; and - (iv) an assessment of measures designed to prevent transnational aspects of corruption. - Six state functions assessed as most relevant to economic activity: (i) fiscal governance; (ii) financial sector oversight; (iii) central bank governance and operations; (iv) market regulation; (v) rule of law; and (vi) AML/CFT. - Overall finding: Fund engagement has been broadly systematic, candid, effective, and evenhanded, while identifying areas for improvement. ### Governance vulnerabilities — prevalence and distribution - High corruption vulnerabilities are found in about 60 percent of the membership. - Fiscal governance: - 73 percent of members show deficiencies in one or more fiscal governance sub-functions. - Fiscal governance accounts for more than a quarter of identified vulnerabilities across the six state functions. - Other state functions: - Rule of law and the regulatory framework vulnerabilities apply to approximately 60 percent of the membership. - Weak financial sector oversight or AML/CFT vulnerabilities are identified in about 25–35 percent of the membership. - Weaknesses in central bank governance and operations are identified in only 10 percent of the membership. - Distribution by income: - Vulnerabilities in fiscal governance, regulatory frameworks, and the rule of law are identified in some 85–95 percent of low-income countries. - Similar vulnerabilities are identified in around 60–80 of emerging markets. ### Candid engagement — coverage, text analytics, and stakeholder perceptions - Text analysis: Comparing 2019–21 to 2015–17 shows a doubling of references to “corruption” in program reports and a tripling in surveillance documents. - Candor varies by state function: - Most candid: AML/CFT, central bank governance, fiscal governance, and rule of law. - Less candid/linking to corruption: market regulation weaknesses. - Sub-functions notably candid: AML entity transparency (beneficial ownership), preventive measures and criminal justice, fiscal transparency and procurement. - No discussions linking vulnerabilities to corruption were held about exchange restrictions, import licensing, trade facilitation, or public engagement in rule making. - Stakeholder survey highlights: - National authorities: Some 80 percent consider macro-critical governance and anti-corruption issues addressed in clear and direct language. - Country teams: More than 85 percent agree or strongly agree engagement has become more candid. - CSOs: Slightly more than 60 percent agreed engagement had improved in candor, effectiveness, and evenhandedness; a further 17.6 percent agreed it had improved but not sufficiently. - Survey response counts: 65/190 national authorities; 160/190 country teams; 49 CSOs. ### Effective engagement — discussions, implementation, and conditionality - Definition of effective engagement under the 2018 Framework: - (i) candid discussion of identified vulnerabilities; (ii) substantive discussion over the three-year surveillance cycle; (iii) specific recommendations and conditionality when critical to program success. - Article IV and program coverage: - Country teams held at least one substantive discussion in about 70 percent of cases where a state function is identified as vulnerable. - Considering Article IV discussions or program conditionality together, coverage ratios reach 80–90 percent. - By state function, substantive Article IV discussions on corruption-related, fiscal governance, and AML/CFT vulnerabilities occur in some 70–80 percent of identified cases. - Lower coverage (55–70 percent) for central bank operations, market regulation, or the rule of law. - Sample analysis (40 countries): - Substantive discussions of corruption vulnerabilities took place for almost 90 percent of the countries where high-level corruption was identified. - Where AML/CFT weaknesses were identified, teams provided explicit linkages to corruption and policy advice in 80 percent of cases. - Implementation levels: 60 percent for central bank governance; around 40 percent for other state functions; market regulation implementation only 2 percent where vulnerabilities were identified. - Sub-area implementation over 40 percent for fiscal transparency, property rights, PFM controls, investor protection, and procurement; generally over 75 percent for AML/CFT. - Implementation is significantly higher for low-income countries. ### Program conditionality — key statistics (Before Framework 2015–17 vs After Framework 2019–21) - Programs with Objectives in Specified Area (Before → After): - Fiscal: 98 88 - Financial Sector: 91 83 - Central Bank: 44 50 - Governance: 33 76 - Structural Benchmarks in Programs with Specified Objectives (share of all governance conditionality in respective area) (Before → After): - Fiscal: 100 100 - Financial Sector: 100 100 - Central Bank: 93 100 - Governance: 91 100 - Aggregate change in governance-related conditionality: - Governance-related prior actions rose from 21.2 to 29.0 percent. - Governance-related structural benchmarks rose from 30.6 to 37.8 percent. - Conditionality application where vulnerabilities identified (2019–21): - Prior actions established in about 10 percent of cases where a vulnerability existed and the country had a Fund-supported program. - Considering prior actions and structural benchmarks together, coverage rises to roughly 30 percent of such cases. - Variation across state functions: - Conditionality applied in about 40–60 percent of cases where fiscal governance, central bank governance, or the anti-corruption framework is deficient. - Conditionality applied in fewer than 10-25 percent of cases where vulnerabilities pertain to financial sector oversight, rule of law, or AML/CFT. - Conditionality applied in about 25 percent of market regulation vulnerability cases. - Compliance with governance-related benchmarks: - Compliance with governance-related benchmarks averages 45 percent. - Compliance rate for all structural benchmarks during 2019–21 was essentially the same. - Across state functions, compliance ranged from 10 percent for rule of law benchmarks to 50 percent for fiscal governance benchmarks. - Considering measures met within the test-date and those met with delay, conditionality was implemented in 66.7 percent of the cases. - Some measures were partially met in 22.2 percent of the not-met corruption-related structural benchmarks. - Composition of corruption-related benchmarks: - Prior to the 2018 Framework, 72 percent of measures were implementation-oriented. - After adoption, implementation-oriented measures represent 59.5 percent and measures oriented at strengthening the legal framework represent 40.5 percent. - Implementation-oriented conditionality compliance: 53.6 percent; legal reform-oriented: 46.4 percent. ### Pandemic emergency financing — governance safeguards and outcomes - COVID-19 emergency financing (March 2020–December 2021): 90 RCF/RFI requests from 78 members for more than $110 billion. - Governance commitments in emergency financing: - 76 percent of requests contain one or several governance commitments specific to the COVID-19 response. - Targeted audit of emergency spending: committed in 76 percent of requests. - Commitment to publish beneficial ownership information in procurement: 60 percent of all emergency financing requests. - Four members fulfilled prior actions specifically related to beneficial ownership transparency in procurement. - Implementation highlights (as of May 2022): - Publication of procurement contract information met in about two-thirds of members who committed. - About two-thirds fully implemented commitments to report pandemic-related spending. - Approximately half implemented commitments to audit pandemic-related spending and publish results online. - About twenty percent fully implemented commitments to provide beneficial ownership transparency in procurement; another fifty percent had taken important steps such as drafting legal changes. - Lessons: - Public tracking increases visibility and accountability. - Measures continuing or building on existing practices have higher implementation rates. - Civil society and SAIs play useful roles; targeted CD facilitates implementation. - Experience offers lessons beyond emergency spending (e.g., SAIs’ potential). ### Capacity development (CD), Governance Diagnostics (GD), and innovations - Governance and Anti-Corruption is one of six CD priority areas. - CD innovations after 2018 include country diagnostics, regional training, topical CD for pandemic risks, and direct anti-corruption and rule of law CD. - Diagnostics (GD): - GD examine severity of corruption, identify governance weaknesses across six state functions, and map sequenced, prioritized, time-bound recommendations. - To date: 15 diagnostics completed, six ongoing (21 countries delivered or being delivered). - Ten reports published out of 15 finalized. - 57 percent of recommendations across diagnostics focused on fiscal governance; 14 percent on anti-corruption frameworks; 10 percent on rule of law; 8 percent on AML; 4 percent on financial sector oversight; 3 percent on market regulation; 3 percent on central bank governance. - Early lessons: need better balance between tailoring and consistency; use GD systematically to inform and sequence reform priorities; ensure follow-up and integrate GD recommendations in CD delivery. - Anti-corruption CD resourcing and trends: - Direct anti-corruption CD increased but remains below expectations and insufficient to meet demand. - Deployment of long-term experts: a first long-term expert will be posted in AFRITAC South; another considered for MENA. - Donor support increasing; historical projection: increase from 1.1 percent of total CD delivery in FY19 to 1.8 percent in FY23 (or $4½-5 million in total) at 2020 Board update; expected amount for FY23 around $2 million. ### Collaboration with international organizations and CSOs - External partners leveraged: World Bank, UNODC, OECD, FATF, G20 Anti-Corruption Working Group, INTOSAI, regional MDBs, and development partners. - World Bank contributions: procurement expertise, CPIA, participation in GDs (e.g., Sudan), support on public procurement and SOE issues, StAR for asset recovery. - Examples of multi-partner collaboration: Ukraine (European Commission and USAID), Ecuador (UNDP and IADB), Zambia (World Bank, EU, GIZ), Paraguay (IADB). - Civil Society Organizations: - CSOs provided input and expertise across Fund workstreams; most country teams report interactions with CSOs, especially in LICs, FCS, and UCT program countries. - CSO requests: expand breadth of CSOs consulted, facilitate regular consultations, increase in-country dialogue, protect CSOs in shrinking civic space, and greater publicity/transparency of Fund governance work. - IMF Anti-Corruption Innovation Challenge: received over 120 proposals from more than 30 countries; four winners produced machine learning tools, procurement dashboards, blockchain wage bill solutions, and beneficial ownership detection tools. ### Transnational corruption assessments — scope, coverage, and findings - Voluntary assessments for transnational aspects: 13 countries volunteered since adoption of the 2018 Framework; coverage of eleven included in Article IV Staff Reports and remainder scheduled for 2023. - Scope: supply-side (bribery of foreign public officials in international business transactions) and facilitation (AML/CFT aspects to curb concealment of proceeds of corruption). - Coordination and sources: OECD Working Group on Bribery, FATF, UNCAC peer reviews. - Assessment conclusions: - Strengths exist, but shortcomings remain in enforcement, entity transparency, whistleblower protection, preventive measures for foreign PEPs, tracing/confiscation/repatriation of proceeds. - Facilitation findings: serious shortcomings in entity transparency; need to deepen analysis of transnational corruption risks; professional gatekeepers (lawyers, accountants) identified as enablers in many cases. - Supply-side findings: criminalization largely in place; decline in enforcement relating to foreign bribery in several countries; corporate liability laws strengthened in some jurisdictions. ### Evenhandedness, text analytics, and perceptions - No evidence of systematic biases in treatment of members using frequency of the word “corruption” in staff reports; frequency correlates strongly with perceived prevalence of corruption and correlation strengthened post-2018 Framework. - Conditional on WGI Control of Corruption index, income and regional dummy variables are statistically insignificant. - Stakeholder perceptions: - Majorities of national authorities agree or are agnostic that engagement is evenhanded. - Country teams address vulnerabilities at comparable rates across similarly situated countries, but more systematically with lower income countries. - Only 13 countries have volunteered for transnational corruption assessments — below expectations. ### Resources, costs, and FY24 expectations - Estimated annual Fund engagement cost on governance and anti-corruption efforts: about US$23 million annually since FY21. - Conceptual components include centralized assessments, brainstorming, staff engagement, FD reviews, CD, emergency financing governance, toolkit enhancement, FCS strategy implementation. - Centralized assessment not undertaken (except ad hoc updates) since FY20; a fresh round for entire membership will be undertaken after this Review. - Proposed gross additional resource need: 1.0 FTE for more systematic monitoring of governance-related policy advice and implementation; net additional costs constrained by a flat real budget; some costs may need external funding. ### Risks from non-engagement and operational risks - Risks from failing to engage: - (i) Reputational risk related to objectivity and credibility. - (ii) Engagement risk affecting traction of policy advice and program performance. - (iii) Potential credit risk if corruption undermines members’ capacity to repay the Fund. - Operational risks from implementation: - Increased strain on staff resources and well-being/safety risks. - Tackling corruption exposes authorities, CSOs, and possibly Fund staff to safety and security risks. ### Strengthening implementation — prioritized proposals - Conduct a fresh round of membership-wide assessments to track changes over time. - Maximize use of qualitative information from Article IVs, programs, GD, FSAPs, FSSRs, Central Bank Transparency Code, and capacity building. - Track Article IV recommendations and implementation more systematically by establishing a standardized process and central database. - Sustain and deepen voluntary coverage of transnational corruption assessments and develop a methodology to identify potential volunteer countries using international flows data. - Strengthen processes and collaboration: - Expand publication and use of GD, especially in high-risk environments. - Expand CD support through enhanced field presence of experts (e.g., AC/ROL) coordinated with IMF regional centers. - Strengthen collaboration with IFIs and regional stakeholders; expand CSO engagement nationally and at HQ. - Complete stock-taking of pandemic governance commitments and complement 2020 guidance to cover different emergency types; tailor safeguards and enhance CD to support implementation. - Integrate with other Fund priorities: - Leverage FCS Strategy, GovTech/digitalization, climate change analysis, and build on SAIs’ role. - Deepen work on rule of law and anti-corruption issues; strengthen judicial reform and independence emphasis where macro-critical. ### Political economy, ownership, and sequencing (Box 9) - Nature of challenge: entrenched vested interests, capture of policymaking, and complex corruption networks require political-economy-informed, tailored, sequenced reforms and broad reform coalitions. - Operational integration: - Use political economy analysis and political scientists in GDs (e.g., Zambia). - Integrate with FCS Country Engagement Strategies and forthcoming GovTech paper (FY24) to analyze digitalization benefits and risks. - Recommendations: - Leverage macro-structural work to advise on market regulation governance weaknesses. - Operationalize 2018 Policy across Fragile States, Climate Change, and GovTech. - Build upon SAIs and strengthen judiciary-focused reforms where macro-critical. ### Survey and consultation evidence — high-level outcomes - Country authorities’ survey (65/190): - Over 80 percent see candid, open, direct dialogue on macro-critical governance and anti-corruption issues. - Aggregate response on CD timeliness/usefulness: 49.2 Agree; 6.2 Disagree; 41.5 Not applicable; 3.1 No response provided. - Priority areas for enhanced engagement: financial sector oversight, AML/CFT, fiscal governance; preferred modalities: technical assistance/training and governance diagnostics; program conditionality least popular. - Country teams’ survey (160/190): - Over ¾ Strongly Agree/Agree that discussions are candid and that advice is tailored and concrete. - Top reform recommendations from country teams: Anti-corruption, AML/CFT, and PFM (excluding SOEs). - Key impediments to implementation: capacity constraints (55.8 percent), vested interests (48.7 percent), lack of ownership/commitment (38.1 percent). - Preferred modalities for enhanced engagement (average ranking scores): Increase technical assistance and training (4.3); Conduct and publish more governance diagnostics (3.7); Increase depth/coverage in Article IV (3.4); Conduct more voluntary transnational assessments (2.9); Establish more governance-related conditionality (2.8). - Civil society consultation (49 valid Phase I responses; Phase II follow-ups): - Majority of CSOs view IMF engagement as more candid, effective, and evenhanded since 2018, but call for more and deeper engagement with CSOs, more publicity and transparency, and expanded use of governance-related conditionality. *Source: REVIEW OF IMPLEMENTATION OF THE 2018 FRAMEWORK FOR ENHANCED FUND ENGAGEMENT ON GOVERNANCE (ppea2023015).* ### EXECUTIVE SUMMARY ### EXECUTIVE SUMMARY ### Framework and scope - The 2018 Framework comprises four elements: - (i) a systematic assessment of the nature and severity of corruption and governance vulnerabilities for all members; - (ii) the assessment of the economic impact of the identified vulnerabilities; - (iii) the provision of policy advice in circumstances where Fund engagement is justified; and - (iv) an assessment of measures designed to prevent transnational aspects of corruption. - Six state functions assessed as most relevant to economic activity: (i) fiscal governance; (ii) financial sector oversight; (iii) central bank governance and operations; (iv) market regulation; (v) rule of law; and (vi) AML/CFT. ### Overall finding - The Review finds that Fund engagement with member countries on governance and corruption has been broadly systematic, candid, effective, and evenhanded — the key goals under the 2018 Framework — while also identifying areas for improvement. ### Systematic engagement - Since adoption of the 2018 Framework, the full membership has been assessed at least once under a robust, centralized, interdepartmental process to identify corruption vulnerabilities and governance weaknesses linked to the six state functions. - Centralized assessments: - Rely on both quantitative and qualitative inputs. - Use information the staff already obtain, information from other institutions (notably the World Bank), and third-party indicators where necessary. - Identify which specific weaknesses within the six state functions warrant in-depth discussion with authorities and whether the anti-corruption framework warrants discussion. - Have been undertaken for every member at least once, with updates as necessary in several cases. - A fresh round for the entire membership will be initiated after the present Review. - Identified area for improvement: the process would benefit from more regular updates to incorporate more qualitative information gathered by staff. ### Candid engagement - There has been a marked increase in candid discussions of corruption and related governance vulnerabilities in staff reports. - Majorities of stakeholders (national authorities, country teams, and civil society organizations) acknowledge this progress. - Discussions have generally been most candid when vulnerabilities were identified in regard to AML/CFT, central bank governance, fiscal governance, and the rule of law. - Country teams seldom held substantive discussions concerning market regulation governance vulnerabilities. ### Effective engagement - Country teams held substantive discussions and provided specific policy advice over the three-year surveillance cycle for many identified vulnerabilities. - The proportion of governance-related conditions in Fund-supported programs has increased, with conditionality aligned with program goals. - Compliance rates for governance-related benchmarks are similar to those for other structural benchmarks. - COVID-related emergency spending governance commitments provide a concrete example of effective engagement. - Capacity development (CD) has been stepped up, leveraging existing CD and establishing new forms of delivery (e.g., governance diagnostics (GD)); a majority of national authorities, especially in emerging market and low-income countries, consider the Fund’s CD to be timely and useful. - Collaboration with other organizations, such as the World Bank, and civil society has increased. - Challenges to effectiveness include limited coverage of some state functions (e.g., market regulation) and implementation constraints related to limited capacity and vested interests. ### Evenhanded engagement - Majorities of national authorities agree — or are agnostic — that Fund engagement on governance issues is evenhanded. - Country teams address identified vulnerabilities at overall comparable rates across similarly situated member countries, but more systematically with lower income countries. - Thirteen countries have volunteered for the Fund to assess their frameworks for combatting transnational aspects of corruption — a number still below expectations. ### Proposals to strengthen implementation - Continue to be guided by macro-criticality and core expertise of the Fund, while mindful of competing demands on staff and limited resources. - To support systematic and evenhandedness objectives: - Regularly update the centralized assessment of the membership, maximizing use of qualitative information collected by staff. - Use updates to track improvements or backsliding in the quality of relevant state functions and the severity of corruption. - Continue efforts to secure more volunteers for assessment of transnational aspects of corruption and to deepen that coverage. - To achieve candid and substantive discussions more consistently across state functions (e.g., market regulation): - Exploit synergies with other work streams (e.g., the Fund’s macro-structural work). - Strengthen collaboration with the World Bank. - To enhance effectiveness, strengthen external interactions and internal processes, including by: - (i) further developing targeted CD in response to increasing demand from authorities; - (ii) implementing practical measures to enhance interactions and collaboration with other international organizations and civil society; - (iii) fine-tuning staff guidance on governance safeguards in emergency financing; - (iv) establishing mechanisms to improve monitoring of the implementation of governance-related AIV recommendations. - Effectiveness will also benefit from further integration with other Fund priorities and addressing substantive issues identified by this review, including: - (i) further integrating and exploiting synergies with other Fund priorities (e.g., Fragile and Conflict States, climate change, and digitalization/GovTech); - (ii) deepening work on rule of law and anti-corruption issues; - (iii) building upon the increasing role of supreme audit institutions (SAIs) in supporting anti-corruption efforts. ### Review basis and methods - The Review assesses whether Fund engagement has been systematic, candid, effective, and evenhanded and makes proposals to improve implementation. - Sources of information used include: - (i) machine-based text analysis of Article IV and program staff reports; - (ii) the Monitoring of Fund Arrangements (MONA) database of program conditionality; - (iii) information furnished by country teams and staff reports; - (iv) surveys of national authorities; - (v) surveys of mission chiefs; - (vi) consultation with civil society organizations; - (vii) review of experience of governance diagnostics (GD); and - (viii) in-depth case studies of 40 countries. *Source: EXECUTIVE SUMMARY — Review of Implementation of the 2018 Framework for Enhanced Fund Engagement on Governance (ppea2023015).* ### 8. Based on these assessments, departments collaborate to sharpen the staff’s advice on ### 8. Based on these assessments, departments collaborate to sharpen the staff’s advice on ### Governance weaknesses associated with corruption - High corruption vulnerabilities are found in about 60 percent of the membership. - Fiscal governance: - 73 percent of members show deficiencies in one or more fiscal governance sub-functions. - Fiscal governance accounts for more than a quarter of identified vulnerabilities across the six state functions. - Other state functions: - Rule of law and the regulatory framework vulnerabilities apply to approximately 60 percent of the membership. - Weak financial sector oversight or AML/CFT vulnerabilities are identified in about 25–35 percent of the membership. - Weaknesses in central bank governance and operations are identified in only 10 percent of the membership (may reflect relatively few detailed assessments to date). - Distribution by income: - Vulnerabilities in fiscal governance, regulatory frameworks, and the rule of law are identified in some 85–95 percent of low-income countries. - Similar vulnerabilities are identified in around 60–80 of emerging markets. ### Candid engagement (coverage and candor in staff reports and stakeholder perceptions) - Staff reports: - The 2018 Framework led to more explicit coverage of governance and corruption in staff reports. - Comparing 2019–21 to 2015–17 shows a significant doubling of references to “corruption” in program reports and a tripling in surveillance documents. - Candor varies by state function and sub-function: - Most candid: AML/CFT, central bank governance, fiscal governance, and rule of law vulnerabilities. - Less candid/linking to corruption: market regulation weaknesses (seldom linked to corruption). - Sub-functions with notably candid discussions: AML entity transparency (beneficial ownership), preventive measures and criminal justice, fiscal transparency and procurement. - No discussions linking vulnerabilities to corruption were held about exchange restrictions, import licensing, trade facilitation, or public engagement in rule making. - Stakeholders’ survey results: - National authorities: Some 80 percent of respondents consider that macro-critical governance and anti-corruption issues have been addressed in clear and direct language. - Country teams: More than 85 percent agree or strongly agree that the Fund’s engagement on governance issues has become more candid. - Civil Society Organizations (CSOs): Slightly more than 60 percent agreed that engagement had improved in candor, effectiveness, and evenhandedness; a further 17.6 percent agreed it had improved but not sufficiently. - Survey response counts: 65 out of 190 members responded to the national authorities’ survey; 160 out of 190 country teams responded to the country teams survey; 49 CSOs responded to the CSO survey. ### Effective engagement (implementation, recommendations, and conditionality) - Definition of effective engagement under the 2018 Framework: - (i) Candid discussion of corruption vulnerabilities and governance vulnerabilities associated with corruption identified through the centralized process. - (ii) Substantive discussion over the three-year surveillance cycle of identified vulnerabilities. - (iii) Where relevant, specific recommendations to address these vulnerabilities and conditionality when critical to program success. - Article IV consultations and compliance: - Country teams held at least one substantive discussion in about 70 percent of cases where a state function is identified as vulnerable. - When considering Article IV discussions or program conditionality together, coverage ratios reach 80–90 percent. - By state function, country teams report substantive Article IV discussions on vulnerabilities related to corruption, fiscal governance, and AML/CFT in some 70–80 percent of cases where these were identified as vulnerable. - Lower coverage (55–70 percent) for central bank operations, market regulation, or the rule of law when vulnerabilities were identified. - Sample analysis (40 countries): - Substantive discussions of corruption vulnerabilities took place for almost 90 percent of the countries where high-level corruption was identified. - Where AML/CFT weaknesses were identified, teams held substantive discussions with explicit linkages to corruption and provided specific policy advice in 80 percent of cases. - Implementation levels: 60 percent for central bank governance; around 40 percent for other state functions (except market regulation which was only 2 percent where vulnerabilities were identified). - Sub-area implementation over 40 percent for fiscal transparency, property rights, PFM controls, investor protection, and procurement (and generally over 75 percent for AML/CFT). - Implementation is significantly higher for low-income countries. ### Recommendations, common policy measures, and examples of advice - Country teams often make specific, country-tailored recommendations, particularly in fiscal governance, anti-corruption frameworks, and AML/CFT. - Sample recommendations: - Fiscal governance: - Enhance overall PFM, including by establishing a Treasury Single Account (TSA). - Enhance fiscal transparency through budget execution reports (including in-year) and information on public investment projects and off-budget operations. - Anti-Corruption: - Publish assets declarations of high-ranking public officials. - Introduce whistleblower protection. - AML/CFT: - Enhance AML/CFT compliance with measures for Politically Exposed Persons. - Increase transparency and accuracy of beneficial owner information. - Program conditionality: - Program conditionality is applied where measures are considered of critical importance for achieving program goals or monitoring program implementation; conditionality coverage varies by state function and is more frequent for fiscal governance, AML/CFT, and anti-corruption frameworks than for market regulation or the rule of law. *Source: REVIEW OF IMPLEMENTATION OF THE 2018 FRAMEWORK FOR ENHANCED FUND ENGAGEMENT ON GOVERNANCE, INTERNATIONAL MONETARY FUND.