Central, Eastern, and Southeastern Europe: Harnessing the Power of Good Governance

IMF Blog, July 27, 2017

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Canonical URL: Central, Eastern, and Southeastern Europe: Harnessing the Power of Good Governance

Publication date: July 27, 2017
The region moved from centrally-planned to market-based economies in less than a generation, transforming legal systems, public administrations, and economic policies.
Average income per capita in real terms (without inflation) in this region has almost doubled over the past two decades.
Near-term growth in most countries is robust, but convergence with advanced Europe has slowed since the global financial crisis.
Growth potential has almost halved from its pre-crisis level—largely because of a slowdown in productivity growth.
Many higher-skilled workers have left the region in search of better opportunities abroad.
Key headwinds: adverse demographics, skill shortages, and a less conducive external environment (subdued potential growth in the euro area and uncertain prospects for further EU enlargement).

Enhancing institutions and good governance remains central to raising prosperity to advanced European living standards.
Better governance can:
- Raise productivity.
- Produce more durable growth.
- Increase trust within society.
- Improve the ability to share growth benefits broadly rather than for a few.
Improved governance can also:
- Improve government efficiency and public services.
- Facilitate state-owned enterprise restructuring.
- Strengthen banking systems so new firms can emerge and small ones can expand.
The low-hanging fruit of reforms has largely been picked; a new wave of reforms is needed and will be more difficult than the initial transition.

First, increase transparency and accountability.
- Design budgets that are understandable and widely available to the public.
- Use transparent procedures for public procurement.
- Provide clear information about the performance of state-owned enterprises.
- Deploy e-government (the use of information and communication technologies in the activities of the public sector).
- Make ownership structures of financial institutions and corporations more transparent.
- Provide more information about the ultimate beneficiaries of loans and improve financial disclosures.
- Empower citizens and civil society organizations in the fight against systemic corruption.
Second, promote fair participation and a level playing field.
- Ensure government spending and taxation systems promote an equitable distribution of resources.
- Ensure broad access to education and health care to provide opportunities for active participation in society.
- Learn from privatization experiences: designs that ensured wide participation had positive impacts on institution building, whereas concentration of privatized resources in the hands of a few had adverse effects.
Third, boost the operational capacity of the state.
- Make justice systems more effective and impartial.
- Implement competitive and merit-based recruitment and promotion of public officials.
- Limit political interference in public administration.

The IMF is promoting good governance through everyday work: policy advice, lending, and capacity development.
Examples of IMF initiatives cited:
- The fiscal transparency code.
- The financial sector assessment program.
- The anti-money laundering initiative.
- Measures to improve public procurement and fight corruption in Fund-supported programs.
Continued learning from experiences—what worked and what didn’t—is necessary.
Collaborative dialogues (policymakers, academics, civil society) affirm that good governance and strong institutions can make growth more durable and inclusive.

Source: Poul Thomsen, July 27, 2017