* ### Box 3. Outcomes in Bilateral Surveillance – Cambodia and the United States ### Box 3. Outcomes in Bilateral Surveillance – Cambodia and the United States ### Cambodia — Bilateral Surveillance Outcomes - Corruption risks and related governance weaknesses have been discussed over the medium-term surveillance cycle, consistent with the framework. - Article IV staff reports have extensively discussed corruption risks in 2018, 2019, and 2022. - Candid and substantive discussions with specific policy advice occurred notably: - in 2018 for fiscal governance, and - in 2022 for anti-corruption, the rule of law, and anti-money laundering measures to support anti-corruption efforts. - Recent Article IV staff reports noted progress in implementing past staff advice: - The 2019 staff report appendix on implementation of past Fund advice reported adopting a regulation abolishing some expenses previously considered informal payments to customs officers and the acceleration of land registration processes. - The 2022 staff report appendix indicated progress in improving fiscal governance with the introduction of medium-term budget framework, and PFM reform including drafting the new law on Public Finance System. - Annex VIII to the 2022 staff report includes a clear set of recommendations on anti-corruption and the rule of law to facilitate future follow-up by staff. ### United States — Bilateral Surveillance Outcomes - As part of voluntary policy advice, staff has been discussing transparency of legal entities starting in 2013. - Staff consistently raised the need to improve access to information about who ultimately owns and controls companies and trusts in Article IV consultations in 2013, 2014, 2016, 2019 and 2020. - Information from prosecutions and leaks of corporate documents identified widespread use of corporate entities and trusts to conceal corrupt practices and other financial crimes. - Developments since 2021: - The Corporate Transparency Act, passed in January 2021, requires companies operating in the United States to provide beneficial ownership information to the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN), the U.S. financial intelligence unit. - In September 2022, FinCEN issued implementing regulations providing procedures for reporting beneficial ownership information and for its disclosure to authorized agencies and financial institutions. - Progress and pending items have been reported in the 2021 and 2022 Article IV staff reports. *These two examples are included for illustrative purposes, among several other cases.* --- ### Program Conditionality — Key Findings and Statistics - Since adoption of the 2018 Framework, the proportion of Fund-supported programs with governance-related goals has increased. - Program-goal shares (Before Framework (2015-17) vs After Framework (2019-21)): - Programs with Objectives in Specified Area: - Fiscal 98 88 - Financial Sector 91 83 - Central Bank 44 50 - Governance 33 76 - Structural Benchmarks in Programs with Specified Objectives (share of all governance conditionality in respective area): - Fiscal 100 100 - Financial Sector 100 100 - Central Bank 93 100 - Governance 91 100 - Conditionality focus changes: - Governance-related prior actions rose from 22 to 31 percent of all prior actions. - Governance-related benchmarks rose from 31 to 38 percent of all structural benchmarks. - Alignment with program goals: - Before and after adoption, all fiscal and financial sector governance conditions were in programs with fiscal and financial sector reform objectives, respectively. - For central bank governance and governance conditionality, proportions increased from 93 and 91 percent, respectively, to 100 percent. - Application of conditionality where vulnerabilities identified (2019–21): - Across state functions, prior actions were established in about 10 percent of cases where the country is assessed as having a vulnerability in a state function and had a Fund-supported program. - Considering both prior actions and structural benchmarks, that percentage rises to roughly 30 percent of such cases. - Variation across state functions: - Conditionality is applied in about 40–60 percent of cases where fiscal governance, central bank governance, or the anti-corruption framework is identified as deficient. - Conditionality is applied in fewer than 10-25 percent of cases where governance-related vulnerabilities pertain to financial sector oversight, rule of law, or AML/CFT. - Conditionality is applied in about 25 percent of cases of market regulation vulnerabilities. - Compliance with governance-related benchmarks: - Compliance with governance-related benchmarks averages 45 percent. - Compliance rate for all structural benchmarks (governance and non-governance) during 2019–21 was essentially the same. - Across state functions, compliance rates ranged from 10 percent for rule of law benchmarks to 50 percent for fiscal governance benchmarks. - MONA statistics refer to structural benchmarks that were “fully met” on time (i.e., on the test date established for the measure). - Additional outcomes for corruption-related benchmarks: - When jointly considering benchmarks met within the test-date and those met with delay, conditionality was implemented in 66.7 percent of the cases. - Some measures were partially met in 22.2 percent of the not met corruption-related structural benchmarks. - Composition of corruption-related benchmarks: - Prior to adoption of the 2018 Framework, 72 percent of measures were implementation-oriented. - After adoption, implementation-oriented measures represent 59.5 percent and measures oriented at strengthening the legal framework represent 40.5 percent. - Implementation-oriented conditionality had slightly greater compliance than those oriented to legal reforms: 53.6 percent and 46.4 percent, respectively. --- ### Governance Commitments in Pandemic Emergency Financing — Experience and Lessons - At the outbreak of the COVID-19 pandemic, staff recognized increased risk of fraud and corruption in procurement and public spending where regular budgeting and controls were suspended. - Under the 2018 Framework, staff coordinated a Fund-wide approach encouraging governance commitments to limit corruption risk, including: - safeguard assessments, - audits, - procurement transparency, including publication of beneficial ownership of awarded companies. - The approach was summarized in the October 2020 staff guidance on addressing governance safeguards for emergency financing. - Measures were designed to allow rapid disbursement while promoting accountability and were tailored to country circumstances, corruption risks, and legal and institutional frameworks. - Practice examples: - In some cases third parties (reputable private firms) audited emergency spending; in others the country’s Supreme Audit Institution performed audits. - Takeaways from pandemic-related emergency financing: - Publicly tracking implementation raises visibility and accountability of the measures. - Measures continuing or building on existing practices have a higher implementation rate. - Civil society and other stakeholders can play a useful role in supporting implementation and follow-up. - Specific capacity development can be instrumental in facilitating implementation. - Experience offers lessons beyond emergency spending, e.g., on the potential of Supreme Audit Institutions to support anti-corruption efforts. --- ### Capacity Development — Activities and Innovations - The CD effort increased by leveraging long-standing support to state functions and developing new initiatives. - Governance and Anti-Corruption is one of the six-CD priority areas. - Existing programs on fiscal governance, financial sector oversight, and AML/CFT assisted in addressing governance vulnerabilities linked to corruption in key state functions. - Adoption of the 2018 Framework stimulated development of new CD activities, including: - country diagnostics, - regional training on governance and anti-corruption, - topical CD responding to corruption risks during the pandemic, - direct anti-corruption and rule of law CD. - Enhanced CD focus areas: - Fiscal governance CD: enhance fiscal transparency, improve public financial management, strengthen revenue administration, and promote digitalization of the government. - Central bank CD: strengthen central bank independence, decision-making, internal organization, and internal controls for operations. - Financial Sector Stability Reviews (FSSRs): identified financial sector oversight weaknesses in many LICs/FCS, with follow-up targeted technical assistance including on related-party lending. - Statistics CD: promoted transparency by improving the quality of data. - AML/CFT CD program: helped mitigate risks related to concealment of proceeds of corruption. - Diagnostics and specialized regional training: - GD help assess severity and nature of corruption, identify governance weaknesses and corruption vulnerabilities, and map out sequenced, prioritized, and time-bound recommendations. - To date, 15 diagnostics have been completed, and six others are ongoing. - In conjunction with RCDCs, staff developed and offered a course on Building Institutions to Fight Corruption delivered in training centers in Africa and the Middle East and a course enhancing corporate governance in Africa and CCA. - The 2022 High-Level Conference on the Promotion of Good Governance and Fight Against Corruption, held in Botswana, highlighted the interconnection between corruption, governance, and macroeconomic stability. *These two examples are included for illustrative purposes, among several other cases.* ### 30. Staff has also offered a tailored CD to assist the member countries in implementing ### 30. Staff has also offered a tailored CD to assist the member countries in implementing ### Capacity development and emergency spending governance - Staff offered tailored CD to assist member countries in implementing governance safeguards related to emergency spending. - During the COVID-19 pandemic, CD supported measures such as publication of beneficial ownership of procurement contracts and ex-post audit of COVID-related spending; these were provided to more than two dozen countries. ### Anti-corruption capacity development: trends and resourcing - Direct anti-corruption CD work has been picking up with implementation of the 2018 Framework, but remains below expectations and insufficient to meet demand. - Staff has been developing CD on anti-corruption frameworks and the rule of law, including drafting anti-corruption laws and regulations, design and implementation of asset declaration and conflict of interest systems, and supporting governance and effectiveness of anti-corruption institutions. - Deployment of long-term experts: - A first long-term expert will be posted in AFRITAC South. - Another long-term expert is considered for the MENA region. - These experts will coordinate with existing long-term experts on fiscal governance and AML. - Donor support has been increasing to finance this line of work; ongoing discussions indicate a high probability that available financial resources will rise toward meeting demand. - Historical resourcing note (from earlier projection and outcomes): - Projected increase from 1.1 percent of total CD delivery in FY19 to 1.8 percent of total in FY23 (or $4½-5 million in total) at time of 2020 Board update. - The expected amount for FY23 is around $2 million. ### Governance Diagnostics (GD) — objectives, coverage, and early lessons - Purpose and features: - GD examine severity of corruption and identify governance weaknesses and corruption vulnerabilities across the 2018 Framework’s six state functions. - All GD sought close engagement with other stakeholders, such as civil society and international partners. - Findings have been featured in subsequent Fund engagement, informed country teams in program design, and been used by authorities to plan and enact reforms. - Majority of GDs were undertaken in context of discussions for a new program or during an ongoing program. - Coverage and publication: - Out of the 21 countries for which diagnostics have been or are being delivered, 10 are FCS. - Ten reports were published, out of the 15 finalized. - All diagnostic reports consistently provide coverage of corruption vulnerabilities; some recent exercises included political scientists for added depth. - Diagnostic reports provide candid but uneven discussions of corruption vulnerabilities and time-bound policy recommendations with varying degrees of prioritization. - Early lessons: - Need better balance between tailoring GD to specific country circumstances and consistency. - Utilize GD more systematically to inform and sequence reform priorities. - Corruption risks in the six state functions guide scope of analysis and recommendations, particularly in FCS. - Prioritize and sequence reforms considering country circumstances and capacities. - Ensure consistent follow-up and integration of diagnostic recommendations in CD delivery. - Governance Diagnostic Assessments since 2018 (by year and country status as provided): - 2018: Republic of Congo (published) - 2019: Equatorial Guinea (published); Peru; Mozambique (published) - 2020: Honduras; Dem. Rep. of Congo (published); Guinea-Bissau (published); Zimbabwe - 2021: Moldova (published); Central African Rep. (published); Mali; Sudan - 2022: Paraguay (published); Zambia (published) - 2023: Sri Lanka (planned); Tunisia (ongoing); Benin (published); Mauritania (near completion); The Gambia (ongoing); Lebanon (ongoing); Cameroon (planned) - Source date for GD list: IMF staff, as of February 15, 2023. ### Collaboration with international organizations - Staff leveraged expertise of World Bank, UNODC, OECD (working group on bribery in international business transactions), FATF, G20 Anti-Corruption Working Group, and INTOSAI. - World Bank contributions: - Input integrated at multiple stages (e.g., CPIA, procurement expertise). - Routinely supports prioritization of areas of engagement, participates in governance brainstorming, and supports GD (e.g., Sudan). - Particularly helpful on public procurement and SOE issues; World Bank/UNODC Stolen Asset Recovery Initiative (StAR) valuable for asset recovery. - Operational-level collaboration expanded with regional MDBs and development partners for information-sharing, coordination of CD efforts, inputs for diagnostics and AIV, and operationalizing reforms. - Examples of multi-partner country-level collaboration: - Ukraine: European Commission and USAID on anti-corruption and judicial reforms. - Ecuador: UNDP on anti-corruption legal reforms and IADB on AML/CFT. - Zambia: World Bank, European Union, and GIZ on governance diagnostic and PFM/judiciary funding work. - Paraguay: IADB participation in governance diagnostic. - Papua New Guinea: EU and UNDP on ECF and AIV. - Democratic Republic of Congo: local IBRD and UK FCDO staff engagement. - Challenges in collaboration: - Collaboration particularly effective in LICs, FCS, and countries with UCT programs/high governance vulnerabilities. - Some staff note time spent on coordination, non-timely responses from counterparts, and non-alignment with Fund priorities in CD delivery by other organizations. ### Collaboration with Civil Society Organizations (CSOs) - CSOs provided input and expertise on country-specific and global governance and anti-corruption issues across Fund workstreams; served as interlocutors for surveillance, program, and GD missions. - Most country teams report interactions with CSOs, especially in LICs, FCS, and countries with UCT programs or high perceived governance vulnerabilities. - Examples of extensive CSO engagement: Ecuador, Brazil, Ukraine. - Central-level engagement includes input on draft publications, participation in international conferences, periodic consultations, and organization of the Anti-Corruption Innovation Challenge. - During COVID-19 crisis, management and staff maintained active dialogue with several CSOs on governance challenges and emergency financing. - CSO recommendations included expanding breadth of CSOs consulted nationally, facilitating regular consultations, increasing in-country mission dialogue, more outreach on Fund mandate/work, and policies to protect CSOs in shrinking civic space contexts. - CSOs called for greater publicity and transparency of Fund governance/anti-corruption work and greater use of conditionality in these areas; highlighted value of efforts around beneficial ownership transparency and COVID-19 audits. - Definition: Civil Society Organizations include nongovernmental organizations, business forums, social movements, academics, research centers, and think tanks. ### IMF Anti-Corruption Innovation Challenge — four winning proposals - Objective: spotlight governance vulnerabilities, create behavioral change using digital solutions, and increase transparency and accountability. - Launched during 2019 IMF Annual Meetings with funding from SECO; received more than 120 proposals from more than 30 countries; four winners chosen: 1. Joining the Dots with Public Officials: Cross Matching Beneficial Ownership and Financial Disclosures Data to Identify Red Flags. Machine learning tool piloted in Colombia and implemented in Nigeria to generate red flags on corruption risks associated with politically exposed persons. 2. Public Procurement Corruption Risks: Harnessing Big Data for Better Fiscal Governance and Growth. Dashboard assessing procurement corruption risks; team published an IMF working paper and Technical Note and Manual. 3. Enhancing Transparency in Wage Bill Practices: Leveraging Blockchain. Led by Guinea-Bissau authorities; implemented with IMF and Ernst and Young technical assistance and developmental partner financing to access reliable personnel and salary information and prevent wage bill leakages. 4. Optimizing the Detection of Beneficial Ownership of High-risk Firms in Brazil. Tool piloted to automate detection of shell companies in public procedures and their potential beneficial owners; identified red flags, including among firms awarded under emergency spending. ### Stakeholders’ views and survey results - General assessment: - Majority of stakeholders (national authorities, country teams, CSOs) agree the Fund’s engagement on governance has become more effective since adoption of the 2018 Framework. - Over 70 percent of national authorities who responded to the survey agree or strongly agree that the Fund’s involvement in governance and anti-corruption issues has positively impacted their country and provided tailored, concrete, and granular policy advice. - Around 65 percent of country teams agree or strongly agree that the Fund’s engagement on governance issues has become more effective; share of ‘strongly agree’ larger in FCS, LICs, and countries with UCT programs. - More than two-thirds of CSOs indicated that the Fund provided more specific, concrete, and actionable policy advice. - CSOs recommended expanding consultations, regular consultations, and greater use of conditionality; recognized importance of beneficial ownership transparency and COVID-19 audits. - National authorities’ views on CD timeliness/usefulness: - Survey respondents: 65/190. - Aggregate response (percent): 49.2 Agree; 6.2 Disagree; 41.5 Not applicable; 3.1 No response provided. - Regional (percent) breakdown rows shown in figure: AE 29.6; EM 66.7; LIC 3.7; (other row values displayed: 62.1, 13.8, 24.1, 66.7, 22.2, 11.1 — presented in the original figure context). - Modalities of further engagement (ranking results summarized in Figure 7): - Emerging markets and LIC authorities rank topical technical assistance and training somewhat higher than overall GD, followed by in-depth Article IV discussions and recommendations; program conditionality least popular. - Country teams' responses echo authorities’ preferences. ### Implementation challenges and impediments (Box 7) - Common impediments grouped in three areas: - Lack of ownership: - Fragility, conflict, political instability, postponed elections, fragmented political environments hamper government determination to implement reforms. - Support and buy-in from other stakeholders may be limited or suppressed; lack of “political will” hampers addressing transnational corruption. - Vested interests: - Entrenched resistance by bureaucratic or economic elites sustaining economic rents. - Capture of the state or branches (e.g., judiciary, parliament), agencies, or systemically important SOEs; pressures on civic space or limits on access to information. - Capacity constraints (member countries and Fund staff): - Capacity gaps aggravated where ownership is weak and vested interests strong. - Fund staff may lack in-house expertise on certain state functions or elements (e.g., market regulation, procurement) or face difficulties leveraging other international organizations. - Competing priorities affect prioritization and resource allocation for areas demanding more staff expertise (e.g., fiscal governance, AML/CFT, anti-corruption). - Capacity constraints identified by stakeholders (percent) — as presented: - Country Teams: 71 Capacity constraints; 71 Vested interests; 47 Lack of ownership/commitment; 20 Other (please specify); 27 Capture of the judiciary; 27 Capture of the legislature; 13 Lack of international cooperation/transnational weaknesses. - National Authorities: 50 Lack of ownership; 33 Capacity constraints; 25 Conflict / Instability; 8 Other. ### Evenhanded engagement - Analysis and stakeholders generally agree the Fund’s engagement on governance has been broadly evenhanded. - The number of countries that volunteered for an assessment of transnational aspects of corruption in the context of Article IV is 13 to date, which is below expectations. *Source: IMF staff, extracted from ppea2023015 (Review of Implementation of the 2018 Framework for Enhanced Fund Engagement on Governance), IMF staff, as of February 15, 2023.* ### 40. The identification of governance and corruption vulnerabilities is undertaken for the ### ppea2023015 - 40. The identification of governance and corruption vulnerabilities is undertaken for the ### Identification process and evenhandedness - Identification of governance and corruption vulnerabilities is undertaken for the entire membership by an interdepartmental working group. - Staff relies on best practices and, where available, international standards as part of its policy advice. - Coverage of governance issues: - Broadly even across the membership in terms of substantive Article IV discussions and specific recommendations, conditional on identified vulnerabilities (Figures 3, 4). - Uneven by state function (e.g., fiscal governance versus market regulation), but not by income group or region for similarly situated countries with respect to a given weakness. - Evenhandedness in policy advice is supported by reliance on internationally recognized standards and good practices (e.g., criminal law framework advice draws from international norms and good practices; see Box 8). - In areas such as fiscal transparency or public investment management, staff draw on existing codes and assessment tools that provide value-for-money and accountability benefits and reduce vulnerabilities to corruption. ### Evidence on evenhandedness and text analytics (Figure 8) - No evidence of systematic biases in treatment of members using a crude indicator—the frequency of the use of the word “corruption” in staff report texts. - Specific findings: - The frequency of the use of the word “corruption” is strongly correlated with perceived prevalence of corruption. - This correlation becomes (statistically significantly) stronger following the adoption of the 2018 Framework. - Conditional on the World Governance Indicator (WGI) corruption index, income level- and regional-dummy variables are all statistically insignificant, implying no systematic biases (BP I-2). - Stakeholder mechanism: - National authorities have never raised concerns related to the Fund’s engagement on corruption or governance issues through the ‘evenhandedness mechanism’ (in existence since 2017). ### International standards and criminal law reforms (Box 8) - Criminal law enforcement is recognized by the 2018 Framework as central to any effective anti-corruption strategy. - Effective criminal law frameworks must: - Adequately lay out substantive corruption offenses and applicable penalties. - Establish procedures for criminal law proceedings. - International norms and standards drawn on by staff include: - United Nations Convention Against Corruption (UNCAC). - Financial Action Task Force (FATF) standards—the global standard for AML/CFT. - Evaluations of compliance against these standards provide useful information to staff. - Examples of criminal law reforms in Fund-supported programs: - Afghanistan, Equatorial Guinea, Suriname — amendments to the Penal Code to ensure adequate criminalization of corruption offenses. - Moldova — amendments to the Penal and Criminal Procedure Codes to support effective prosecution and adjudication of corruption cases. - Serbia — requiring amendments to the Tax Procedure and Penal Codes to broaden investigative powers of tax authorities. - Ukraine — amendments to AML/CFT Law and Penal Code to ensure effective use of AML/CFT tools to support anti-corruption efforts. ### Transnational corruption: assessments and findings - Voluntary assessments in the context of surveillance of efforts to prevent transnational corruption: 13 countries have volunteered over the five years since the adoption of the 2018 Framework, with coverage of eleven already included in Article IV Staff Reports and the remainder scheduled for 2023. - Scope of assessments: - Framework against bribery of foreign public officials in international business transactions. - Aspects of AML/CFT frameworks that seek to curb concealment of proceeds of corruption by foreign officials. - Coordination and sources: - Discussion conducted in coordination with the Organization for OECD and the FATF. - Staff relied on reports of implementation of: (i) the FATF AML/CFT standards relevant to facilitation of corruption and concealment of its proceeds, and (ii) the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions; for non-signatories, assessment based on the peer review under the UNCAC. - Assessment conclusions: - Overall strengths identified, but shortcomings remain to enhance fight against transnational corruption. - Supply-side issues: assessed countries have criminalized bribery of foreign officials and are implementing policies to prevent multinational bribery, but significant weaknesses remain. - Corporate liability laws strengthened or issued; explicit prohibition of tax deductibility of bribes in some countries. - Whistleblower protection: introduced in some countries, but OECD Anti-Bribery reports indicate this remains weak for many. - Enforcement: staff reports reveal a continued decline in enforcement relating to foreign bribery, including in countries that used to enforce actively. - Facilitation/concealment: legal frameworks and overall enforcement against money laundering from foreign proceeds show strengths, but needs remain to: - Deepen analysis of transnational corruption risks. - Enhance entity transparency by making beneficial ownership publicly available. - Strengthen implementation of preventive measures related to foreign politically exposed persons. - Strengthen efforts to trace, confiscate, and repatriate foreign proceeds of corruption. ### Stakeholders’ views - Most respondents agree or are agnostic that the Fund has addressed governance and corruption issues evenhandedly, though a few raise concerns: - About half of national authorities responded that they agree or strongly agree that engagement has been evenhanded, while a further 40 percent are agnostic. - Note: low response rate (1/3) and responses skewed to AEs. - Authorities that disagreed are mostly from countries with high perceived governance and corruption vulnerabilities and who feel the Fund does not engage sufficiently on governance issues when it comes to advanced economies. - Three emerging market countries and one low-income country responded as “disagree.” - Country teams: most consider engagement evenhanded, but a small proportion (mostly covering low-income members or those with UCT programs or high perceived corruption vulnerabilities) disagree, citing an overemphasis on governance issues in these countries relative to others. - 5 EMs and 14 LICs country teams responded as “disagree” or “strongly disagree.” ### Resources and costs - Estimated annual Fund engagement cost on governance and anti-corruption efforts: about US$23 million annually since FY21. - Departmental spending estimates provided in Fund-wide surveys since FY21 as part of the budget process. - Conceptual components of the estimate include: (i) Review of the 2018 Framework (ii) The Interdepartmental Working Group’s centralized assessment of governance vulnerabilities for the whole membership (iii) Brainstorming sessions and other functional department support to set priorities and plan governance-related discussions (iv) Staff engagement with national authorities on governance issues in surveillance or program contexts (v) Functional departments’ review of surveillance and program documents, support for developing policy advice and specific recommendations, and following up on related conditionality (vi) Capacity development (GD; topical technical assistance and training) (vii) Implementation, review, and reporting on Emergency Financing governance commitments (viii) Enhancement of the toolkit for engagement on governance issues (ix) Implementation of the FCS strategy - Not all activities performed every year; centralized assessment not undertaken (except ad hoc updates) since FY20. - FY24 expectations and resourcing: - Some governance-related costs will be higher in FY24 due to a fresh round of assessments, and surveillance and demand for CD picking up post-pandemic. - A fresh round of assessments of governance vulnerabilities will be undertaken for the entire membership following completion of this Review. - Staff propose enhancements to the toolkit with an estimated gross additional resource need of 1.0 FTE for more systematic monitoring of governance-related policy advice and its implementation. - Net additional costs must be weighed against competing pressures in a flat real budget and may need to be absorbed through re-prioritization of activities. - Specialized nature of some governance-related work (notably in FAD, FIN, LEG and MCM) limits resources that can be freed by re-prioritization. - Demand for Capacity Development in governance diagnostics and technical assistance is expected to pick up post-pandemic but is difficult to predict; these costs may need external funding. ### Risks from non-engagement and operational risks - A failure to engage on governance issues per the 2018 Framework would expose the Fund to: (i) Reputational risk related to objectivity and credibility vis-à-vis civil society and the public at large. (ii) Engagement risk with the membership affecting traction of policy advice and conditionality, and related risks to the performance of Fund-supported programs. (iii) Potential credit risk if corruption and poor governance undermine members’ capacity to repay the Fund. - Implementing the recommendations would have enterprise operational risks: - Exacerbating strain on already stretched staff resources, increasing well-being and safety risks. - Tackling corruption exposes national authorities and civil society to safety and security risks; risks could potentially impact Fund staff as well. ### Strengthening implementation — proposed measures - Conduct a fresh round of membership-wide assessments of corruption and governance vulnerabilities: - Initial round conducted in 2018–19; ad hoc updates since then; now time for a fresh round for the whole membership to track changes over time. - Maximize use of qualitative information collected by staff: - Incorporate information from Article IV consultations and programs, GD, FSAPs, FSSRs, Central Bank Transparency Code, or capacity building to fill gaps across state functions. - Track more systematically Article IV recommendations and their implementation: - Establish a standardized process to enable country teams to better track governance-related policy advice and its implementation. - Collect information at the time of the Article IV mission and compile in a database to identify obstacles to implementation and plan further policy advice and technical assistance (see Annex for details). - Sustain and deepen voluntary coverage of transnational aspects of corruption in bilateral surveillance and step up calls and awareness raising to encourage more members to volunteer for such assessments: - Deepen discussions on key vulnerabilities such as: (i) Understanding of transnational risks of bribery of foreign public officials and laundering of proceeds of corruption of foreign public officials. (ii) The role of potential enablers such as lawyers and accountants. (iii) Enforcement. (iv) Entity transparency and beneficial ownership. (v) International cooperation and asset recovery. - Address key obstacles identified in implementing the 2018 Framework (Box 7) to strengthen effectiveness, including better leveraging processes and collaboration with stakeholders and securing ownership and authorities’ support at the highest levels. - Strengthening processes and collaboration — specific proposals: - Expand publication and utilization of GD, especially in high-risk environments, and leverage GD to inform Article IV recommendations, program design, capacity building, and country engagement strategies. - GD can provide holistic coverage, consider political economy, analyze networks of corruption, and be improved by enhancing consistency and monitoring recommendations; willingness of authorities to publish the GD report will be a factor in prioritizing GD requests. - Expand CD support through enhanced field presence of experts in relevant areas (e.g., AC/ROL) in coordination with IMF regional centers to integrate CD with surveillance and program engagement and tailor recommendations to country circumstances. - Strengthen collaboration with IFIs and other international and regional stakeholders, expand breadth of organizations to minimize duplication and take advantage of synergies, and analyze lessons from IMF-World Bank collaboration on governance and corruption. - Increase engagement with CSOs: - Engage more frequently on governance and corruption issues with civil society at HQ and in the field by identifying governance- and corruption-focused events and exploiting synergies with IMF events and missions. - Expand the base of CSOs engaged by identifying local counterparts and interlocutors and conduct outreach (local/regional workshops; digital contacts) to explore how CSOs can complement and amplify the Fund’s work. - Complete stock-taking of, and draw lessons from, implementation of governance commitments in pandemic-related emergency financing and consider enhancements: (i) Complement the 2020 guidance to consider safeguards to mitigate corruption risks in different types of emergencies beyond COVID-19 spending. (ii) Further tailor governance safeguards to country circumstances. (iii) Enhance ability to support implementation with timely and targeted CD, identifying specific capacity gaps and needs. (iv) Leverage country ownership and external stakeholders such as CSOs. (v) Support country efforts to strengthen governance measures, particularly transparency and accountability related to crisis-related spending, and preparedness of anti-corruption and governance frameworks for climate-related challenges and exogenous shocks. *Source: REVIEW OF IMPLEMENTATION OF THE 2018 FRAMEWORK FOR ENHANCED FUND ENGAGEMENT ON GOVERNANCE (excerpt).* ### Box 9. Political Economy Analysis and the Ownership of Anti-Corruption Reforms ### Box 9. Political Economy Analysis and the Ownership of Anti-Corruption Reforms ### Nature of the challenge - Achieving a lasting reduction in corruption is a large challenge; corruption dynamics can be pernicious and complex (e.g., in fragile and conflict states, in presence of powerful oligarchs or organized criminal organizations, interwoven with political patronage, etc.). - Where policy making has been captured by elite interests, addressing corruption poses special challenges: hard-won gains by individual reform champions can be undermined and rolled back by systemic resistance and opposition. - Effective strategies rest on analysis of the nature, severity, and risks of corruption, including mechanisms by which corruption takes place and incentives to change prevailing practices. - Confronting capture of policy making processes requires different strategies and skills than fighting corruption at the institutional or transactional level. ### Political-economy-informed sequencing and ownership - Sustained mitigation of systematic corruption requires a tailored and sequenced approach mindful of political economy realities. - Overcoming entrenched interests requires extended efforts over time and from multiple entry points, while building reform coalitions across government, the private sector, and citizens. - For Fund staff, progress often requires ownership and support from the highest level (e.g., President, Prime Minister) and engaging non-traditional counterparts, such as Ministries of Justice. - Key elements to consider in analysis and reform design: - vested interests, patterns and distribution of corruption networks, and extent of elite capture of institutions; - behavioral and institutional incentives; - nature of civic space; - capacities and feasibility to sequence reforms and build ownership; - anticipation of active resistance and/or evolution in power structures (e.g., a change of leadership, or discovery of natural resources). - Facilitate, in line with international standards, investigation and prosecution of laundering of proceeds of domestic corruption in transit and destination countries, complementing domestic efforts. ### IMF operational integration and examples - IMF staff is increasingly integrating political economy work into operationalization of the 2018 Framework. - Making use of insights from political scientists has helped consider local conditions, incentives, and sequencing in recent Governance Diagnostic Assessments, including for Zambia. - Political economy of governance and corruption is central to drivers of fragility analysis underpinning Country Engagement Strategies initiated in the FCS Strategy. Such analyses can help enhance staff’s work with authorities to foster country-owned reforms and their implementation. ### Recommendations to strengthen the Fund’s engagement on governance and anti-corruption - Leverage ongoing analytical work on macro-structural issues to advise country teams on market regulation-related governance weaknesses and policy advice, identifying reform options that help reduce the scope for rent-seeking, level the playing field, and facilitate a more efficient, inclusive, and business friendly functioning of economies. - Operationalize the 2018 Policy in the Fund’s approach to emerging issues (e.g., Fragile States, Climate Change): - Leverage the FCS Strategy. The FCS Strategy identifies poor governance and corruption as a potential driver of fragility and institutional weakness. Where governance and corruption vulnerabilities are identified as macro-critical, FCS teams can discuss ways to address them in the Country Engagement Strategies, for example by building on GD, exploring the application of “corruption-filters”, making greater use of technology to support improvements in governance and public sector effectiveness, and providing continuous capacity development support tailored to the FCS-context to build institutional competencies and individual skills. The 2022 FCS Strategy covers the role of governance and corruption challenges in FCS and guidance for staff is provided in the 2023 Staff Guidance Note on the Implementation of the FCS Strategy. - Further explore the potential for GovTech/digitalization to close opportunities for corruption. A few early reflections will be included in the forthcoming paper on GovTech for the Executive Board (FY24), which will discuss how rapidly evolving digitalization—which accelerated during the pandemic—is transforming government fiscal operations and policies. The paper will analyze the benefits (including lower leakages and better revenue collection) and risks of this digital transformation and elaborate on the components of a strategy to make it successful. It will touch on capacity development and recent innovations in this activity. - Climate change: the rising macro-economic importance of climate change and public policies for mitigation and adaptation will need to be reflected in the Fund’s engagement on corruption and governance issues. Attempts to unduly influence the design and implementation of climate policies (such as regulations, public investments, subsidies, tax incentives or carbon-offset mechanisms) for private gain could endanger the effectiveness of the response and potentially derail national authorities’ entire policy agenda. The Fund’s work will increasingly need to be informed by analysis of opportunities for corruption, existing power structures and vested interests, and threats to reform traction. This approach would assist in identifying and mitigating corruption risks in introduction of sustainable policies and utilization of funds for mitigating, and increasing resilience to, climate change. - Going forward, where macro-critical, advice would be provided to country teams on governance issues in the design, adoption, and implementation of climate-related reforms, with special focus on risks in countries with weak governance and sectors that have been associated with corruption vulnerabilities. Various tools (e.g., GDs, Climate-PIMA, etc.) will be used to inform surveillance and Fund-supported programs. Staff will explore ways Fund engagement could help authorities address corruption and governance challenges that impede private investment in climate change adaptation and mitigation infrastructure and technologies on a scale commensurate with the need, including using the Fund’s convening power to facilitate shared understanding between country authorities and investors of anti-corruption measures needed to mitigate investors’ risks (including operational and reputational). - Build upon the increasing role of accountability institutions (e.g., SAIs). More systematic use of audit reports and enhanced attention to ensure SAIs can fulfill their function in liaison with other accountability and enforcement agencies. The COVID-19 response experience demonstrated SAIs’ growing potential to hold institutions and individuals to account, including for corrupt activities. Importance of robust accountability infrastructure: access to public information, space for civic dialogue and participation, and strong, independent institutions with authority to examine and act. - Strengthen implementation of the framework regarding judicial reform, with greater emphasis on institutional reforms to address judicial independence and integrity. The quality of the judiciary is critical for enforcement of anti-corruption policies and other governance elements. Where corruption is systemic, courts may themselves be corrupt. Staff will continue strengthening focus on the quality of the judiciary as a key pillar of governance reforms, including frameworks to ensure independence and integrity of judicial officers and functioning of the judiciary, mindful of domestic realities and constraints including in the FCS context, and collaborating with specialized organizations. - Explore further synergies with Fund work on other salient topics including: - misuse of digital money/crypto currency; - Illicit Financial Flows generated by corruption; - related Fund initiatives (e.g., Central Bank Transparency Code); - the use of GovTech to reduce rent-seeking behavior; - inequality, where exacerbated by corruption. ### Issues for discussion - Staff proposes that the next Review be conducted in 5 years. An Interim Update could be considered in 2–3 years once experience has been gained with the new round of assessments and the staff’s proposed enhancements. - Questions for Executive Directors: - Do the findings resonate with Directors and their authorities? Do Directors consider that the 2018 Framework has helped the Fund’s engagement on governance issues to be candid, systematic, effective, and evenhanded? - What opportunities and challenges do Directors see for maintaining and deepening the Fund’s engagement on governance issues, against the backdrop of competing pressures for staff resources and authorities’ bandwidth? - Do Directors agree with the proposed steps above to strengthen the implementation of the 2018 Framework? - Do Executive Directors support the idea of an interim update in 2–3 years? - Do Executive Directors have further suggestions? ### Follow-up on Article IV recommendations (high-level points) - Follow-up on the status of previous Article IV recommendations on governance is encouraged but done in different formats; country teams follow up selectively and not in a standardized format. - A sampling of 20 staff reports (from among the 40 case-study countries) shows nine country teams reported the status of governance-related recommendations in a matrix table describing authorities’ responses. - Example of good practice: the staff report for Cambodia (2022 Article IV consultation) presented a detailed status of previous governance-related recommendations as part of an annex. The annex included progress on fiscal governance reforms (e.g., introduction of medium-term budget framework (MTBF), PFM reform including drafting the new law on Public Finance System (PFS), FMIS rollout, public procurement system reform 2019–25, budget system reform strategy for sub-national administration 2019-25, and public investment management system reform 2019–25) and on corruption-related measures (e.g., dissolution of CAMCONTROL and KAMSAB from all border checkpoints and ports; launch of the Cambodia Data Exchange Platform (CamDX) and online business registration platform; ACU activity; draft whistleblower protection legislation submitted to the Ministry of Justice). - Future plans: staff plans to capture more systematically governance-related Article IV recommendations and their implementation status across the membership, recording follow-up in a central database to better identify obstacles to implementation and plan future policy advice and capacity development. *Source: ppea2023015 - Box 9. Political Economy Analysis and the Ownership of Anti-Corruption Reforms* ### 1. Staff Reports Analyzed – by Year and Type ____________________________________________________ 10 ### 1. Staff Reports Analyzed – by Year and Type ### Governance-related conditionality in Fund-supported programs — Methodology - MONA database searched for governance-related structural conditionality (prior actions and structural benchmarks) over the three years before the 2018 Framework (2015–17) and the three years after (2019–21). - Conditions classified into six state functions (and anti-corruption frameworks); average compliance rate (“fully met” structural benchmarks) calculated for each state function. - Program goals mapped to state functions: fiscal revenue and expenditure policy or public expenditure management → fiscal governance; financial sector reform → financial sector governance; central bank reform → central bank governance; governance (anti-corruption laws, excl. public expenditure control) → anti-corruption frameworks. ### Governance-related conditionality — Key findings - Program goals: - Small decrease in the share of programs whose specific goals included fiscal and financial sector reforms between pre- and post-Framework periods. - Substantial increases in programs whose goals included central bank reforms and improving anti-corruption frameworks. - Aggregate change in governance-related conditionality (pre- to post-Framework): - Governance-related prior actions (in proportion to all prior actions) rose from 21.2 to 29.0 percent. - Governance-related structural benchmarks (in proportion to all structural benchmarks) rose from 30.6 to 37.8 percent. - Distribution of governance-related conditionality: bulk pertains to fiscal governance, anti-corruption frameworks, and central bank governance and operations; fewest concern the rule of law. - Program goals–conditionality alignment: high degree of alignment between inclusion of governance-related conditionality and specific program goals, even before the 2018 Framework. - Application of conditionality by identified vulnerability (2019-21): - Around 60 percent of cases where fiscal governance is identified as vulnerable to corruption have at least one program condition. - About 40 percent of identified vulnerabilities in central bank operations or anti-corruption frameworks have conditionality applied. - Rule of law: conditionality applied in only about 10 percent of cases. - On average, conditionality is applied in some 30 percent of cases of identified vulnerabilities. - Compliance: - Compliance rates for governance-related structural benchmarks are comparable to other structural benchmarks on average. - Differences across state functions: Anti-Corruption, Rule of Law, and AML/CFT show noticeably lower compliance rates. ### Table-level statistics (Before and After Framework) - Aggregate totals: - Total Governance SBs and PAs: Before Framework (2015-17) Total SBs 445 30.6% / Total PAs 61 21.2%; After Framework (2019-21) Total SBs 434 37.8% / Total PAs 59 29% - By state function (Before → After; each entry: Total SBs In % of Total SBs Total PAs In % of Total PAs): - Fiscal Governance: 285 19.6% 30 10.4% → 252 22.0% 28 14% - Central Bank Governance and Operations: 27 1.9% 7 2.4% → 41 3.6% 14 7% - Financial Sector Oversight: 41 2.8% 12 4.2% → 32 2.8% 5 2% - Regulatory Framework: 26 1.8% 5 1.7% → 32 2.8% 2 1% - Corruption: 25 1.7% 2 0.7% → 42 3.7% 4 1% - AML/CFT: 19 1.3% 2 0.7% → 21 1.8% 2 1% - Rule of Law: 22 1.5% 3 1.0% → 14 1.2% 8 4% - Program counts and share of objectives: - Number of Programs: 1st Period (2015-2017) 45; 2nd Period (2019-2021) 42. - Share of Program Objectives (Fiscal, Financial Sector, Central Bank, Governance): - 1st Period (2015-2017): 98% fiscal; 91% financial sector; 44% central bank; 33% governance. - 2nd Period (2019-2021): 88% fiscal; 83% financial sector; 50% central bank; 76% governance. - ‘Fully Met’ structural benchmarks by state function (Before → After): - Fiscal: 100 100 - Financial Sector: 100 100 - Central Bank: 93 100 - Governance: 91 100 --- ### Coverage of governance and corruption issues in IMF staff reports — Approach - Text analysis performed across more than 9,000 staff reports from 1979 through August 2022, covering bilateral surveillance (Article IV and Selected Issues Papers) and lending (Fund arrangement requests and reviews, including emergency financing reports). - Text mined for the terms "governance" and "corruption." Search terms specific to any of the six state functions were not queried. - Analysis distinguishes between the three years 2015–17 (pre-Framework) and the three years 2019–21 (post-Framework); 2018 excluded. - Raw word count normalized by assuming a standard document length of 10,000 words. - Machine-based text analysis used for large-sample trend detection; caution advised against overinterpreting year-to-year variation. ### Text analysis — Key findings - Frequency (overall trend): - Usage of governance-related terms ('governance' and 'corruption') increased after the adoption of the 1997 policy, declined, then rose sharply (especially in surveillance documents) following the introduction of the 2018 Framework. - Document type and income groups: - Increased usage occurred in both surveillance and program documents and across the membership, with little difference across income groups. - Correlation with perceived corruption: - Frequency of governance-related terms in staff reports correlated more closely with perceived level of corruption after the introduction of the 2018 Framework (both in surveillance and programs). - The change (increase) in the use of the word ‘corruption’ in staff reports following the adoption of the Framework is strongly correlated with a country’s perceived level of corruption. - No systematic bias: - Controlling for perceived corruption, dummy variables for income groups and geographical region are statistically insignificant in the post-Framework period, indicating absence of systematic income-level or regional biases. ### Text analysis statistics and notes - Documents: more than 9,000 staff reports (1979 through August 2022). - Normalization: frequency normalized to hypothetical document length of 10,000 words; programs include emergency financing. - Correlation computation: - Correlations calculated over 3-year periods using reversed WGI Control of Corruption Indicator (0–100 scale reversed for analysis) and logarithm of countries’ normalized term frequency. - Regression specification (Table 2 summary): - Regression: log(Normalized Governance Related Terms) = beta0 + beta1*Corruption Index + beta2*control variable. - Dependent variable: logarithm of frequency of “governance” and “corruption.” - Independent variable: reversed WGI Control of Corruption Indicator. - Control variables include regional variables, document types, income group and classification type; each regression includes one control variable; experiments run for pre- and post-Framework periods. --- ### Survey responses from national authorities — Key points - Respondent coverage: - Sixty-five countries responded to the country authorities’ survey—slightly more than one-third of the Fund membership. - Representativeness and caution: - Interpretation should be cautious due to limited sample size and distribution skewed to Advanced Economies (AEs) and European countries; only a handful of submissions from Low Income Countries (LICs). - Submission rate is higher than the 2017 paper’s country-authority survey, which was 20 percent. - Principal takeaway: - On average, responses are in line with IMF Country Teams’ responses: Fund engagement on governance issues is more candid, effective, and even-handed under the 2018 Framework. *Prepared by Thomas Augsten; analysis drawn from MONA database and IMF Text Analytics database, and staff estimates.* ### 2. Country authorities have seen candid, open, and direct dialogue with the IMF on ### ppea2023015 - 2. Country authorities have seen candid, open, and direct dialogue with the IMF on ### Perceptions of candor and presentation of views - Country authorities have seen candid, open, and direct dialogue with the IMF on macro-critical governance and anti-corruption issues under the 2018 framework (Q1). - Authorities’ perceptions on candor are aligned with country circumstances, including their perceived governance and corruption vulnerabilities, measured by World Governance Indicator (WGI) score. - Discussions with IMF staff on governance and corruption issues were mostly presented in formal country documents and were deemed by the authorities to have adequately reflected their views (Q2, Q3). ### Even-handedness across countries - Country authorities’ perceptions are somewhat supportive of even-handedness in addressing macro-critical governance and anti-corruption issues across IMF member countries (Q5). - About half of the responses support even-handedness. - About 40 percent of responses are neutral. - 6 percent are negative on even-handedness. - Note: Many national authorities are unlikely to be familiar with governance weaknesses—and the Fund’s engagement—in other countries, which may contribute to widespread agnosticism. - The share of supportive views in countries with high perceived governance and corruption vulnerabilities is well below 50 percent. ### Effectiveness and impact of IMF engagement - Authorities assess that the engagement has been effective under the 2018 framework (Q6). - IMF staff provided tailored, concrete, and granular policy advice and guidance on governance and corruption issues, in line with country circumstances. - The majority view that the IMF’s involvement in governance and corruption issues has a positive impact on their countries (Q8). - This may suggest enhanced traction of IMF staff policy advice under the framework. ### Capacity development (CD) and usefulness - Country authorities view IMF CD provisions as timely and useful (Q7). - Especially LICs, countries with Fund UCT arrangements, or countries with high perceived governance and corruption vulnerabilities appreciated Fund CD. ### Priority reform recommendations and implementation constraints - Authorities identified the following as the most important reform recommendations (Q9): - Anti-corruption framework and AML/CFT. - PFM (excluding SOEs). - Financial sector oversight. - Rule of law. - Key factors preventing effective implementation include: - Lack of political ownership or consensus. - Capacity constraints. - In some cases, even when relevant laws were passed, political prioritization or commitment for implementation was often inadequate. - Caution: interpretation should be careful because of the very small number of samples (Q10). ### Areas needing enhanced engagement - Authorities see the following areas where further enhanced engagement is needed (Q12): - Financial sector oversight. - AML/CFT. - Fiscal governance. - Governance diagnostics and anti-corruption show relatively higher need of enhanced engagement, especially in: - EMs and LICs. - Countries with UCT arrangements. - Countries with high perceived governance and corruption vulnerabilities. ### Preferred modalities for further engagement - Considering possible modalities of further enhanced engagement, country authorities rank the following favorably (Q13): - Increasing CD and training on governance and anti-corruption framework. - Further conduct and publication of governance diagnostics. - On assessments of transnational aspects of corruption: - Responses indicate importance of increasing awareness of the assessment (Q11). - Many countries did not respond to this question. ### Guidance for future IMF policy advice and suggested improvements - Going forward, Fund policy advice should be guided by diagnosis of wide-ranging governance vulnerabilities while being specific and tailored to member countries’ circumstances and implementation capacity (Q14). - Specific suggestions for the IMF to improve quality and impact of its engagement on governance and corruption issues fall into two broad categories: - Provide more expertise and guidance to mainstream governance and corruption issues in the Fund’s core activities when macro-critical. - Expand the scope of the governance and corruption framework. - Appendix II provides more detailed information on the survey responses. *Source: ppea2023015 (https://www.imf.org/-/media/files/publications/pp/2023/english/ppea2023015.pdf)* ### Appendix II. Summary of the Survey for Country Authorities ### Appendix II. Summary of the Survey for Country Authorities ### Sample and definitions - Sample Collection Time: August-December 2022 - Sample includes 65 responses (out of 190 membership). - By income levels (AEs are WEO basis, LICs are based on PRGT eligible countries and EMs are the rest): 27 AEs, 29 EMs, and 9 LICs. - By departments: 8 from AFR, 9 from APD, 29 from EUR, 9 from MCD, and 10 from WHD. - 13 of the responses had at least one UCT arrangement during the survey period (2018-summer 2022), where UCT arrangements include ECF, EFF, FCL, PLL, SBA, SCF, PCI and PSI (not including emergency arrangements like RCF, RFI). - FCS (8 countries) is based on the World Bank’s list of Fragile and Conflict-affected Situations. Countries listed as such in FY2019 to FY2022 are counted as FCS. - World Governance Indicator (WGI): quartiles of countries’ three-year average (2019-21) of control of corruption scores are used to divide the sample into four groups. ### Q1 — Candidness of discussions on macro-critical governance and anti-corruption issues - Summary findings: - Country authorities have seen candid, open and direct dialogue with IMF staff on macro-critical governance and anti-corruption issues as envisaged under the 2018 framework. - This is implied by the large share, over 80 percent, of supportive responses. - Country authorities’ perceptions on candidness seem to be aligned with country circumstances, including their perceived governance and corruption vulnerabilities, proxied by WGI score. - Supportive views show more than 2/3 shares in most of the groups. - “Strongly agree” responses show relatively large shares in FCS, countries with UCT programs or with high perceived governance and corruption vulnerabilities. ### Q2 — Form of direct discussions with the IMF on governance and corruption issues - Summary findings: - Discussions were mostly presented in formal country documents (e.g., Article IV staff reports). - Shares of candid discussions included in formal mission reports were broadly similar across groups, though FCS had a higher share. - About 1/5 of AEs and LICs had no direct discussions, while EMs and those with UCT arrangement had a higher share of discussions outside of country documents. ### Q3 — Appropriateness and reflection of authorities’ views in IMF staff reports - Summary findings: - Over ¾ of responses see that the coverage of governance and anti-corruption in the IMF staff report has been appropriate and adequately reflected views of country authorities. ### Q4 — Opportunities for authorities to share their views with IMF staff - Summary findings: - Country authorities supported that their views have been shared with IMF staff. No country authorities responded as “disagree.” - FCS and countries with UCT program show large shares of “strongly agree,” implying intensive two-way discussions between IMF staff and country authorities in these groups. ### Q5 — Even-handedness in addressing macro-critical governance and anti-corruption issues - Summary findings: - About half of responses support even-handedness, while about 40 percent of responses are neutral and 6 percent are negative on even-handedness. - Supportive view in countries with high perceived governance and corruption vulnerabilities looks smaller than other groups—only 1/3 of the responses supported even-handedness. ### Q6 — Tailoring and concreteness of IMF policy advice and guidance - Summary findings: - Authorities assess that IMF staff provided tailored, concrete, and granular policy advice and guidance on governance and anti-corruption issues, reflecting country circumstances. - Overall, about ¾ of responses support this view. - Shares of “strongly agree” somewhat tend to be larger in FCS and countries with high perceived governance and corruption vulnerabilities. ### Q7 — Timeliness and usefulness of IMF capacity development (CD) - Summary findings: - On average, country authorities view IMF CD provisions as timely and useful. - LICs, countries with UCT arrangements or high perceived governance and corruption vulnerabilities particularly appreciated Fund staff’s policy advice. - Large share of “not applicable” responses mainly reflects responses from AEs. ### Q8 — Perceived impact of IMF involvement on the country - Summary findings: - 70 percent of responses show favorable views on the impact of IMF’s involvement in governance and anti-corruption issues. - The responses do not show substantial difference across groups, except higher supportive share in UCT arrangement cases, which may indicate more policy traction under Fund’s program. ### Q9 — Most important reform recommendations provided by IMF country teams (top themes and examples) - Participation: - Over 40 country authorities provided specific responses. - Ranked reform areas (summary of reported shares and prominence): - Fiscal governance (sum of fiscal governance items shows the largest shares in most groups). - Anti-corruption and AML/CFT also frequently cited. - Financial sector oversight, central bank governance and operations. - LICs, FCS and countries with high perceived governance and corruption vulnerabilities ranked anti-corruption relatively high; AEs had a higher share for financial sector oversight. - Examples of specific recommendations (verbatim content preserved): - Anti-Corruption: - Strengthening the anti-corruption framework by implementing existing legislation, including by the appointment of an independent, sufficiently empowered and resourced anti-corruption commission. - Enactment of the anti-corruption legislation, approved by the National Assembly, including measures to ensure that acts of corruption are criminalized in line with Articles of the United Nations Convention Against Corruption. - Strengthening the identification and verification of beneficial ownership requirements for actors and politically exposed persons. - Maintaining prevention and transparency efforts to mitigate corruption risks, including further strengthening the frameworks for asset disclosures, lobbying and whistleblower protection. - AML/CFT: - Enhancing the effectiveness of AML/CFT Framework in line with Financial Action Task Force standards. - Enhancing AML/CFT risk management and compliance by strengthening supervision, ensuring accurate beneficial ownership information, improving preventive measures, reporting, and enhancing enforcement. - Enhancing AML/CFT supervision by increasing the frequency of targeted and thematic inspections and improving the risk-based approach and tools for AML/CFT risk assessments. - Ensuring inter-agency coordination on AML/CFT with adequate resources for all agencies involved. - Enhancing and leveraging AML measures and enforcement efforts to detect and disrupt foreign proceeds of corruption from entering and/or being laundered in the respective country. - Fiscal Governance: - Strengthening the fiscal framework and transparency. - Extending the coverage of government operations to public corporations that pose a significant risk to public finances and publishing public financial assets and their evolution. - Implementing Public Investment Management (PIMA) recommendations. - Tackling tax evasion and committing (and attaching high priority) to tax expenditure reduction. - Improving governance of SOEs. - Streamlining project approvals and assurances and regularly publishing reports on project procurement processes and on contracts for major public investments. - Reviewing the duties of the public procurement agency. ### Q10 — Implementation status and constraints on IMF recommendations - Summary findings: - About 10 responses elaborated on specific constraints on implementation. - Key impeding factors: lack of political ownership or consensus and capacity constraints. - Some responses noted that even when relevant laws were passed, necessary political prioritization or commitment for implementation were often inadequate. - Examples of constraints (verbatim content preserved): - Lack of Political Ownership or Consensus: - Most of the recommendations were either implemented or duly addressed in the updates to the Anti-corruption Plan. Some of them are subject to legislative changes, which require further debate in Congress and political will to push forward the bills of law that were submitted. - Some recommendations aligned with program conditionalities have been addressed and added to the National Anti-Corruption Strategy. Yet, recommendations regarding legislations are yet to be implemented due to political instability and election delays. - The AML/CFT and the conflict-of-Interest draft laws are under revision of the National Assembly. The revision period is extended due to the political situation in the National Assembly. - Most of the laws adopted in recent years to address governance and anti-corruption issues have not been implemented yet. Political integrity and political will are needed to enforce these legislations. - Capacity Constraints: - The implementation of identified governance recommendations is undergoing, though capacity constraints and other priorities may impact progress. - Recommendations in the field of internal public financial control and auditing could not move forward due to low staffing. ### Q11 — Volunteering for assessment of transnational aspects of corruption in Surveillance - Summary findings: - A small handful of country authorities provided specific responses on considerations that would facilitate volunteering. - Some responses show unawareness of the assessment. - Others indicated that governance diagnostic tools and instruments for the prevention of risks in addition to adequate resources and capacity building would further facilitate such assessments. ### Q12 — Areas where further enhanced IMF engagement is needed - Summary findings: - Authorities identified financial sector oversight, AML/CFT and fiscal governance as areas where further enhanced engagement is needed. - This largely reflects appetite from EMs, LICs, FCS, countries with UCT arrangements or high governance and corruption vulnerabilities. - Governance diagnostics and anti-corruption show relatively higher need of enhanced engagement, especially in EMs and LICs, and countries with UCT program or high perceived governance and corruption vulnerabilities. - Market regulation was identified as an area for enhanced engagement by LICs with UCT program or high perceived governance and corruption vulnerabilities. ### Q13 — Preferred modalities for further enhanced engagement (ranking) - Summary findings: - Authorities ranked increasing technical assistance and training on governance and anti-corruption by IMF favorably. - This was followed by further conduct and publication of governance diagnostics and conduct of more voluntary assessment of transnational aspects of corruption. - Ranking presentation notes: - Questionnaire asked respondents to rank items; average points weighted by ranking (1st – 6 points, 2nd – 5 points, 3rd – 4 points, 4th – 3 points, 5th – 2 points, 6th – 1 point, not ranked – 0 point). - Respondents: 47 (valid answers) for overall ranking summary. ### Q14 — Recommendations to improve IMF quality and impact on governance and anti-corruption - Participation: - 16 responses provided suggestions on the general implementation of the framework. - Top three suggested improvements: - Providing a tailored approach accounting for country specific circumstances. - Providing more expertise and guidance to mainstream governance and anti-corruption issues in the IMF’s core activities when macro-critical. - Expanding the scope of the governance and anti-corruption framework to include emerging issues. - Specific recommendations (verbatim content preserved): - Even-handedness and Tailoring/Country Specific Engagement: - The most important aspect of the IMF’s engagement with countries on governance and anti-corruption issues is even-handedness. - The engagement should be tailored to country-specific circumstances and institutions. - Mainstreaming when macro-critical: - Enhanced coverage during regular surveillance/program missions, including creation of instruments to measure and evaluate corruption and its impacts in several dimensions (economic, social, political etc.). - Additional guidance for mission teams regarding waivers for governance-related conditionality to align practice with other macro-fiscal program targets. - Country Engagement Strategies in FCS should candidly discuss governance vulnerabilities and how to best address them, involving close collaboration with other institutions to exploit synergies and avoid duplication. - Stronger focus on technical assistance provisions and wider training on governance and anti-corruption issues (e.g., training to financial sector supervising authorities on governance and AML/CFT effectiveness, coverage of FTEs and PIMAs; face-to-face workshops, corruption risks information sharing sessions, study visits). - Expansion of scope to include: - Governance reforms supporting climate adaptation and mitigation. - Gender issues, e.g., incorporation of the IMF’s new gender strategy. - Comprehensive analysis of offshore financial centers and tax havens, including risks to financial integrity. - Analysis of political barriers and incentives for reform, including how corruption fits into the political settlement and short- and long-term risks to macro-stability. - Deeper engagement with authorities and political leaders in addition to anti-corruption agencies, for example on regulatory capture and lobbying activities affecting legislative, regulatory, and supervisory environment. ### Final note from the source section - SURVEY RESPONSES FROM IMF COUNTRY TEAMS: Hundred and sixty country teams responded to the country teams’ survey. Overall, the results support that implementation of the 2018 Framework is well underway: the framework has provided more effective, candid, and evenhanded engagement with member countries on macro-critical governance and corruption vulnerabilities. *Source: Country authorities survey (Appendix II. Summary of the Survey for Country Authorities).* ### 1. IMF staff have broadly provided candid and granular policy advice to address ### 1. IMF staff have broadly provided candid and granular policy advice to address governance and corruption vulnerabilities (Q.1, 2) ### Engagement and channels - Strong engagement across country team workstreams (program and surveillance), various regions, and income groups. - Large majority of engagements took place through clear and direct discussions in formal country documents, particularly in Low Income Countries (LICs) and countries with Upper Credit Tranche (UCT) arrangements. ### Even-handedness perceptions (Q.3) - Country teams’ perceptions are somewhat supportive of even-handedness in addressing macro-critical governance and corruption issues across IMF member countries. - Around half of respondents are neutral on even-handedness. - The share supporting even-handedness is much larger than the share of negative responses. - Heterogeneity in views across country groups: - Country teams of LICs, UCT arrangements, and with high perceived governance and corruption vulnerabilities expressed a more negative view on even-handedness. - Reasons cited for negative views include: too much emphasis being placed on governance and anti-corruption aspects compared to others; uneven recommendations/conditionality being imposed in comparable contexts; a need for further discussing governance weaknesses in Advanced Economies (AEs). ### Effectiveness and traction (Q.4, Q.6) - Over 80 percent of responses expressed a positive view of the impact of the Fund’s involvement to members. - Positive impact particularly noted in LICs and Fragile and Conflict-affected States (FCS). - Indicates enhanced traction of policy advice. ### Key reform recommendations and conditionality (Q.7, Q.5, Q.9) - Top reform recommendations provided by country teams: - Anti-corruption - Anti-Money Laundering/ Combating the Financing of Terrorism (AML/CFT) - Public Financial Management (PFM) (excluding State Own Enterprises (SOEs)) - Followed by fiscal transparency and central bank governance and operations - These areas align with where further enhanced engagement is needed. - Top three areas in conditionality of UCT arrangements: - Fiscal governance - Anti-corruption framework - Central bank governance and operations - Heterogeneity across country groups: - Higher share of PFM and anti-corruption recommendations driven by LICs, FCS, and countries with UCT programs or high perceived governance and corruption vulnerabilities. - Higher share of AML/CFT recommendations driven by AEs, Emerging Markets (EMs) and LICs without UCT arrangements, and countries with low perceived governance and corruption vulnerabilities. ### Implementation impediments (Q.8) - Dominant impeding factors for members to implement recommendations: - Capacity constraints - Vested interests - Followed by lack of ownership/commitment - These factors are less relevant in the context of UCT arrangements compared to surveillance, suggesting more traction of policy advice in Fund programs. ### Preferred modalities for enhanced engagement (Q.15) - Country teams identified the most preferred modalities: - Increasing technical assistance and training (top preference) - More governance diagnostics - Increasing the depth and coverage of surveillance - Addressing transnational aspects - More governance related conditionality ### Support from functional departments (FDs) (Q.16, Q.17, Q.18, Q.19) - Country teams reported receiving appropriate support from FDs in a timely manner. - AEs and EMs benefitted from traditional types of FD support (e.g., review process, bilateral consultation). - Majority of country teams for LICs acknowledged new modalities of enhanced support, including interdepartmental brainstorming sessions and governance diagnostic missions. - Areas where further FD support is needed (top three): - Fiscal governance - AML/CFT - Anti-corruption - Specific actionable requests from 41 responses often involve allocating/prioritizing more resources and providing more governance and anti-corruption related expertise and guidance, implementable without changes in the Fund’s policies or framework. ### Interaction and collaboration with other stakeholders (Q.11–Q.14, Q.10, Q.11) - Interaction and collaboration have been enhanced under the framework. - Collaboration with other International Financial Institutions (IFIs) and donors: - More than a half of LICs and countries with UCT programs or high perceived governance and corruption vulnerabilities supported enhanced cooperation. - Most EMs (eligible for World Bank (WB) lending) and LICs have some interaction with the WB. - Concerns raised about collaboration with IFIs and the WB include lack of coordination on related capacity development (CD) in the field and delayed response times for feedback on Governance and Anti-corruption (GAC) areas. - Interaction with civil society organizations (CSOs): - Majority of LICs, FCS, and countries with UCT programs or high perceived governance vulnerabilities indicated some interaction. - Effectiveness of interaction undermined by a lack of free and independent press and CSOs in some cases. *Prepared by Marwa Alnasaa and Miyoko Asai (both FAD).* ### Appendix II. Summary of the Survey for Country Teams ### Appendix II. Summary of the Survey for Country Teams ### Sample and definitions - Sample Collection Time: Summer 2022 (July-September), follow-up and clarification sought during October-November 2022. - Sample: 160 responses (out of 190); some country teams (16) provided only partial responses. - By income levels (WEO basis): 33 AEs, 75 EMs, and 52 LICs. - By departments: 31 AFR, 27 APD, 42 EUR, 31 MCD, and 29 WHD. - The sample includes 2 cases with no engagement with Fund country teams during 2018-22. - UCT arrangements: 51 responses had at least one UCT arrangement during 2018–summer 2022. UCT arrangements include ECF, EFF, FCL, PLL, SBA, SCF, PCI and PSI (not including RCF and RFI). - FCS: 33 countries (World Bank’s list of Fragile and Conflict-affected Situations, FY2019–FY2022). - WGI: quartiles of countries’ three-year average (2019-21) control of corruption scores used to divide sample into four groups. *Source: Country team survey.* ### Q1 — Candidness of discussions on macro-critical governance and anti-corruption - Summary findings: - IMF staff have engaged in candid, open and direct dialogue under the 2018 framework, as implied by the large share, over ¾, of Strongly Agree and Agree. - Perceptions align with country circumstances; supportive responses tend to be high in LICs and countries with UCT arrangements. - Respondents: 160/190. Key aggregate percentages (overall response distribution shown in source figures): - 30.6, 55.6, 11.3, 2.5 (presented in Figure 1). ### Q2 — Form of direct discussions with authorities on corruption issues - Summary findings: - Majority of candid discussions were included in formal documents (staff reports or other formal mission reports), implying a written record and potential public transparency where documents are published. - A smaller share occurred in oral/private communications; a minority reported no direct discussion. - Direct discussions less prevalent in AEs, non-UCT, and low perceived governance/corruption vulnerability countries. - Respondents: 158/190. - Key aggregate percentages (overall): 73.4, 13.9, 12.7 (presented in Figure 2). ### Q3 — Even-handedness of treatment across member countries - Summary findings: - Neutral responses (~50 percent) prevent a majority supportive view; supportive views (~36 percent) exceed negative views (~13 percent). - Heterogeneity: negative views relatively large in LICs, UCT programs, and countries with high perceived governance/corruption vulnerabilities. - Reasons cited for negative views include perceived excessive emphasis on governance/anti-corruption in some contexts, uneven recommendations/conditionality, and need to discuss governance weaknesses in advanced economies. - Respondents: 160/190. - Key aggregate percentages (overall): 1.3, 36.3, 49.4, 12.5, 0.6 (presented in Figure 3). ### Q4 — Tailored, concrete, and granular policy advice and guidance - Summary findings: - Over 80 percent of responses support that teams provided tailored, concrete, and granular advice reflecting country circumstances. - LICs and FCS show stronger agreement than other groups. - Respondents: 160/190. - Key aggregate percentages (overall): 23.1, 60.0, 13.1, 2.5, 1.3 (presented in Figure 4). ### Q5 — Areas where program conditionality addressed governance weaknesses/corruption risks (UCT programs) - Summary findings: - Majority of UCT programs imposed conditionality on fiscal governance, anti-corruption framework, central bank governance and operations, and financial sector oversight. - LICs, FCS, and countries with high perceived vulnerabilities also commonly had conditionality on AML/CFT and rule of law. - Respondents: 50 (for program conditionality analysis). - Most-cited conditionality areas (percentages shown in Figure 5, Respondents: 50): - Fiscal governance: 88 - Anticorruption framework: 58 - Central bank governance and operations: 58 - Financial sector oversight: 54 - Rule of law: 44 - Market regulation: 34 - Others: 24 - Anti-money laundering and combating the financing of terrorism (AML/CFT): noted in subgroup breakdowns. ### Q6 — Perceived positive impact of Fund’s involvement on the country - Summary findings: - 2/3 of responses showed a positive view on the impact of the Fund’s involvement in governance and anti-corruption issues; few expressed disagreements. - Traction of policy advice appears stronger for LICs and UCT arrangements. - Respondents: 160/190. - Key aggregate percentages (overall): 11.9, 52.5, 32.5, 2.5, 0.6 (presented in Figure 6). ### Q7 — Most important reform recommendations (up to three) provided to authorities (past four years) - Summary findings: - Most important recommendations: AML/CFT, Anti-corruption, and PFM (excluding SOEs), followed by fiscal transparency and central bank governance/operations. - Higher shares of anti-corruption and PFM driven by LICs and countries with UCT programs; higher share of AML/CFT driven by AEs and countries with surveillance/low perceived vulnerabilities. - Specific measures recommended by country teams (selected by category; preserved exactly as presented): - Fiscal Governance / Public Financial Management: - Improve fiscal governance (spending outcomes, procurement system) through the forthcoming fiscal responsibility act (FRA). - Improve fiscal governance: 1) in revenue and spending outcomes through improvements in tax administration efficiency and public procurement, and 2) strengthening SOE oversight, including by establishing a specialized unit to strengthen financial oversight of major SOEs. - Improve fiscal transparency, including reporting the Government's obligations under PPPs. - Improving fiscal transparency and mitigating fiscal risks (e.g., creation of database of sovereign guarantees, placing a ceiling on PPPs contracted, transitioning to TSA). - Improve public financial management, expenditure efficiency, and fiscal transparency, including expediting the publication of audited financial statements of the public sector, conducting public investment management assessment, and amending the fiscal responsibility framework. - Strengthen the public procurement and tax incentives transparency legal frameworks. - Strengthening Budgetary Framework and expenditure controls. - Addressing weaknesses in public procurement and SOE operations, including approving a new procurement legislation to reduce widespread corruption and promoting public investment efficiency. - Enhance fiscal governance including public procurement and enhance overall PFM including establishing a Treasury Single Account (TSA). - Strengthen public investment management methodology to improve project appraisal, selection and management as well as introducing stronger oversight and reporting requirements by the Ministry of Finance. - The completion and publication of an ex-post compliance audit of COVID-19 expenses by a reputable international auditing firm. - Continuation of audits (including special audits on COVID-related spending) by the Auditor General. - Modernization efforts in the General Direction of Revenues and Customs (important for fiscal transparency and discipline and tightened control over public accounts). - Reinforce government oversight and control capacities, especially by investing in IT and digital solutions (revenue, expenditure, public investment, procurement) to enable faster controls and limit human intervention. - Further improve public investment framework and spending procedures based on the 2017 PIMA recommendations. - Strengthen the fiscal framework to broaden institutional coverage and develop a Medium-Term Fiscal Framework (MTFF). - Strengthen control of budget execution and improve the effectiveness of public investment. - Establishing strong oversight of pandemic-related assistance programs. - Comprehensive monitoring of the financial situation and performance of SOEs. - Improving fiscal governance in the areas: monitoring of the use of public funds; procurement; stronger management of core tax functions, better oversight of tax administration. - Enhance internal controls and audits of COVID spending, both at the level of the Ministry of Finance, through a high-level inter-ministerial committee, and through a dedicated audit by the court of auditors. - The implementation of the PIMA recommendations to further enhance long-term planning and project implementation. Further enhancing transparency, better defining priorities, and improving the management of fiscal risks. - Improve project appraisal, selection and implementation as well as medium-term capital budget allocation. Implementation of PIMA recommendations. - Strengthen fiscal governance including by enhancing transparency in procurement process and SOEs, while taking steps to enhance government efficiency. - Continued fiscal governance reforms: Strengthening expenditure control and domestic revenue mobilization. - Introducing effective and transparent systems for procurement, project management and oversight, and ex-post assessments would reduce costs and waste and improve investment quality and governance. - Preparation and adoption of the manual for the selection and appraisal of public investment projects to improve public investment efficiency and transparency. - Ensure ministries, provinces, and spending agencies register all purchase orders and other financial commitments in the IFMIS. - Incorporating trust funds into budgetary processes. - New budget law to strengthen public financial management and facilitate fiscal sustainability via better budget planning and enhanced transparency. - Identify all bank accounts of public entities with own revenues in order to determine the accounts to be closed to strengthen the single treasury account approach to public spending. - Introducing regulations to sanction unauthorized spending commitments. - Revenue Administration: - Reduce smuggling and informality through better customs enforcement and tax reforms. - Modernizing tax and customs administration, including the establishment of a large taxpayer unit, strengthening petroleum import control, and the introduction of e-tax filing. - Strengthen tax administration to reduce tax evasion and potential corruption. - Governance reforms in tax administration and compliance, government procurement, and product market regulation to reduce corruption risks. - A new customs law streamlining customs procedures. Its implementation is allowing a major reduction in time-to-release imports and is expected to facilitate trade and reduce opportunities for corruption. - Strengthen internal controls of services offered by the revenue authority. - Address weaknesses in tax administration reform (e.g., tax dispute resolution and ease of paying tax). - Strengthening the governance of oil receipts. - Procurement: - Council of Ministers to adopt legislation on public procurement in line with EU recommendations. - Implement a new centralized system for public procurement, to reduce fiscal waste and counter vulnerabilities to corruption. - On procurement: to publish the list of beneficial owners. - Strengthen the public procurement and tax incentives transparency legal frameworks. - Strengthening public procurement system and introducing electronic bidding system. - Strengthen procurement by limiting direct contracting outside the normal procedures and strictly define the scope for relaxing standard procurement under emergency situation. - Publish all procurement contracts, winning bids, and the names of the beneficial owners of companies chosen. - Improving transparency of procurement process. - Procurement reform. It included the launch of an e-procurement website and enactment of executive regulations to the new procurement law. - Efforts should be made to include beneficial owner information of companies awarded public contracts and limit arbitrary direct contracting. - Implement the Procurement Administration Act. - Publication of public procurement and the upcoming publication of beneficial owners. - Publication of Financial Statements and Procurement Contracts of the National Covid Response Center. - Improvements to the procurement framework. - Transparent procurement policies (publish on external webpage, make documents available). - Advance the reform of the public procurement framework and publish beneficial ownership information. - Strengthening centralized procurement to promote cost savings and transparency, while tackling conflicts of interest and abuse. - Fiscal Transparency: - Enhance fiscal transparency across the public sector, through timely publication of draft budget laws, budget execution reports (including in-year) and information on public investment projects and off-budget operations. - Improve fiscal transparency, including reporting the Government's obligations under PPPs. - Increase transparency of fiscal accounts, including by publishing more detailed budget documents. - Publish information on COVID-related procurement contracts and COVID-related government spending. - Institutional and Financial Independence of the Audit Service. - Fiscal transparency including in extractive industries. - Publication commitments: publication of 3 non-financial SOE's financial statement under IFRS standards; commitments to enhance fiscal transparency and accountability (e.g., collection/publication of beneficial ownership information for awarded contracts and a COVID-19 spending portal). - Further enhancing transparency around fiscal actions, including land sales, to support anti-corruption efforts. - Actions to improve transparency in extractive industries. - Publish summary information on all procurement contracts related to the Program to support farmers. - Publish findings and recommendations of the audit of the spending of the CF disbursement. - Publish all awarded procurement contracts for COVID-19 spending and complete and publish their full ex-post audit. - Publishing the reports on the use of COVID-19 public funds with information. - Publication of audit on COVID-related spending. - Reforms to improve fiscal governance of SOEs, particularly better management and transparency of key SOEs. - A website with complete, searchable list of all PEs including comprehensive financial statements, audits and organizational information in line with IMF staff recommendations. - State-Owned Enterprises: - Strengthening SOE governance in line with international best practice: clear separation of ownership and supervisory functions, specification of financial and policy objectives and performance criteria, autonomy in operational decisions while minimizing fiscal risks, independent audit, publication of key financial and other information. - Improve SOE Governance and Oversight. - Publication of an SOE report providing details on financial statements and governance arrangements at state-owned companies (including military-owned companies). - Enhanced monitoring of performance of public enterprises. - Adopting a new SOE governance strategy. - Abandoning the non-constrained aspect of budget management of the SOE. - Minimize opportunities for misuse of public resources by SOEs. - Enforce effectively the SOE governance framework. - Create a website with complete, searchable list of all PEs including comprehensive financial statements, audits and organizational information. - Formulate and implement a comprehensive SOE reform strategy that aligns SOE governance with best international practices. - Other Fiscal Governance: - Aligning new mining contracts with the Mining Code to limit discretion in mining contracts. - The elimination of price controls on retail fuels. - Implement national digital ID. - Improve systems for pension and public wage determination. - Undertake a systemic reform of the civil service system to reduce overlap and patronage risks. - Incorporating governance-related measures in climate investment programs. - Accountability of expenditures given to district level officials. - Financial Sector Oversight: - Privatization of state-owned banks used for quasi-fiscal spending. - Strengthening the structure of financial sector oversight. - Adopt an instruction on administrative sanctions applicable to banks. - Strengthening autonomy and governance of financial sector authorities. - Amend bank secrecy laws to reduce vulnerability to corruption. - Give the central bank oversight over credit bureaus and introduce regulation to strengthen bank corporate governance in line with Basel principles. - Enhance oversight of central bank audit functions. - Central bank should be granted legal powers of direction to facilitate fulfilment of financial stability mandate. - Incorporating the Bank Resolution Framework into the Banking Law. - Modernize the insolvency framework. - Continue to enhance risk-based supervision of banks. - Improving transparency of key state-owned banks. - Reform Banking Acts to Strengthen Governance of the Financial System and Corporate Governance of State own Banks. - Develop effective prudential regulation and supervision to promote health of financial institutions. - Enhance financial sector governance, including strengthening supervision/resolution systems and implementing measures related to central bank governance. - Strengthening AML implementation within banking sector supervision. - Central Bank Governance: - Prepare and publish pro forma central bank financial statements for 2019 in accordance with IFRS. - Overhaul central bank act to enhance central bank independence. - Amend central bank Law, Law on Banks’ Activity, and procedural codes to strengthen shareholder removal framework, monetary compensation regime, and safeguards to autonomy and accountability. - State Bank Act improvements: stronger capital, secure tenure, explicit qualification criteria for senior officials, greater clarity of mandate. - Enhance Central Bank's operational independence. - Central bank act reforms: Board structure; Financial Policy Remit; functional, institutional, and personal autonomy. - Strengthen central bank independence to prevent monetary financing and reserve public communication on policies to the central bank. - Amend central bank law to establish independent oversight process and enhance transparency/accountability mechanisms. - Audit and publish financial statements of the central bank from FY2022/23 onwards. - Prepare medium-term exit strategy to phase out central bank involvement in non-core activities. - Reforms to CB law to safeguard autonomy and provide for independent oversight. - Strengthen central bank governance by following up on Safeguard Assessment recommendations. - Anti-Corruption: - Enhance asset declaration system for high level public officials. - Ensure accuracy of ownership information in public registry; prioritize foreign bribery cases; strengthen independence of prosecution and whistleblower protections; utilize AML/CFT framework to detect foreign bribery. - Submit the Anti-Corruption Bill to parliament. - Upgrade anti-corruption legal/institutional framework and enhance implementation per international standards. - Introduce whistleblower protection. - Complete systematic digitalization of all current year asset declarations in machine-readable format and publish declarations on website. - Establish Commissions on Anti-Corruption and Transparency. - Strengthening anti-foreign bribery legal framework and ensure effective implementation. - Support development of anti-corruption strategy and strengthen framework based on annual business surveys. - Full and consistent implementation of anti-corruption law. - Passage of new Anti-corruption Committee Act giving prosecutorial power to the agency. - Amend procurement law for vaccines to avoid immunity for those who abused public funds. - Congressional approval of an anti-corruption law in line with UNCAC obligations. - Continue to strengthen AML and anti-corruption frameworks (beneficial ownership regime, preventive measures). - Strengthening asset declaration regime for senior officials; transition to a universal asset declaration regime; publication of assets declaration of high-ranking public officials. - Incorporate GRECO recommendations. - Online publication of asset declaration by members of parliament and government. - Efforts to include beneficial owner information in awarded public contracts. - Establish robust anti-corruption framework: improve understanding of corruption risks, update policies/strategies, enhance institutional coordination for prevention, investigation and prosecution. - Establish independent anti-corruption commission and appointment of commissioners. - Ratify UNCAC and develop an anti-corruption strategy. - Regulations ensuring collection and publication of beneficial owners for large procurement contracts; measure began with COVID-related procurement and generalized. - Enhance enforcements against corruption offenses, e.g., criminal liability of legal entities. - Introduce system to detect and prevent conflicts of interest for public officials per international best practices. - Comprehensive review of anti-corruption framework including National Accountability Bureau and asset declaration reform. - Ensure adequate resources for broader anti-corruption efforts including National Risk Assessment. - Protect independence of anti-corruption and AML/CFT institutions. - Publish IMF Governance Diagnostic Assessment and use recommendations to inform strategy going forward. - AML/CFT: - Complete the FATF action plan. - Strengthen risk-based AML-CFT supervision. - Strengthen regulatory and supervisory framework of AML/CFT. - Encourage analysis and dissemination of financial intelligence, terrorist financing investigations, and implementation of effective targeted financial sanctions regime. - Continue to strengthen and reform AML-CFT framework including to limit risks in the Fintech sector and enhance capacity of supervisors in line with ML/TF risks. - Mobilize AML/CFT framework to fight tax evasion. - Completion of the AML/CFT national risk assessment. - Monitor risks associated with the real estate sector; strengthen AML/CFT framework to address laundering of proceeds of foreign corruption. - Strengthen AML/CFT regulatory/supervisory framework for gaming industry. - Enhance effectiveness of AML/CFT by addressing high-risk areas identified in National Risk Assessment including beneficial owners and domestically PEPs. - Maintain AML/CFT frameworks up to date to keep up with evolving financial sector. - Strengthen AML/CFT related to financial sector, including tax transparency and exchange of information. - Improve AML/CFT to combat corruption regarding PEPs, beneficial ownership, and criminal justice system. - Protect independence and ensure stable operating framework for anti-corruption and AML/CFT institutions. - Rule of Law: - Raise effectiveness of Judiciary and strengthen protection of property rights. - Ensure laws are easily accessible, consistent, enforcement transparent, equitable, and efficient to attract FDI. - Strengthen regulatory management: transparency of rulemaking, public consultation, impact assessments, and ex-post review of regulations. - Improve property rights and judicial system efficiency; legislative and institutional reforms for property rights protection. - Market Regulation: - Strengthen governance in SOEs and move to market-based transparent frameworks to reduce corruption vulnerabilities. - Product market reforms. - Bring GREs within scope of competition laws. - Improve business environment for investors; remove restrictions on foreign ownership of public companies. - Introduce rules-based FX intervention policy to limit discretion and increase market transparency. - Improve market neutrality, competition (including SOE reform) and incentives for private investment. - Ease process to register property and businesses using digital technologies. ### Q8 — Implementation constraints for recommended reforms - Summary findings: - Top constraints: capacity constraints (55.8 percent), vested interests (48.7 percent), lack of ownership/commitment (38.1 percent). - Capture of judiciary: 22.6 percent; capture of legislature: 20.8 percent. - Pattern: trend mainly driven by EMs and LICs; 22 percent of AEs noted capacity as a constraint. Responses with UCT programs show lower percentages for constraints than non-UCT countries. - Respondents: 155/190. - Aggregate percentages (overall, Figure 7): 55.8 (Capacity constraints), 48.7 (Vested interests), 38.1 (Lack of ownership/commitment), 22.6 (Capture of the judiciary), 20.8 (Capture of the legislature), 20.8 (Other), plus lack of international cooperation/transnational weaknesses noted in subgroup breakdowns. ### Q9 — Areas where further enhanced engagement is needed (mission chief view) - Summary findings: - Majority demand more enhanced engagement on fiscal governance and AML/CFT, followed by anti-corruption and financial sector oversight. - LICs, FCS, and high perceived vulnerability countries show stronger demand for rule of law and financial sector oversight. - Suggests need to reallocate resources to meet increasing demand in these areas. - Respondents: 159/190. - Top identified needs (overall, Figure 8): - Fiscal governance: 96.8 - AML/CFT: 76.7 - Anticorruption: 80.0 - Financial sector oversight: 53.3 - Rule of law: 50.0 - Market regulation, Governance diagnostic, Central bank governance and operations shown with lower but significant shares. ### Q10 — Engagement with civil society on governance and anti-corruption reforms - Summary findings: - 43 percent of sample answered Some or Extensive interaction (Extensive only 9 percent); 30 percent indicated A little. - LICs, countries with UCT programs, and high perceived vulnerability countries show more engagement. - Respondents: 159/190. - Overall response distribution (Figure 9): Extensively, Some, A little, Not at all (percentages shown in figure captions and subgroup charts). ### Q11 (Optional) — Comments on civil society and media contribution (based on 51 responses) - Summary findings: - Responses confirm challenges obtaining information/insights from CSOs where press and CSO freedom is limited. - About 65 percent of meaningful responses are from countries with free and independent press and CSOs; about 35 percent from no free or underdeveloped/limited capacity press and CSOs. - 27 responses (24 from EMs and LICs) explicitly referenced useful discussions/exchanges with CSOs. ### Q12 — Cooperation with other multilaterals/donors on governance/corruption issues - Summary findings: - Neutral responses (52 percent) prevent a majority supportive view; supportive views (43 percent) surpass negative (6 percent). - Heterogeneity: majority supportive in FCS, countries with UCT programs, and/or high perceived vulnerabilities. Neutral responses large among AEs. - Respondents: 160/190. - Overall distribution (Figure 10): 6.3, 36.3, 51.9, 5.6 (Strongly Agree, Agree, Neither agree nor disagree, Disagree) as shown in figure. ### Q13 (Optional) — Comments on collaboration with other IFIs (48 responses) - Summary findings: - Favorable assessments outnumber negative. 47 percent (22 responses) explicitly mentioned useful/good collaboration with IFIs; about 11 percent (5 responses) expressed negative views citing coordination costs and timeliness. - 25 responses provided specific collaboration areas: ~52 percent related to fiscal (nearly one third on procurement), 21 percent on corruption, 14 percent on AML/CFT. - Country teams flagged needs: better alignment of understanding/expectations around cooperation, better coordination of CD/TA on GAC issues, and recognition of difficulties achieving effective cooperation due to differing IFI and stakeholder priorities. Negative views examples (selected, verbatim summary points): - Collaboration costs can be prohibitive; disconnect between Board expectations, internal guidance, and ground realities undermines traction. - High degree of overlapping CD on fiscal governance and lack of coordination of governance-related CD delivery in the field. - Difficulty reaching common ground on governance issues given differing international stakeholder interests. ### Q14 — Frequency of consultation with the World Bank on governance and anti-corruption (IDA/IBRD/Blend countries) - Summary findings: - Sample limited to WB IDA, IBRD and Blend lending categories (source note). - Almost all (94 percent) country teams have some form of consultation with the WB. - Majority of LICs, FCS, and high perceived vulnerability countries have frequent consultation; slightly less than half of UCT program countries have frequent consultation. - Respondents: 114/144 (eligible sample). - Overall distribution (Figure 11): 38.6 (Frequently), 6.1 (Annually), 49.1 (Only on as needed basis), 6.1 (Not at all). ### Q15 — Preferred modalities for further enhanced engagement (ranking) - Summary findings: - Top-ranked modality: Increase technical assistance and training on governance and anti-corruption. - Followed by: Conduct and publish more governance diagnostics; increase depth and coverage in regular surveillance/Article IV; conduct more voluntary assessment of transnational aspects of corruption; establish more governance-related conditionality for IMF financing. - “Others” responses: enhancing collaboration with other institutions (IFIs, UN, civil society) and increasing in-house expertise (more resources, wider knowledge sharing). - Observed alignment with Q8: capacity constraints are a key implementation barrier; increased TA/CD is consistent with need. - Respondents: 160/190. - Average ranking scores (overall, from Figure 12, preserved ordering and average points): - Increase technical assistance and training on governance and anti-corruption: 4.3 - Conduct and publish more governance diagnostics: 3.7 - Increase depth and coverage in regular surveillance/Article IV consultations: 3.4 - Conduct more voluntary assessment of transnational aspects of corruption: 2.9 - Establish more governance-related conditionality for IMF financing: 2.8 - Others (please specify): 1.2 - Issues ranked as 1st and 2nd priority (overall, percent of total sample shown in Figure 12): - Increase technical assistance and training on governance and anti-corruption: 33.1 (1st), 13.8 (2nd) - Conduct and publish more governance diagnostics: 19.4 (1st), 9.4 (2nd) - Increase depth/coverage in surveillance: 13.1 (1st), 11.3 (2nd) - Conduct voluntary assessments of transnational aspects: 26.4 (1st), 31.9 (2nd) - Establish more governance-related conditionality: 15.3 (1st), 13.9 (2nd) - Others: 8.3 (1st), 4.2 (2nd) ### Q16 — Appropriateness/timeliness of support from functional departments (FDs) - Summary findings: - Country teams reported receiving appropriate support from FDs in a timely manner overall. - Respondents: 160/190. - Overall response distribution illustrated in Figure 13 (by region, income, fragility, UCT, WGI quartiles). ### Q17 — Modalities of engagement with FDs that provided helpful support - Summary findings: - Top three appreciated modalities: Review process (departmental comments and PCM), Bilateral consultation with relevant FD, and Staff from functional department (incl. assigned partly or fully to support country team or join missions). - Capacity development, governance diagnostic assessments, and interdepartmental governance brainstorming sessions were less commonly cited as helpful (governance diagnostics low potentially due to small number of diagnostics). - LICs, FCS, and countries with UCT programs/high perceived vulnerabilities appreciated deeper/tailored FD support including CD, governance diagnostics and interdepartmental brainstorming. - Respondents: 159/190. - Overall percentages (Figure 14): - Review process: 88.7 - Bilateral consultation with relevant FD: 82.4 - Capacity development: 69.2 - Governance diagnostic assessments: 56.0 - Interdepartmental governance brainstorming sessions: 26.6 - Staff from functional department (incl. assigned partly or fully): 82.4 (reported across regional and income subgroups). ### Q18 — Areas where more engagement of FD staff would be useful - Summary findings: - Responses align with Q9: greatest demand for FD engagement on fiscal governance and AML/CFT, followed by anticorruption, financial sector oversight, rule of law, market regulation, governance diagnostics, and central bank governance and operations. - Only 5 percent of responses said engagement is appropriate and no need for more. - Respondents: 158/190. - Overall percentages (Figure 15, top items): - Review process (departmental comments and PCM): 76.3 - Bilateral consultation with relevant FD: 63.2 - Capacity development: 48.7 - Governance diagnostic assessments: 34.2 - Interdepartmental brainstorming sessions: 13.2 - Any other vehicles of support: 5.3 - Demand by topic (Figure 15, overall): - Fiscal governance: 61.4 - Anticorruption: 58.3 - Financial sector oversight: 47.1 - Rule of law: 40.0 - Market regulation, Governance diagnostic, Central bank governance and operations: lower but material shares. - Engagement is useful and appropriate, no need for more: 29.7 ### Q19 — Free-text comments on FD engagement (based on 50 meaningful responses) - Summary findings (categories and share of responses where applicable): - More resources and prioritization (ADs and FDs): 25 percent of responses flagged need for more resources/prioritization. - Provide more advice/guidance based on FD expertise: 24 percent requested more FD-based good practices, coordination with WB/IFIs, more CD missions and training. - More tailored and country-specific advice: 19 percent requested systematic application and country-specific strategies. - Others: 16 percent (examples: use Regional CD Centers, reflect on main interlocutors beyond MoF/CB, greater focus on implementation). - Focus on Fund core expertise: 7 percent. - Consistent policy advice to preserve even-handedness: 9 percent. - Implementation feasibility noted: - 75 percent of these suggestions could be addressed without changes to Fund policies/frameworks. - 6 percent may require some change to Fund policies/frameworks. - 6 percent likely require actions beyond that. - Examples of suggested policy/framework changes: - Make governance diagnostics mandatory like safeguards assessments for programs. - Have dedicated full-time staff for governance issues at AD level. - Update/improve governance framework to better measure/diagnose governance. - Examples requiring actions beyond internal changes: - Reflect/reconsider main authority counterparts for governance discussions (MOF/CBs may not be appropriate interlocutors). - Develop strategies to address comprehensive corruption beyond laws/institutions (political trade-offs). - Greater focus on implementation beyond framework improvements. *Source: Country team survey. ### 1. The IMF is reviewing the implementation of the 2018 Framework for Enhanced ### Review of Implementation of the 2018 Framework for Enhanced Engagement on Governance — Consultation Findings ### Overview of review and consultation process - The IMF is reviewing the implementation of the 2018 Framework for Enhanced Engagement on Governance to assess implementation over the past five years based on the candidness, effectiveness and evenhandedness of IMF engagement and policy advice, and to identify opportunities to improve implementation. - An Interim Update was published in 2020 noting that civil society organizations (CSOs) play a key role and that engagement with CSOs has been enhanced through more active and periodic consultations, including during the COVID-19 crisis. - The stakeholder consultation process was two-phase: - Phase I: an online public consultation that took place from July 26 to October 19, 2022. - Phase II: in-person and virtual follow up meetings with CSOs in December 2022 (December 5th and 19th respectively for follow-ups; separate meetings on December 4th in-person at IMF headquarters with seven CSOs and December 19th virtual with eight CSOs to discuss preliminary findings and seek further insights). ### Participation and respondent types (Phase I) - Surveys and responses: - A total of 59 responses to the online public consultation were received, 10 of which were found to be unrelated to the 2018 Governance Framework or irrelevant to review its implementation. - The analysis focuses on 49 responses comprising: - Eight responses from international CSOs working on governance, anti-corruption, environmental and human rights issues. - Twenty-six responses from domestic CSOs from 20 countries, representing five different regions. 11 of these organizations (approximately 42 percent of the domestic respondents) have objectives directly related to governance and anti-corruption. The rest specialize in topics such as human rights, inequality, social, economic, and environmental justice, HIV/AIDS, development, trade unions, energy security, legislative advocacy, education, peace, and youth. - Fifteen responses received from individuals, ranging from academics, officials at financial institutions, lawyers, journalists, and other persons, from a total of 13 countries representing five regions. ### Key takeaways from the overall consultation - Overall, CSOs had a positive view on the implementation of the 2018 Framework, while encouraging more engagement with civil society. - A majority of CSOs recognized the IMF engagement has been more candid, effective, and evenhanded since the implementation of the 2018 Framework. - CSOs believe the IMF provided more specific, concrete, and actionable policy advice to member countries since implementation of the 2018 Framework. - CSOs called for more channels of engagement and participation, particularly at the national level. - Further engagement suggestions included expanding the breadth of civil society organizations consulted, ensuring more regular/periodic consultations, and increased opportunities for dialogue during IMF missions. - CSOs requested coverage of IMF's mandate and work on governance and anti-corruption to enable better partnership in monitoring implementation of policy advice and conditionalities, and encouraged development of specific policies to protect CSOs operating in a shrinking civic space context. - CSOs called for greater publicity and transparency of IMF's work related to governance and anti-corruption, including on implementation of the Framework, and urged the IMF to use more conditionalities in these areas. - IMF efforts around beneficial ownership transparency and COVID-19 audits were highlighted as successes. ### Main findings from the online public consultation (detailed) - Perceptions of IMF engagement: - For more than two thirds of respondents, IMF engagement has been more candid, effective, and evenhanded since the implementation of the 2018 Framework. There were no negative responses from CSOs to this question, only from some individual respondents. - More than two thirds of respondents agree that the IMF provided more specific, concrete, and actionable policy advice to member countries since implementation of the 2018 Framework. The level of positive response raised above three quarters for CSOs. - Positive examples mentioned include IMF's work on beneficial ownership (including in the context of COVID-19 financing), AML/CFT, anti-corruption, judicial reform, and anti-corruption courts. - A recurrent theme across responses is the need for monitoring and effective implementation of policy advice, which some respondents indicate can be facilitated by CSOs. - CSO engagement views: - Views on IMF's engagement with civil society organizations on governance and anti-corruption are mixed: two thirds of respondents agree that it has improved since implementation of the 2018 Framework, but almost half of respondents consider that it did not improve enough or did not improve. - Requests include greater publicity and transparency of IMF's work, more channels for engagement and participation, and capacity building on anti-corruption issues. - Some CSOs requested closer involvement at the time of scoping for governance diagnostics, and in drafting and monitoring governance-related conditionalities, and called for greater transparency of IMF's policies and procedures regarding CSO engagement (including to safeguard against reprisal). - CSO recommendations to improve IMF work on governance and anti-corruption: - Expanding work to additional topical areas and/or deepening engagement in issues such as political capture, rule of law, the judiciary, beneficial ownership, AML/CFT, audits, market regulation, natural resources governance, and transparency—including in relation to debt and procurement. - More use of conditions on governance-related measures in the context of lending; some recommended further monitoring and assessing implementation of governance and anti-corruption measures and studying the impact of IMF's overall conditionality on governance and corruption. - Importance of training country officials and leveraging technology. - One CSO provided recommendations of measures to be implemented by member countries across the six state functions and on anti-corruption. ### Phase II follow-up meetings — detailed findings - Purpose and format: - Follow up meetings in December 2022 aimed to share key inputs from Phase I and seek further insights. An in-person meeting took place on December 4th at IMF headquarters with seven CSOs; a virtual meeting took place on December 19th with eight CSOs. Fund staff presented the consultation process and preliminary findings and then discussed IMF engagement with CSOs on governance and anti-corruption and implementation of the 2018 Framework. - IMF’s engagement with CSOs — CSO priorities and requests: - More channels of engagement and participation for CSOs, particularly at the national level and in policy design. CSOs urged the IMF to facilitate regular engagement with a broader pool of CSOs at the international, national, and local level; some suggested engagement with the private sector. - Practical suggestions to facilitate engagement included updating more regularly the implementation of governance measures in COVID-19-related spending and publishing said information in open data format, publication of technical assistance reports, and engagement with CSOs in audit processes including in real time audits and more timely publication of audit results. - Enhanced discussions on IMF's mandate and its work on anti-corruption so CSOs can better monitor implementation of policy advice and anti-corruption conditionality. - Mechanisms for protection of CSOs the IMF consults with and who speak up against corruption, particularly in countries with a shrinking civic space; CSOs encouraged anti-retaliation policies and creation of an ombudsman office or independent accountability mechanism. - CSOs welcomed the two-phase consultation approach and encouraged the IMF to replicate it in future consultations. - Implementation of the 2018 Framework — CSO feedback: - CSOs welcomed IMF's efforts, particularly on COVID-19 audits and beneficial ownership transparency, and encouraged greater publicity and transparency of IMF's work related to governance and anti-corruption. - Some CSOs, particularly at the national level, urged the IMF to increase the number of governance and anti-corruption related conditionality in Fund-supported programs, including publication of beneficial ownership information on key risk areas such as public procurement, extractives, forestry, and fishing. - A call for the IMF to include lobbying and integrity among the areas of policy advice considered in its country work. *Prepared by Ivana Rossi, Paula Zarazinski, Bonolo Namethe, Jaison Vega Laiton (all LEG), Emilia Berazategui (COM).* ### Appendix I. Detailed Findings – Public Online Consultation ### Appendix I. Detailed Findings – Public Online Consultation ### Overview of the consultation - Analysis based on the 49 valid responses received for each question in the public consultation. - Open-ended responses were summarized, common themes identified, and responses grouped where possible. - Aggregate responses presented together with highlighted key input from CSOs. ### Question 1 — Has IMF engagement been enhanced (candidness, effectiveness, evenhandedness)? - Aggregate chart values reported: - 61.8, 17.6, 0.0, 20.6 — Respondents:34 - 51.0, 20.4, 8.2, 20.4 — Respondents: 49 - Main observations: - Over 71 percent of respondents agree that the IMF engagement with member countries on governance and anti-corruption issues has been enhanced with respect to its candidness, effectiveness, and evenhandedness since the implementation of the 2018 Framework. - From these, 20 percent agrees but considers that more is still needed. - CSOs had no negative responses in the aggregate. - Very few written comments explicitly referred to candidness, effectiveness, and evenhandedness (exception: four CSO respondents). - Some responses shared frustration regarding the current level of corruption in their countries. - Key CSO observations: - Governance diagnostic assessments and general technical assistance on key state functions are useful to identify specific governance reforms and improve effectiveness; more governance and transparency related conditionalities are needed. - CSOs in two countries with IMF-supported programs expressed satisfaction on coverage and outcomes. - One respondent, analyzing Article IV reports, stated treatment of countries is impartial (evenhanded), but effectiveness is more difficult to assess. - One domestic CSO highlighted that increasing communication with civil society will help improve candidness. - An international CSO recommended a systematic and coherent methodology to assess and engage with countries on governance and anti-corruption issues and questioned the "real-life" impact of Fund-supported reforms, calling for more transparency of IMF's policies and procedures and discussions (e.g., on beneficial ownership and on illicit financial flows). ### Question 2 — Has the IMF provided more specific, concrete, and actionable policy advice since 2018? - Aggregate chart values reported: - 70.6, 5.9, 8.8, 14.7 — Respondents:34 - 65.3, 4.1, 10.2, 20.4 — Respondents:49 - 34.7, 36.7, 8.2, 20.4 — Respondents:49 - Main observations: - Sixty-nine percent of respondents agree that the IMF provided more specific, concrete, and actionable policy advice on governance and anti-corruption since implementation of the 2018 Framework. - Seventy-six percent of CSOs responded positively overall. - Positive feedback was given in areas such as AML/CFT, anti-corruption, judicial reform, and anti-corruption court. - Negative responses: five respondents (three CSOs and two individuals) said the IMF has not provided more specific, concrete, and actionable policy advice. - Need for monitoring and effective implementation of policy advice highlighted; CSOs can help facilitate follow-up. - Key CSO observations: - Three CSOs noted IMF's work positively on beneficial ownership, including in the context of COVID-19 financing; calls for monitoring implementation of commitments. - One domestic CSO requested: - (a) more concrete advice regarding the rule of law, - (b) a standardized analysis model for governance and anti-corruption coverage in Article IV reports, - (c) inclusion of corruption as an independent element in Risk Assessment Matrixes, - (d) more uniformity in coverage across reports, and - (d) a clear general evaluation protocol under each key state function used consistently to inform IMF recommendations. - "Without a general framework, we cannot evaluate the effectiveness of recommendations because we do not have parameters to compare." - Another domestic CSO highlighted the importance of greater data transparency, audits, and addressing monopolies. - Several respondents emphasized the importance of follow up to ensure implementation of anti-corruption measures. ### Question 3 — Has IMF engagement with civil society organizations (CSOs) improved since 2018? - Aggregate chart values reported: - 32.4, 44.1, 5.9, 17.6 — Respondents:34 - Main observations: - Over 75 percent of civil society respondents agree that IMF's engagement with CSOs on governance and anti-corruption issues has improved since implementation of the 2018 Framework. - From these, a higher percentage considers that engagement has improved but not enough (44 percent). - None of the international CSOs provided a negative response. - Key CSO recommendations to enhance engagement: - Greater publicity and transparency of IMF's work. - More channels for engagement and participation, and capacity building on anti-corruption issues. - Specific recommendations from an international CSO working on procurement transparency: - (i) Facilitate more consistent engagement with civil society across countries, - (b) build awareness and understanding of CSOs' role in helping the IMF achieve its mission, - (ii) Include civil society early when drafting governance-related conditionalities, - (iii) Publish relevant documents in a timely manner so civil society can hold governments accountable, - (iv) Urge governments to publish anti-corruption strategies and implementation plans that are part of programs, - (v) Encourage governments to create multistakeholder consultation mechanisms to inform policy making and corruption monitoring. - Calls for a systematic consultation process with civil society in government diagnostic assessments. - Recommendations for greater transparency of IMF's policies and procedures regarding CSO engagement. - Development of a clear policy to facilitate comprehensive engagement with CSOs and stronger protections for civic space (including statements and guidelines against reprisals and attacks). - Broader scope of engagement to include Illicit Financial Flows and improved monitoring of beneficial ownership transparency. ### Question 4 — How should the IMF strengthen engagement in key governance and anti-corruption areas? - Key CSO observations and recommendations: - Increase transparency of discussions between the IMF and member states and enhance participation of non-state actors. - Use international standards and frameworks (for example FATF, UNCAC, and UNSDG) to identify priority areas and inform recommendations. - More engagement with domestic CSOs to monitor and assess implementation; capacity building for government officials to provide open and accessible data. - Broaden rule of law work to include judicial reform; implement a more structured and participatory process to engage with CSOs. - Actively monitor financial sector oversight and fiscal governance. - Treat progress on governance-related measures as conditions for further loans and financial support (recommended by one international CSO). - Treat transparency commitments (e.g., beneficial ownership, publication of contracts) as conditions for financing and play a significant role in sharing data for research. - Target public procurement vulnerabilities more systematically. - Consider political capture directly in policy making and implement social impact assessments of IMF interventions (recommendation from a humanitarian CSO). - Support for program conditionality related to budget transparency, social accountability, fiscal justice, and civic space. - Establish an accountability mechanism to receive complaints and mitigate/address impacts of IMF interventions. - Other individual recommendations: - (i) support AML/CFT Committees and implementation of national anti-corruption strategies, - (ii) use governance and anti-corruption commitments more firmly as conditions for IMF financing, - (iii) promote greater publicity of governance and anti-corruption measures and use quantitative metrics by countries and IMF assessment teams, - (iv) establish a governance and anti-corruption network with CSO members and other experts. ### Question 5 — Other views or suggestions on IMF’s work on governance and anti-corruption - Domestic CSO suggestions on CSO engagement: - Build capacity of CSOs and provide a pool of experts on governance and anti-corruption. - Have more frequent meetings and establish formal channels of communication and a clear methodology to engage with CSOs. - Engage CSOs in the accountability process and support them to monitor implementation of policy advice. - Consider CSOs as partners to advance IMF recommendations. - Accountability and internal policy recommendations: - Establish an accountability mechanism or Ombudsperson's office to receive complaints and queries about IMF's work (recommended by domestic and international CSOs). - Improve internal policies related to lobbying integrity to address revolving door concerns from officials moving from the IMF to the private sector. - Adopt clear and effective policies to guide staff in negotiations related to governance and anti-corruption. - Additional thematic recommendations: - Promote responsible PFM through lending and engage with civil society in establishing and monitoring governance commitments. - Call for more efficient AML and beneficial ownership policies and offer to pilot them in countries. - Emphasize debt transparency, parliamentary oversight and approval of loans, and capacity building of legislators for oversight. - Promote transparency tools for natural resources governance: country-by-country reporting of profits, taxes, and related party payments by multinational companies; extractive industry payments-to-government reporting; beneficial ownership and extractive industry contract disclosures; public financial models; and transparency around audits. - Create incentives for countries to improve the rule of law and develop a rule of law rank. - More conditionalities on open contracts and open data, identified as main drivers of reform by one domestic CSO. ### Case Studies — Summary of 40 Case Studies (Article IV) - Sample: - Same 40 countries as 2017 case study; 37 countries had an Article IV Consultation discussed by the Executive Board since April 2018 until end-December 2022. - Mali, Libya and Ukraine did not have Article IV consultations during the period. - Composition: 8 AEs, 16 EMs, 13 LIDCs. - Key observations (case-study level): - The centralized assessment identifies severe or high-level corruption for 75 percent of the countries in the sample. - By income group: 12 percent for advanced economies, 94 percent for emerging markets and 100 percent for LIDCs. - Most governance weaknesses associated with corruption relate to fiscal governance, market regulation and rule of law. - Governance weaknesses related to central bank governance and operations, and financial sector oversight are identified in only 14 and 22 percent of the countries in the sample, respectively. - Revenue outcomes and procurement are the most common sub-area weaknesses. For LIDCs, contract enforcement and property rights are most common by sub-area. - In 100 percent of the cases where severe or high levels of corruption have been identified, they have been candidly discussed in Article IV consultations. - Discussions have been most candid regarding weaknesses related to AML/CFT, central bank governance, rule of law and fiscal governance. - Explicit linkage to corruption vulnerabilities was only made in 9 percent of instances where market regulation weaknesses were identified. - Candidness by income level: - For EMs, most candid on AML/CFT, central bank governance, fiscal governance and rule of law. - For LIDCs, most candid on financial sector oversight, AML/CFT and central bank governance. - Candid discussions occurred in more than 60 percent of cases for AML (entity transparency, preventive measures, criminal justice), fiscal transparency, and procurement. - No candid discussions when weaknesses identified in exchange restrictions, imports licensing, trade facilitation or public engagement in rule making. - Implementation rates: - Very satisfactory coverage and implementation for corruption vulnerabilities, AML/CFT, and central bank governance weaknesses with candid and substantive discussions and specific policy advice in 89, 80, and 60 percent of the cases respectively. - Coverage very low for market regulation (2 percent), and around 40 percent for other state functions. - At the sub-area level, beyond AML/CFT, implementation above 40 percent for fiscal transparency, property rights, PFM controls, investor protection, and procurement. - Implementation by income group: LIDCs overall 52 percent, EMs 37 percent, AEs 14 percent. - For LIDCs, all state functions except market regulation have implementation rates above 45 percent; financial sector oversight, AML/CFT and central bank governance have implementation rates of 100, 88 and 67 percent respectively. ### Table 1 — Identification of Main Weaknesses (37 countries with Article IV staff reports) - Area of weakness — Number of weaknesses — 37 countries — AEs — 16 EMs — 13 LIDCs - Corruption — 28 — 0 — 16 — 12 - Rule of Law — 49 — 1 — 18 — 30 - Investor Protection — 13 — 0 — 6 — 7 - Contracts — 18 — 1 — 5 — 12 - Property Rights — 18 — 0 — 7 — 11 - AML/CFT — 41 — 1 — 23 — 17 - Preventive measures — 13 — 0 — 9 — 4 - Entity transparency — 13 — 1 — 7 — 5 - Criminal justice — 12 — 0 — 6 — 6 - International Cooperation — 3 — 0 — 1 — 2 - Fiscal Governance — 101 — 4 — 51 — 46 - Revenue Outcomes — 22 — 2 — 12 — 8 - Revenue Institutions — 12 — 1 — 4 — 7 - Spending Outcomes — 12 — 0 — 7 — 5 - Procurement — 19 — 1 — 9 — 9 - Fiscal Transparency — 18 — 0 — 10 — 8 - PFM Controls — 18 — 0 — 9 — 9 - Market regulation — 57 — 1 — 30 — 26 - Ease of Doing Business — 17 — 0 — 7 — 10 - Public engagement — 9 — 0 — 4 — 5 - Product market regulation — 9 — 1 — 5 — 3 - Trade facilitation — 9 — 0 — 5 — 4 - Imports licensing — 5 — 0 — 5 — 0 - Exchange restrictions — 8 — 0 — 4 — 4 - Central Bank Governance — 5 — 0 — 2 — 3 - Financial Sector Oversight — 8 — 0 — 1 — 3 - Total Main Weaknesses — 289 — 7 — 145 — 137 *Source: CSO public consultation and staff analysis of 37 countries Article IV staff reports.* ### 2. For each country in the sample, it has been analyzed if – when identified as ### ppea2023015 - 2. For each country in the sample, it has been analyzed if – when identified as ### Candid Discussions — main findings (Table 2) - Sample: 37 countries; disaggregations: 8 AEs, 16 EMs, 13 LIDCs. - Corruption: 100 percent (37 countries); AEs: -, EMs: 100, LIDCs: 100. - Rule of Law: 49 percent (37); AEs: 0, EMs: 44, LIDCs: 53. - Investor Protection: 46 percent (37); AEs: -, EMs: 33, LIDCs: 57. - Contracts: 44 percent (37); AEs: 0, EMs: 60, LIDCs: 42. - Property Rights: 56 percent (37); AEs: -, EMs: 43, LIDCs: 64. - AML/CFT: 85 percent (37); AEs: 0, EMs: 83, LIDCs: 94. - AML — Preventive measures: 92 percent (37); AEs: -, EMs: 89, LIDCs: 100. - AML — Entity transparency: 92 percent (37); AEs: 0, EMs: 100, LIDCs: 100. - AML — Criminal justice: 83 percent (37); AEs: -, EMs: 67, LIDCs: 100. - International Cooperation: 33 percent (37); AEs: -, EMs: 0, LIDCs: 50. - Fiscal Governance: 52 percent (37); AEs: 25, EMs: 47, LIDCs: 61. - Revenue Outcomes: 32 percent (37); AEs: 0, EMs: 25, LIDCs: 50. - Revenue Institutions: 58 percent (37); AEs: 0, EMs: 75, LIDCs: 57. - Spending Outcomes: 50 percent (37); AEs: -, EMs: 57, LIDCs: 40. - Procurement: 68 percent (37); AEs: 100, EMs: 67, LIDCs: 67. - Fiscal Transparency: 61 percent (37); AEs: -, EMs: 50, LIDCs: 75. - PFM Controls: 50 percent (37); AEs: -, EMs: 33, LIDCs: 67. - Market regulation: 11 percent (37); AEs: 100, EMs: 7, LIDCs: 12. - Ease of Doing Business: 24 percent (37); AEs: -, EMs: 29, LIDCs: 20. - Public engagement: 0 percent (37); AEs: -, EMs: 0, LIDCs: 0. - Product market regulation: 11 percent (37); AEs: 100, EMs: 0, LIDCs: 0. - Trade facilitation: 11 percent (37); AEs: -, EMs: 0, LIDCs: 25. - Imports licensing: 0 percent (37); AEs: -, EMs: 0, LIDCs: -. - Exchange restrictions: 0 percent (37); AEs: -, EMs: 0, LIDCs: 0. - Central Bank Governance: 60 percent (37); AEs: -, EMs: 50, LIDCs: 67. - Financial Sector Oversight: 38 percent (37); AEs: -, EMs: 27, LIDCs: 100. - Total Main Weaknesses: 48 percent (37); AEs: -, EMs: 25, LIDCs: 55. - Source noted: staff analysis of 37 countries Article IV staff reports. ### Candid and Substantive Discussion with Specific Policy Advice (Table 3) - Sample: 37 countries; disaggregations: 8 AEs, 16 EMs, 13 LIDCs. - Corruption (candid + substantive with policy advice): 89 percent (37); AEs: -, EMs: 81, LIDCs: 100. - Rule of Law: 39 percent (37); AEs: 0, EMs: 27, LIDCs: 47. - Investor Protection: 38 percent (37); AEs: -, EMs: 16, LIDCs: 57. - Contracts: 33 percent (37); AEs: 0, EMs: 40, LIDCs: 33. - Property Rights: 44 percent (37); AEs: -, EMs: 29, LIDCs: 54. - AML/CFT: 80 percent (37); AEs: 0, EMs: 78, LIDCs: 88. - AML — Preventive measures: 85 percent (37); AEs: -, EMs: 78, LIDCs: 100. - AML — Entity transparency: 92 percent (37); AEs: 0, EMs: 100, LIDCs: 100. - AML — Criminal justice: 75 percent (37); AEs: -, EMs: 67, LIDCs: 83. - International Cooperation: 33 percent (37); AEs: -, EMs: 0, LIDCs: 50. - Fiscal Governance: 41 percent (37); AEs: 25, EMs: 31, LIDCs: 52. - Revenue Outcomes: 27 percent (37); AEs: 0, EMs: 25, LIDCs: 38. - Revenue Institutions: 33 percent (37); AEs: 0, EMs: 25, LIDCs: 42. - Spending Outcomes: 33 percent (37); AEs: -, EMs: 43, LIDCs: 20. - Procurement: 47 percent (37); AEs: 100, EMs: 33, LIDCs: 55. - Fiscal Transparency: 56 percent (37); AEs: -, EMs: 40, LIDCs: 75. - PFM Controls: 44 percent (37); AEs: -, EMs: 22, LIDCs: 66. - Market regulation: 2 percent (37); AEs: 0, EMs: 0, LIDCs: 4. - Ease of Doing Business: 6 percent (37); AEs: -, EMs: 0, LIDCs: 10. - Public engagement: 0 percent (37); AEs: -, EMs: 0, LIDCs: 0. - Product market regulation: 0 percent (37); AEs: 0, EMs: 0, LIDCs: 0. - Trade facilitation: 0 percent (37); AEs: -, EMs: 0, LIDCs: 0. - Imports licensing: 0 percent (37); AEs: -, EMs: 0, LIDCs: -. - Exchange restrictions: 0 percent (37); AEs: -, EMs: 0, LIDCs: 0. - Central Bank Governance: 60 percent (37); AEs: 0, EMs: 50, LIDCs: 67. - Financial Sector Oversight: 38 percent (37); AEs: 0, EMs: 0, LIDCs: 100. - Total Main Weaknesses (candid + substantive with policy advice): 43 percent (37); AEs: 14, EMs: 37, LIDCs: 52. - Source noted: Staff analysis of 37 countries Article IV staff reports. ### Diagnostics and implementation — governance diagnostic assessments (Sections I, A overview) - Since 2018, 15 governance diagnostics completed; six more assessments underway. - Diagnostics are undertaken at authorities’ request; most were in a Fund-supported program context. - Typical scope: assess severity of corruption and governance weaknesses across the six core state functions of the 2018 Framework: - (i) fiscal governance; - (ii) rule of law (contract enforcement and protection of property rights); - (iii) market regulation; - (iv) central bank governance and operation; - (v) financial sector oversight; - (vi) AML/CFT. - Diagnostics assess effectiveness of anti-corruption legal and institutional frameworks and produce a public report; each diagnostic can take up to twelve months. - Findings have informed Fund-supported programs, conditionality, Article IV surveillance, capacity development, and authorities’ reform efforts. - Follow-up practices noted as important: incorporate recommendations in program/surveillance work, monitor action plans in government reform programs, arrange follow-up technical assistance if requested. ### Diagnostics — coverage, publication, and methodology - Of 21 countries with diagnostics completed or underway, 10 are Fragile and Conflict-affected States (FCS). - Ten out of 15 completed reports have been published with authorities’ approval. - Publication often on authorities’ websites; some reports published as authorities’ reports prepared in collaboration with IMF. - Severity assessments combine candid sector analysis with third-party indicators; 3 out of 15 completed diagnostics used third-party indicators. - Recent exercises (example: Zambia) included an external political scientist to deepen understanding of corruption patterns and past reform experiences. ### Country sample (Appendix I excerpt) - Country sample spans AFR, APD, EUR, MCD, WHD and includes AEs, EMs, and LIDCs. - Note on LIDCs: low-income developing countries are a group of 40 countries based on the October 2022 Fiscal Monitor classification; threshold noted as $2,700 (as of 2016, World Bank Atlas method). *Source: staff analysis of 37 countries Article IV staff reports.* ### 5. Diagnostics consistently assess corruption risks as part of analyzing the effectiveness ### 5. Diagnostics consistently assess corruption risks as part of analyzing the effectiveness ### Coverage and analytical focus of diagnostics - Diagnostics assess corruption risks in AML, rule of law (especially in relation to the integrity of the judiciary), fiscal governance and financial sector oversight frameworks. - Diagnostics consider the soundness and alignment of legal and organizational arrangements for fighting corruption with international standards and good practice, and the appropriateness of the anti-corruption strategy in light of the corruption risks that are present. - Diagnostics typically include fiscal transparency, public financial management (including public procurement, PPP framework and/or public investment management where relevant), SOE oversight, revenue administration, and/or natural resource management. When relevant, they also discuss fiscal decentralization, digitization, or human resources management. - All diagnostic reports provide time-bound policy recommendations and most provide sequencing by identifying a limited number of priority measures in each area. ### Distribution of recommendations (by number and focus) - 57 percent of recommendations focused on fiscal governance. - 14 percent of recommendations focused on strengthening the overall anti-corruption frameworks. - 10 percent of recommendations focused on rule of law (including effectiveness and integrity of the justice sector). - 8 percent of recommendations focused on AML. - 4 percent of recommendations focused on financial sector oversight. - 3 percent of recommendations focused on market regulation. - 3 percent of recommendations focused on central bank governance and operations. - Note: Market regulation recommendations are few, reflecting somewhat inconsistent coverage of this element. Financial sector oversight and central bank governance and operations were not covered in earlier diagnostics. ### Selective reform recommendations (Table 2 examples by area) - Anti-Corruption framework - Adoption of anti-corruption law in line with UNCAC standards (short-term RoC; high-priority Equatorial Guinea) - Introduce transparent and participatory appointment rules for key anti-corruption officials (medium-term, Zambia) - Strengthen asset declarations legal framework (short-term, CAR, short/medium-term Zambia) - Fiscal Governance (public financial management, tax administration and customs operation) - Undertake a comprehensive inventory of extrabudgetary operations (short-term, Guinea-Bissau). - Extend the coverage of the General Treasury Account to all central government operations (medium-term, DRC). - Publish quarterly an online list of names of all de jure or de facto exemptions with the revenue losses they generate in the government coffers (short-term, CAR) - Rule of law - Clarify powers and responsibilities of the judicial inspectorate and improve operating procedures (short-term, Moldova) - Establish a publicly accessible central repository of updated laws and regulation (immediate, DRC) - Develop detailed procedures and fair and uniform criteria for alienation of State land, with clearly defined roles and responsibilities of central and local authorities. Provide capacity building and resources to local authorities to ensure proper implementation of land alienation rules (short-term, Zambia) - Market regulation - Post all legislation, decrees, and regulations online (short-term, Guinea-Bissau). - Ensure full operationalization and sustainability of the one-stop shop and for bureaus to become financially autonomous (short-term, DRC). - Unify licensing for economic activity under a single entity (high-priority, Mozambique) - Central bank governance and operations - Strengthen the NBM’s governance and independence, including the operational independence of its prudential supervisory function through amendment to the NBM Law (medium-term, Moldova). - Financial sector oversight - Enhance the governance of the Bank of Zambia in its role as banking supervisor (medium-term, Zambia) - Set out detailed requirements to avoid conflicts of interest for members of the Management or Executive Boards and all staff members of the National Bank of Moldova. Equity ownership of any supervised institution must be prohibited (short-te rm, Moldova) - Implement upgraded regulations on banks’ governance, internal controls and risk management (immediate, DRC). - AML/CFT - Strengthen supervision of preventive AML/CFT measures related to politically exposed persons (short-term, Guinea-Bissau) - Amend the AML/CFT Law and related regulations to ensure compliance with the FATF standard (immediate, DRC) - Enhance the use of financial intelligence related to corruption in investigation (Equatorial Guinea, CAR) ### Impact on Fund engagement and programs - Diagnostic recommendations have regularly featured in subsequent surveillance and Fund-supported programs, and have been reflected in program conditionality, most often on fiscal governance and anti-corruption framework. - Examples of diagnostic influence on programs: - In Equatorial Guinea, the diagnostic recommendations were basis for 3 Prior Actions, 5 Structural Benchmarks and 28 MEFP commitments undertaken by the authorities. - In Guinea Bissau, the diagnostic recommendations resulted in 11 Structural Benchmarks in the ECF and continue to be reflected in the IMF’s dialogue with country officials. - In Moldova, diagnostic recommendations on rule of law and anti-corruption institutions were prominently featured in the subsequent program. - Engagement in some countries was interrupted when a program went off track, or due to an abrupt change in government (e.g., military coups in Sudan and Mali). - Governance diagnostics inform longer term engagement on governance and corruption with country authorities. ### Case example — Ukraine’s 2014 Diagnostic and outcomes (Box 1) - 2014: Ukraine’s authorities, with staff support, published a diagnostic report analyzing key corruption vulnerabilities and outlining a roadmap for anti-corruption reforms; the report was published as a policy commitment under the IMF-supported program. - Findings: pervasive and oppressive corruption, state capture, and lack of implementation of formal frameworks to hold high-level corrupt officials accountable. - Sequenced establishment of anti-corruption infrastructure: - National Anti-Corruption Bureau in 2015 (investigation) - Specialized Anti-Corruption Prosecutor’s Office in 2017 (prosecution) - High Anti-Corruption Court in 2019 (adjudication) - Reforms implemented: asset declarations, criminalization of illicit enrichment, AML tools; members of parliament, ministers and judges have since been subject to investigations, prosecutions, and convictions. - Sustainability: These agencies have continued to operate despite the war. Subsequent targeted reforms sought to strengthen the rule of law and enhance the independence, integrity and accountability of judges, including improving procedures for competitive selection for the members of the judicial self-governance body. ### Integration with capacity development (CD) and stakeholder engagement - Diagnostic recommendations have informed the Fund’s CD, though integration can be improved. - Republic of Congo follow-up is a good practice: authorities adopted a new comprehensive anti-corruption law and implementing regulations on conflict of interest, along with the law on asset declarations for public officials with IMF’s technical assistance. - CD on anti-corruption law and AML systems were provided to Equatorial Guinea and Paraguay respectively. - Diagnostics seek close engagement with civil society and international partners (UNODC, UNDP, EU, FCDO, GIZ, USAID, SIDA); experts from World Bank or IDB have participated in some assessments (Peru, Sudan, Zimbabwe, Paraguay). - In some countries, diagnostics were used by authorities and donors to prepare comprehensive governance strategies (e.g., CAR action plan to combat corruption). ### Lessons learned and recommendations for future diagnostics - Governance diagnostics guide subsequent IMF actions, including surveillance and governance-related program conditions, shaping substance, sequencing, and prioritization. - Continued follow-up on diagnostic recommendations, including through targeted CD, would strengthen implementation. - Need to tailor each exercise to country circumstances while establishing greater structural and analytical consistency; a single template is not appropriate but greater consistency is feasible. - Value-enhancing practices to adopt: - (i) consistent in-depth discussion of the severity of corruption, including analysis of corrupt practices and networks, - (ii) increased focus on governance weaknesses that create corruption risks, - (iii) a dedicated section on anti-corruption reforms, - (iv) identification of a limited number of actionable priority recommendations. - For Fragile and Conflict-Affected States (FCS), balance fragility/political economy constraints with tackling governance weaknesses; adjust reform timelines and ensure leverage from development partners to amplify impact. - Analysis of severity of corruption and corruption risks across six state functions should more closely guide recommendation formulation; where risks are high and widespread, deeper understanding of corruption networks and political economy should inform issue selection and a holistic integrated approach. - Requests for governance diagnostics should be carefully sequenced with other CD activities; use diagnostic reports as a strategic basis for CD engagement on key state functions. ### Mitigating corruption risks in emergency spending (COVID-19 experience — introduction) - The paper analyzes the IMF’s approach to mitigating corruption risks related to emergency financing, building upon the experience during the COVID-19 pandemic. - Emergencies change the nature or severity of corruption threats and vulnerabilities, calling for tailored mitigating measures. - Key observations about emergencies: - Governments are pressed to act quickly and increase public expenditures, creating rent-seeking opportunities. - Existing rules (procurement regulations, oversight processes) are often circumvented or suspended to speed spending. - Obscurity in procurement and rapid disbursement of large funds increase risks of fraudulent activities and undue influence. - Emergency procedures can overwhelm control agencies. - Emergencies require reassessment of corruption risks and adjustment of strategies and resources; risk-based approaches should be tailored to changed threats and vulnerabilities. - During the pandemic, scarcity of products increased procurement fraud threats; procurement processes were lifted; Extra-budgetary Funds (EBF) increased during the pandemic. *Source: ppea2023015 - 5. Diagnostics consistently assess corruption risks as part of analyzing the effectiveness* ### 3. Existing corruption risks exacerbate and new opportunities for corruption appear ### 3. Existing corruption risks exacerbate and new opportunities for corruption appear ### Existing corruption risks during emergencies - Emergencies create a vicious cycle: the weaker the existing infrastructure to prevent, investigate and sanction corruption, the more chances for a crisis to exacerbate corruption risks. - COVID-19-specific factors that aggravated corruption risks: - Shift to remote work, social distancing, and other measures that weakened existing control capacity, especially where technology for remote operation was lacking. - Scarce supplies of medical equipment and vaccines and disruption of distribution chains contributed to rent-seeking behaviors (examples given: purchases from illegitimate suppliers, selling of falsified vaccines, line-cutting by wealthy individuals, overpricing, expansion of black markets). - Provision of direct support to persons and business with lowered control capacity created new opportunities for fraud and misuse of state resources. ### Importance of transparency and accountability in emergency response - Anti-corruption measures should not be relegated during emergencies; they are complementary to rapid government action in public health, economic activity, or public safety. - Trust in the integrity of emergency response processes is fundamental for affected populations and to secure support from donors and international organizations. - Misuse of resources undermines relief effectiveness, can reduce trust in public institutions, hinder post-emergency economic recovery, and disproportionately impact vulnerable populations. - Transparency and accountability measures contribute to an effective response and a sustainable recovery. ### IMF’s approach to governance safeguards in emergency financing - Emergency financing context: - RCF and RFI were established in 2009 and 2011 respectively as flexible instruments for urgent balance of payments needs. - Emergency financing supports urgent BOP needs arising from exogenous shocks, post-conflict and fragile situations, or disruptive situations such as the pandemic. - Emergency financing is either an outright purchase or disbursement; there are no ex-post conditionality or reviews, although prior actions are possible. - COVID-19 presented a unique scale and scope: - Prior to COVID-19, the Fund had disbursed emergency financing for 34 member countries’ requests since 2010, predominantly for country-specific health emergencies and natural disasters. - Between March 2020 and December 2021, the IMF approved 90 requests for RCF/RFI financing to 78 members, for more than $110 billion. - 2018 Enhanced Governance Framework application: - The Framework requires systematic assessment of the nature and severity of corruption and governance vulnerabilities. - IMF called for enhanced transparency and accountability measures during COVID-19 emergency financing, seeking specific commitments from members (examples: publish COVID-19 spending reports and audit results, publish crisis-related procurement contracts including companies awarded contracts and their beneficial owners). - Assistance recipients committed to undertaking a Safeguards Assessment of a central bank’s governance and control framework. - Implementation statistics (March 2020 to end of 2021): - 90 RCF/RFI requests from 78 member countries. - 76% of these requests contain one or several governance commitments specific to the COVID-19 emergency response. - The most frequent commitment: targeted audit of emergency spending in 76% of requests. - Commitment to publish beneficial ownership information in 60% of all emergency financing requests. - Four members fulfilled prior actions specifically related to ensuring beneficial ownership transparency in procurement. - Agility and tailoring: - A focused set of measures (safeguards assessment, audits, procurement transparency, BO, etc.) allowed agile implementation without slowing financing, summarized by the Managing Director as “spend what you need, but keep the receipts”. - Commitments were tailored to country context (e.g., use of third-party audits versus Supreme Audit Institutions depending on legal frameworks and capacities). ### Preliminary lessons and good practices from the Fund’s COVID-19 experience - Monitoring and follow-up: - Public tracking of members’ implementation and follow-up in Fund-supported programs strengthened accountability and commitment. - Fund staff published country-by-country implementation status in 2021 and 2022. - As of May 2022 implementation status highlights: - Commitments on publication of procurement contract information had been met in about two-thirds of the members. - About two-thirds of members had fully implemented commitments to report pandemic-related spending. - Approximately half of commitments to audit pandemic-related spending and publish the results online had been implemented. - About twenty percent of members had fully implemented commitments to provide beneficial ownership transparency in procurement; another fifty percent had taken important steps such as drafting and/or adopting legal changes. - Collaboration and external reinforcement: - Support from G7, G20, other international organizations and civil society reinforced consensus on corruption risks and helped implementation. - Civil society organizations supported accountability through social media and advocacy for publication of audits committed in LOIs. - Targeted technical assistance: - IMF timely technical assistance helped members lacking capacity implement LOI commitments (examples: clarifying beneficial owner concepts, modalities for collecting and publishing beneficial ownership information). - Specific assistance provided: - 13 members (mostly fragile and conflict-affected states or small developing states) received targeted legal drafting technical assistance for beneficial ownership transparency in procurement. - 4 members received assistance for audits of COVID-19 spending by their SAIs. - 3 countries received assistance for publication of procurement contracts. - Others attended on-line training and webinars on COVID expenditure, transparency and/or PFM systems across regions. - Follow-up through program conditionality: - From June 2020 to September 2022, 30 new financing arrangements were approved; 22 of them for members that had previously accessed emergency financing for COVID-19-related urgent BOP needs. - 18 of these 22 include at least one measure (structural benchmark or prior action) and 7 include MEFP commitments related to areas covered under COVID-19 governance safeguards in emergency financing. - Broader impact: - Implementation highlighted the value-added of SAIs and identified shortcomings in procurement frameworks and transparency. - The Fund’s approach influenced international and domestic anti-corruption agendas (examples: G20 Anti-Corruption Ministerial Communiqué and G20 Call to Action on Corruption and COVID-19; incorporation into broader procurement and BO transparency efforts). - The Financial Action Task Force revised standards in February 2022 to require countries to ensure that public procurement authorities have access to beneficial ownership information. - Targeted audits uncovered broader deficiencies leading to legislative reforms and highlighted the need for greater resources, agility, and capacity building for some SAIs, especially given virtual audit challenges. ### The way forward — recommendations and guidance - Continue to use the 2018 Governance Framework to guide responses to corruption and governance risks in future emergencies; the Framework is appropriate and was effective during COVID-19. - Complement guidance to consider different corruption risks beyond COVID-19 spending: - Each emergency requires identification of specific corruption risks and design of a tailored set of mitigation measures (example: cash transfers, subsidies or loan guarantees may be primary instruments in some emergencies rather than procurement). - In the Food Shock Window context, staff continues to implement governance measures tailored to food shock-related policies (examples: just-in-time or performance audits of food subsidies programs; transparency of procurement – including beneficial owners). - Where policies address urgent BOP needs from cereal export shortfalls, measures could contribute to structural anti-corruption reforms (examples: commitment to undergo a governance diagnostic, publication of an audit report ready for publication, or publication of a decree ready for signature), depending on a member’s circumstances and needs. - Ensure tailoring and evenhandedness: - Maintain a menu of potential safeguards to allow agility and evenhanded responses. - Further analysis is needed on inconsistent implementation of COVID-19 governance safeguards to ensure future measures respond to specific risks and are designed appropriately and applied evenhandedly. *Source: ppea2023015 - 3. Existing corruption risks exacerbate and new opportunities for corruption appear* ### 21. The availability of targeted and timely CD is critical to support implementation. Many ### ppea2023015 - 21. The availability of targeted and timely CD is critical to support implementation. Many ### Implementation support and capacity building - Targeted and timely CD (capacity development) is critical to support implementation of governance safeguards for beneficiaries of RCF/RFI financing. - Many beneficiaries of RCF/RFI financing have limited capacity and the crisis context may not be conducive to mobilize the necessary resources to effectively implement governance safeguards. - The support of donors is critical, and Fund CD would be particularly relevant in its areas of expertise. ### Monitoring and incentives for follow-up - Tracking the implementation of governance safeguards is helpful in a crisis environment. - The signal that follow-up is expected on these commitments: - creates incentives for implementation, and - supports authorities and civil society engagement on these issues. ### Preparing anti-corruption frameworks for future shocks - It is important to help members have their anti-corruption frameworks prepared for future exogenous shocks, including in the context of UCT-quality programs. - Conditionality, in addition to relevant policy advice in surveillance where critical to achieve the goals of a Fund-supported program, should focus on structural governance and anti-corruption reforms to: - strengthen transparency and accountability frameworks, and - ensure crisis preparedness and emergency plans. - This appears particularly relevant with regard to climate crisis, as the likelihood of natural disasters is increasing. ### Salient stakeholders’ pandemic-related measures and initiatives — overview - Governments - G7 (September 2021): issued a ‘statement against corruption and kleptocracies’; supported greater transparency in public procurement; positively noted the Fund’s approach to emergency financing related to publication of beneficial ownership information for awarded procurement contracts; encouraged the IMF to support implementation of procurement reform commitments, incorporate similar requirements in regular non-emergency IMF lending programmes, and engage with civil society to receive feedback on implementation of commitments. - G20 (2020): issued a ‘G20 Call to Action on Corruption and COVID-19’ including commitments to strengthen state audit mechanisms to monitor COVID-19 expenses and allocation of public resources, promote development of corruption risk assessments, include anti-corruption checks in public procurement processes, and underline effective implementation of FATF standards related to transparency of beneficial ownership. - International Organizations - World Bank: published a dedicated resource webpage on the Group’s Response to the COVID-19 Pandemic; in November 2020 underlined the importance of ensuring integrity in emergency financial assistance under up to $160 billion in financing planned for disbursement, including online publication and post-review of all new contracts financed by the Bank, and publishing project procurement plans, contract notices and awards. - UNODC: published a dedicated webpage on “Corruption and COVID-19” with references to the UNCAC legal framework and policy papers on prevention of corruption in COVID fiscal responses and vaccine distribution. - OECD: published a webpage on “Anti-Bribery Responses to COVID-19” including a policy brief with measures to address risks in emergency procurement. - ADB: issued a 2021 governance brief on ‘Engaging Civil Society Organizations to Enhance the Effectiveness of COVID-19 Response Programs in Asia and the Pacific’, outlining programmatic areas for CSO engagement including integrity of public procurement and distribution. - FATF (March 4, 2022): adopted amendments to Recommendation 24 requiring countries to prevent misuse of legal persons for money laundering or terrorist financing and ensure adequate, accurate and up-to-date beneficial ownership information; revisions include a requirement for public authorities to have access to beneficial ownership information of legal persons in the course of public procurement. - Civil Society Organizations - Transparency International (TI): in 2020 set up an IMF COVID-19 Anti-Corruption Tracker; analyzed disbursements for anti-corruption measures; in April 2020, together with Human Rights Watch and Global Witness, submitted an open letter regarding “urgent need for anti-corruption measures in IMF response to COVID-19 crisis”; launched blog series ‘Tracking the Trillions’; recommended including governance and anti-corruption safeguards in all emergency financing instruments and into the Fund’s 2011 policy on liquidity and emergency assistance. - Human Rights Watch (HRW): with TI published a joint analysis assessing governments’ actions on governance safeguards in emergency financing (Cameroon, Ecuador, Egypt, Nigeria) between January and March 2021; concluded that “despite overall progress in its anti-corruption efforts, the IMF has not ensured sufficient oversight of its COVID-19 emergency loans.” - Consortium of 99 CSOs (May 2020): published an open letter urging the Fund “to consistently and formally include anti-corruption measures in its COVID-19 pandemic-related emergency funding and take concrete steps to help protect and empower civil society groups to monitor these funds.” - Open Contracting Partnership and Open Ownership (2021): contracted Oxford Insights to research implementation of commitments related to beneficial ownership transparency; April 2021 report recommended stronger and more specific wording of commitments and sustained CSO advocacy; Open Contracting Partnership published a 2020 “Guide to collect, publish & visualize COVID-19 procurement data” with best-practice examples from Ecuador, Moldova, Paraguay and Ukraine. - OCCRP: launched “Crime, Corruption and Coronavirus” page to expose exploitation of the pandemic by organized crime and corrupt officials; published responses from TI and HRW including calls to make IMF disbursements contingent on anti-corruption commitments. ### Engaging with Supreme Audit Institutions (SAIs) - Role and evolution of SAIs - SAIs traditionally audit public finances and attest to regularity and integrity of government financial statements; their role has evolved to include comprehensive risk analysis and focus on corruption and maladministration. - The Fund has reshaped its interactions with SAIs during the COVID emergency, recognizing SAIs as a dimension of public accountability that complements Fiscal Affairs Department work (FTEs), public investment management (PIMA/C-PIMA), and safeguards for public financial management (FSRs). - Experience with SAIs around public audits of emergency spending demonstrated value for public accountability and holding individuals and institutions to account. - SAI audit instruments and anti-corruption contribution - SAIs use financial audits, compliance audits, and performance audits (value for money audits); compliance and performance audits are particularly effective in identifying corruption cases; some SAIs engage in forensic audits. - Risk-based auditing has led SAIs to focus on sectors of particular risk and vulnerability and underlying statutory and institutional weaknesses. - Rapid and emergency auditing practices - SAIs have developed short-term instruments with significantly shorter turnaround to respond to sudden budget shifts (e.g., “real-time audits” covering a quarter of the calendar year; examples include Mongolia, Sierra Leone, South Africa). - Some SAIs conduct “investigations” — rapid reaction fact-finding reports to “live events” — used during COVID emergency finance. - These instruments aim to identify early system weaknesses for correction, including to combat fraud and corruption. - Accountability links and international norms - Emerging practice: where the SAI identifies possible corruption, cases can be directly transferred to legal enforcement agencies without processing through parliamentary institutional reporting channels. - The SAI–enforcement linkage historically close in Francophone and Lusitanian models has become increasingly practiced in the Westminster model. - International fora (Conference of States Parties to UNCAC, G20 Anti-Corruption Working Group) and international Guidelines emphasize SAIs’ contribution to addressing corruption. - Country practices illustrating SAIs’ expanded anti-corruption roles - Examples of expanded mandates and powers: Norway, Zambia (mandates to address corruption); Germany, Hungary (powers to refer suspicions of corruption to law enforcement); Sweden, Uganda (recruit forensic auditors); Ghana, South Africa (sanctioning powers such as disallowance of expenditure and surcharge of public officials through salary forfeiture). - SAIs are positioned at the heart of identifying risks across government functions and are an essential part of the accountability and anticorruption ecosystem. *INTERNATIONAL MONETARY FUND — REVIEW OF IMPLEMENTATION OF THE 2018 GOVERNANCE FRAMEWORK–BACKGROUND PAPERS* ### 6. The 1997 Guidance Note on Governance mentions audits, specifically in the context of ### ppea2023015 - 6. The 1997 Guidance Note on Governance mentions audits, specifically in the context of ### Role and evolution of SAIs - SAIs are universally present in member countries and occupy a dual position: part of the formal institutional structure while independent of government. - Over the past twenty years the function of SAIs in identifying and addressing corruption has changed significantly; SAIs are described as a cornerstone of the public transparency and accountability process where public financial management and anti-corruption institutionally intersect. - SAIs have taken on roles beyond simply conducting audits, including identifying governance weaknesses and contributing to anti-corruption efforts (e.g., reporting hotlines, whistle-blower support and cooperation with other institutions as referenced in international guidance). ### IMF engagement and audit conditionality (2002–February 2020) - Over the period from 2002 up to COVID (February 2020), Fund programs included 773 conditionality measures on audits (including 532 Structural Benchmarks), covering 72 members in all regions. - Audit measures covered a highly disparate range of topics, including audits in arrears, SOEs, tax processes, distribution of vaccines, allocation of subsidized business loans, audits on ghost workers, off-budget aircraft purchases, and some measures on audit institutional processes (e.g., strengthening the SAI, publication/distribution of audit reports, or submission to Parliament of an audit report). ### COVID emergency financing and SAI engagement - The IMF COVID emergency financing changed IMF engagement with SAIs by targeting the institution tasked to conduct audits in RCF/RFI Letters of Intent (LOI). - LOIs signed by 75 out of 92 member countries for emergency financing included commitments on audit, of which 63 called for audits by the SAI. - Currently close to 60% of the SAI audit reports have been issued. - The IMF staff currently monitors progress in SAI audits in 63 countries. - An externally-funded special CD program supports SAIs in meeting their audit commitments. ### Delivery, quality, and impact of emergency audits - Close to 60% of the countries issued audits of emergency finance, with several countries issuing multiple audits (Kenya, Jamaica, Honduras). - Several countries issued real time audits (Sierra Leone, Mongolia, South Africa). - Interim analysis indicates these audits resulted in a significant structural enhancement of public accountability in many member countries. - Many audit reports are of high quality, even from extremely fragile member countries; recurring terms include “Corruption”, “Fraud” or “Theft”, alongside references to budget loss (examples cited: Burkina Faso, Cameroon, Jamaica, Kenya, Pakistan, Sierra Leone, South Africa, South Sudan, Uganda). - Publication of audits sometimes occurred despite challenges (examples cited: Pakistan, Madagascar). - The IMF interim assessment found that in more than 50% of the RCF/RFI recipient countries which published the audits of emergency finance, the SAI had not published an audit in the three prior years. - The RCF/RFI commitments empowered SAIs, provided explicit mandates, and called for publication of reports; SAIs applied advanced systems (modern information technology, outreach to government and non-governmental groups) in some countries. - Staff highlight the need to pay closer attention where SAI capacity is limited or where domestic law enforcement is captured and SAI findings do not lead to holding individuals to account. ### Challenges facing SAIs - The SAI Global Stocktaking Report 2020 flags that only 52 percent of SAI worldwide report sufficient financial resources to fulfil their mandate to the expected extent and quality, with SAIs from LICs being disproportionally affected. - There is a backslide in the levels of SAI independence since the 2017 report on key indicators (appointment, termination, discretion to discharge the mandate). - The World Bank Supreme Audit Institutions Independence Index (2021) finds that SAI independence fails to be expressly secured in a disproportionate large number of constitutional and legal frameworks; budget independence remains subject to central government approval in most countries covered; guaranteed tenure of the head of the SAI remains mostly unsecured. - Currently, 56 percent of the SAIs do not enjoy full and unrestricted access to the necessary documents and information, and 40 percent experienced interference in the execution of their budgets — worldwide figures with LICs and EMs generally worse than AEs. - In some countries, strong post-COVID push-back against audits and Supreme Audit Institutions reduced the effectiveness of the PFM and anti-corruption framework. ### Broader impact assessment dimensions - Staff are assessing impact along two dimensions: - Institutional accountability process: how parliament and government respond to statutory gaps and implementation deficiencies identified in audit reports (example: Department of Labor of South Africa tightened emergency-related unemployment benefits and reviewed recipients identified by the SAI). - Legal accountability process: how individual cases of fraud and corruption identified in audit reports are followed up through judicial enforcement. ### Policy recommendations and elements of sustained engagement - More systematic IMF engagement with SAIs would benefit implementation of the 2018 Framework; staff are encouraged to: - Utilize SAI reports in monitoring governance and accountability. - Pay enhanced attention to ensuring SAIs have the legal and operational competency to carry out their function. - Routinely consult SAI audit reports during surveillance and actively engage with SAIs in UFR when critical to program goals. - Advise on strengthened public accountability by ensuring follow up of audit reports (submission to Parliament, action by legal enforcement agencies and financial intelligence units). - Integrate SAI and audits more closely into IMF governance work and instruments (e.g., CES (Fragile States) and Governance Diagnostics). - Provide support to SAIs’ anti-corruption efforts via IMF mandates, notably CD, including: - Supporting independence, competency, authority, and transparency (publication of audits). - Improving mechanisms for information sharing to audit agencies and between audit findings and accountability/anticorruption agencies. - Greater attention to follow-up of audit recommendations. - Tailoring institutional development support to local circumstances and coordinating CD with INTOSAI and the World Bank. - Tailor support to different environments, especially fragile and conflict-affected settings; the 2022 FCS Policy and Guidance Note recognize governance as a cross-cutting priority and specifically mention strengthening SAIs. *Source: ppea2023015 - 6. The 1997 Guidance Note on Governance mentions audits, specifically in the context of* ### 2. Given the transnational dimension of corruption, the voluntary assessments in the ### 2. Given the transnational dimension of corruption, the voluntary assessments in the ### Background and approach - Voluntary assessments in the context of AIV consultations focus on preventing the supply and facilitation side of corruption in a transnational context and are implemented to ensure consistency and avoid duplication with other relevant organizations (the OECD Working Group on Bribery (WGB), and the Financial Action Task Force (FATF)). - The exercise considers effectiveness of implementation and is conducted in coordination with the OECD WGB and with input from FATF reports. - For supply-side issues (criminalization and prosecution of bribery of foreign officials), staff rely on OECD Phase reports and, where a Fund member is not a signatory of the OECD Anti-Bribery Convention, selected provisions of the United Nations Convention Against Corruption (UNCAC). - For facilitation issues (weaknesses in AML/CFT that enable hiding proceeds of corruption), staff rely on FATF Mutual Evaluation reports and findings relating to effectiveness of preventative measures in the financial and non-financial sectors, transparency of legal persons and arrangements, enforcement against money laundering, and international co-operation and asset recovery. - The voluntary approach is consistent with the IMF’s Integrated Surveillance Decision (ISD); the ISD criteria for mandatory coverage in surveillance (i.e., domestic stability or systemic spillovers) have not been met for the transnational aspects of corruption for any given member. ### Stocktaking: coverage of transnational aspects of corruption in Article IV staff reports - The assessment of supply-side corruption and cross-border facilitation has been covered in AIV consultations of advanced economies that volunteered for the assessment. - Coverage has been prioritized based on resource constraints, availability of OECD and FATF assessment reports, and the relative significance of the jurisdiction (including magnitude of financial flows and size of financial sector). - In 2020, several AIVs did not include such coverage due to the streamlined AIV process. - Table 1 summary of coverage since adoption of the policy in 2018 (volunteer year listed; coverage by year columns 2018, 2019, 2020, 2021, 2022): - Austria — Volunteer since 2018; 2018: N/A; 2019: No SR; 2020: No SR; 2021: Facilitation; 2022: None - Canada — Volunteer since 2018; 2018: N/A; 2019: Both; 2020: No SR; 2021: None; 2022: Facilitation - Czech Republic — Volunteer since 2018; 2018: N/A; 2019: Both; 2020: No SR; 2021: Both; 2022: Facilitation - France — Volunteer since 2018; 2018: N/A; 2019: Both; 2020: None; 2021: Facilitation; 2022: No SR - Germany — Volunteer since 2018; 2018: N/A; 2019: Supply; 2020: Facilitation; 2021: Supply; 2022: Facilitation - Italy — Volunteer since 2018; 2018: N/A; 2019: No SR; 2020: Facilitation; 2021: None; 2022: Both - Japan — Volunteer since 2018; 2018: Supply; 2019: Supply; 2020: No SR; 2021: No SR; 2022: Facilitation - Switzerland — Volunteer since 2019; 2018: N/A; 2019: Both; 2020: No SR; 2021: None; 2022: Both - United Kingdom — Volunteer since 2018; 2018: Supply; 2019: No SR; 2020: Facilitation; 2021: Facilitation; 2022: No SR - United States — Volunteer since 2018; 2018: N/A; 2019: Facilitation; 2020: Facilitation; 2021: Supply; 2022: Facilitation - Notes accompanying Table 1: - The Netherlands volunteered in 2022 and will have coverage of both issues in the 2023 Staff Reports. Norway and Saudi Arabia volunteered in 2022 for coverage in upcoming 2023 Staff Reports. - Only Japan and U.K Article IVs were conducted after the governance policy approval in April 2018. ### Key takeaways and lessons learned from coverage - Voluntary nature and outreach - As a result of the voluntary nature, staff had to continuously engage with Fund members to encourage volunteering. - Nine countries volunteered during adoption of the Framework in April 2018 (the Group of 7 (G-7), Austria, and the Czech Republic), followed by Switzerland in 2019, and three other countries in 2022 (Netherlands, Saudi Arabia, and Norway). - Staff engagement continued through staff visits, AIV consultations, the Group of 20 (G-20) Anti-Corruption Working Group, and OECD WGB meetings to encourage more volunteers. - Expansion of volunteering is critical given significant issues identified in transnational aspects of corruption. - Key vulnerabilities identified in the assessments - Facilitation (AML/CFT-related vulnerabilities) - Staff Reports highlighted strengths in legal frameworks and overall enforcement against money laundering (ML). - Many assessed countries need to deepen understanding of transnational corruption risks and improve mitigation efforts, including beneficial ownership and preventive measures related to foreign politically exposed persons. - Efforts to trace, confiscate, and repatriate foreign proceeds of corruption remain ineffective in many cases. - Specific shortcomings in the application of preventive measures by professional gatekeepers (lawyers, accountants, Trust and Company Service Providers, and real estate agents) were widely identified. - Gaps include lack of coverage of one or more non-financial sectors in AML/CFT regimes, weak compliance with measures related to foreign politically exposed persons, limited understanding of ML risks related to transnational financial flows, low compliance by designated non-financial sectors, and weak sanctioning of non-compliance. - Entity transparency showed serious shortcomings; significant risk exists for misuse of companies and trusts to launder foreign proceeds of crimes including corruption. - Positive reform efforts noted: some countries advancing establishment of beneficial ownership registries in line with strengthening international standards on entity transparency; continued efforts required to improve accuracy and accessibility of beneficial ownership information. - Recent European Union Court of Justice decision limiting access to public beneficial ownership information requires monitoring and sustained efforts to prevent misuse of legal entities and arrangements, including through public access to beneficial ownership information. - Volunteer countries are generally stronger in international cooperation; 85 percent of volunteered countries scored either highly or substantial effectiveness on FATF Immediate Outcome 2 under FATF reports, but recovery of transnational proceeds of corruption is still not effective among most volunteer countries. - Enforcement weaknesses related to ML generated by corruption include limited resourcing for complex investigations and prosecutions, lack of prioritization of ML investigation in foreign bribery cases, and need to enhance suspicious reporting frameworks. - More broadly on preventive measures, the 13 volunteer countries all scored moderate effectiveness in their most recent FATF Mutual Evaluation Reports (MERs); 97 percent of countries (broadly) failed to score a high or substantial level of effectiveness under the FATF Standard to date. - While 3 countries scored substantial effectiveness in FATF evaluations for the Immediate Outcome referenced, 10 countries scored either moderate or low-level effectiveness for that Immediate Outcome. - The criminalization of ML showed mixed effectiveness: 45 percent of the volunteer countries scored low or moderate effectiveness and 55 percent scored substantial or highly effective in FATF reports. - Supply side (foreign bribery and corporate liability) - Assessed countries have criminalized bribery and have systems to prevent multinationals from paying bribes to foreign officials; many strengthened or created corporate liability laws and explicitly prohibit tax deductibility of bribes. - Some countries introduced whistleblower protection laws, but OECD Anti-Bribery reports indicate whistleblower protection remains a weakness for many countries. - Staff reports indicate overall weak preventive mechanisms to detect and prevent foreign bribery by multinationals and a continued decline in enforcement relating to foreign bribery, including in countries that used to be more active in enforcement. ### Key findings from coverage of facilitation issues (Box 1) - Majority of volunteer countries have serious weaknesses in application of preventive measures by professional gatekeepers (lawyers, accountants, Trust and Company Service Providers, and real estate agents). - Gaps identified: lack of coverage of non-financial sectors in AML/CFT regimes, weak compliance on foreign politically exposed persons, limited understanding of ML risks including transnational financial flows, low compliance by designated non-financial sectors, and weak sanctioning. - Entity transparency: serious shortcomings overall; significant risk of misuse of companies and trusts to launder foreign proceeds of crimes including corruption. - Positive reform trend: establishment of beneficial ownership registries by some countries; continued efforts needed to improve accuracy and accessibility of beneficial ownership information. - International cooperation: generally stronger, but recovery of transnational proceeds of corruption remains ineffective in most volunteer countries. - Enforcement of ML tied to corruption: weaknesses include limited resourcing for complex investigations and prosecutions, low prioritization of ML investigations in foreign bribery cases, and need to enhance suspicious reporting frameworks. ### Key findings from coverage of supply-side issues (Box 2) - Parties to the OECD Anti-Bribery Convention are in different phases of the monitoring process; OECD WGB monitoring occurs in four successive phases: - Phase 1: adequacy of legal framework; - Phase 2: application of legislation in practice; - Phase 3: enforcement and cross-cutting issues, including unimplemented Phase 2 recommendations; - Phase 4: country-specific approach focusing on enforcement, detection, and corporate liability; Phase 4 is more tailored than earlier phases and reflects positive achievements. - Data issues hinder a full transnational picture: Phase 4 reports reveal hindrances such as data protection, definitional issues (not differentiating between domestic and foreign bribery), and insufficient publication of statistics on mutual legal assistance requests. - OECD focus is on parties to the Anti-Bribery Convention; it could benefit from analyzing bribery as a transnational money flow. - Recommendations are not updated frequently enough to reflect emerging risks and trends; e.g., the 2009 Anti-Bribery Recommendation was not updated for 12 years until the 2021 Anti-Bribery Recommendation. - The 2021 Anti-Bribery Recommendation (which superseded the 2009 Recommendation) reflects recent good practices, trends and challenges and introduces aspects that can improve understanding of transnational corruption, including: - Non-trial resolutions for companies and individuals, and sanctions that are “transparent” in addition to “effective, proportionate, and dissuasive”. - “Proactive” investigations and prosecutions; demand-side measures (Recommendations XII and XIII to raise awareness of bribe solicitation risks). - Expanding liability of legal persons, which includes state-owned enterprises. - OECD Phase 4 evaluations began in 2016 and focus on enforcement, detection, corporate liability, implementation of outstanding recommendations, and changes to domestic legislation or institutional framework; Phase 4 is tailored to each Member State’s unique situation and challenges while noting positive achievements. ### Cross-cutting observation - The FATF and OECD reports continue to be valuable sources for the assessment process; staff will continue to rely on these reports while deepening discussions on identified vulnerabilities and taking stock of progress (or lack thereof) going forward. *Prepared by Robin Sykes, Indulekha Thomas, Kristina Miggiani, Alexander Malden, Santiago Texidor with administrative support from Rafaela Calomeni (all LEG).* ### 10. Overall, the assessments of transnational aspects of corruption were valuable and ### ppea2023015 - 10. Overall, the assessments of transnational aspects of corruption were valuable and ### Overall assessment - The assessments of transnational aspects of corruption were valuable and identified the areas of strengths and vulnerabilities of assessed countries. - Going forward, staff will focus on expanding coverage and deepening analysis and engagement on identified vulnerabilities. ### Expanding coverage of countries - Objective: - Expanding the coverage of countries outside of current set of volunteer countries. - Rationale: - The issue of transnational corruption extends well beyond current set of volunteer countries. - Countries could be at significant risk of transnational corruption by virtue of: - the scope and nature of cross-border investments and flows; or - a country’s role as an international financial center (where sectors can be used to facilitate transactions relating to the proceeds of corruption). - Actions: - Staff will continue engaging with other countries that could be at significant risk. - Staff will develop a methodology to identify potential countries for targeted discussions on volunteering for this initiative, leveraging on international flows data. - Staff will develop a methodology that also takes into account trade and investment linkages between vulnerable countries. ### Sustaining and deepening discussions on identified vulnerabilities - Analytical focus: - Deepen the analysis of identified vulnerabilities. - Take into account, in all cases, recent developments that impact a member’s fight against transnational corruption. - Continue relying on FATF and OECD reports. - Focus further on the risk and context of the country (example provided: extractive companies paying bribes abroad). - Ensure the analysis covers measures to address deficiencies highlighted in previous staff reports. - Cover in a more systematic way the status of implementation of OECD WGB recommendations including progress towards the 2021 OECD Anti-Bribery Recommendation. - Enforcement and cooperation: - In relation to facilitation, staff will continue focusing on beneficial ownership issues while deepening discussions on enforcement, confiscation and international co-operation with an intensified focus on asset recovery efforts. ### Annex I — Selected cases of coverage of transnational corruption in Article IV Consultations - A. Switzerland Staff Report, Page 17-18, May 25, 2022 — Governance - 1. Authorities place high priority on ensuring efficiency, transparency, and accountability in Covid-19 response. - Government (Federal Office for Public Health, Federal Chancellery, SECO) and SNB have completed and are conducting crisis-management reviews. - Federal Audit Office and Parliament have completed and are conducting evaluations on how the pandemic was handled, including procurement (which should include publication of beneficial-ownership information). - 2. Efforts to strengthen the AML/CFT framework continue. - After a 2020 FATF report, three packages were adopted in 2021 by parliament: - (i) revision of the AML/CFT Act and other acts in March; - (ii) other measures to strengthen the fight against terrorism and organized crime in July; - (iii) changes in the AML/CFT ordinance on crypto assets in August. - Since a 2015 national assessment report, the authorities have published sectoral risk assessments for non-profits, legal persons, crypto assets, crowdfunding, cash-usage, corruption, fraud, and phishing. - An update of the national report was issued last October. - FINMA’s AML/CFT supervision (on-site and off-site) should be reinforced, and further efforts are needed to strengthen the role of financial intermediaries, in line with a risk-based approach. - 3. While Switzerland is an active enforcer of the OECD Anti-Bribery Convention, further efforts are needed. - A 2020 OECD Working Group report noted a high number of discontinued cases and a decrease in newly-investigated and ongoing cases in 2018–20. - Progress has been made in other areas, including resources for the Money-Laundering Reporting Office (MROS), revision of the Law on Public Procurement, and efforts to raise awareness of bribery issues. - The authorities should further strengthen the framework, including on maximum fines, whistleblower protection, conditions governing appeals, and extension of the AML law to lawyers, notaries, and fiduciaries providing non-financial services. - B. Germany Staff Report, Pages 26-27, June 30, 2022 — Governance and Transparency - 4. FATF indicated in 2010 and 2014 that Germany’s AML/CFT measures are generally sound, but implementation needs strengthening in some areas. - Preventive measures relevant for helping prevent foreign officials from laundering the proceeds of corruption largely comply with the AML/CFT standards and are well implemented by most, especially larger, financial institutions but some smaller non-financial businesses find such implementation challenging. - Information on beneficial ownership of companies and trusts is available (through a Transparency Register) for use by the private sector and by the authorities in investigations, and to provide to foreign partners but some gaps exist. - Germany provides good assistance to other countries in foreign corruption cases and prosecutes and obtains convictions for ML related to corruption, as well as freezes and confiscates proceeds of foreign corruption. - The authorities should continue to strengthen the AML/CFT system, by: - (i) continuing to focus, in AML/CFT supervision, on enhancing compliance with customer due diligence requirements and reporting of suspicious transactions as well as using more remedial actions and sanctions to deal with non-compliance; - (ii) strengthening AML/CFT supervision of sectors favored by foreign corrupt actors such as lawyers and trust and company service providers; - (iii) continuing to improve the availability of beneficial ownership information in the Transparency Register; and - (iv) putting more emphasis during criminal investigation on pursuing money laundering independently of the underlying crime. - 5. Measures to reduce fraud related to COVID relief: - Implementation of COVID-related firm support programs and associated criminal proceedings are carried out by Länder governments. - Through March 2022, Länder reported about 24,000 cases in which investigation proceedings were open, with the majority pertaining to the first Immediate Assistance Programme in 2020. - To reduce misuse in the assistance programs, the government has refined the approval process and enhanced screening criteria within the process (example: applications for companies were required to be made by tax consultants, auditors, or lawyers). - The government introduced an automated comparison of application data with the data of tax authorities. *INTERNATIONAL MONETARY FUND — REVIEW OF IMPLEMENTATION OF THE 2018 GOVERNANCE FRAMEWORK–BACKGROUND PAPERS* --- _Source: https://www.imf.org/-/media/files/publications/pp/2023/english/ppea2023015.pdf_