{
  "title": "Shining a Bright Light into the Dark Corners of Weak Governance and Corruption",
  "publication": "IMF Blog, April 22, 2018",
  "sourceUrl": "https://www.imf.org/en/blogs/articles/2018/04/22/shining-a-bright-light-into-the-dark-corners-of-weak-governance-and-corruption",
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  "summary": "Entrenched corruption is \"economically pernicious,\" undermining the ability of countries to deliver inclusive and sustainable economic growth.",
  "sections": [
    {
      "heading": "Costs of corruption",
      "content": "- Entrenched corruption is \"economically pernicious,\" undermining the ability of countries to deliver inclusive and sustainable economic growth.\n- Empirical results presented in the paper show:\n  - Sliding down from the 50th to 25th percentile in an index of corruption or governance is associated with a fall in the annual rate of growth of GDP per capita by half a percentage point or more.\n  - The same slide is associated with a decline in the investment-to-GDP ratio by 1½–2 percentage points.\n  - High corruption is associated with significantly lower growth, investment, FDI, and tax revenues.\n  - Corruption and poor governance are associated with higher inequality and lower inclusive growth.\n- Mechanisms through which corruption harms economies:\n  - Weakens government’s ability to tax.\n  - Distorts spending away from valuable investments (health, education, renewable energy) toward wasteful projects with short-term payoffs.\n  - Acts as a tax on investment and increases uncertainty about demands for future bribes.\n  - Causes young people to underinvest in skills and education because advancement depends on who you know rather than what you know.\n  - Hurts the poor, hinders economic opportunity and social mobility, undermines trust in institutions, and causes social cohesion to unravel.\n  - Represents a major obstacle to attaining the Sustainable Development Goals."
    },
    {
      "heading": "Stepped-up engagement",
      "content": "- The IMF Executive Board endorsed a new framework for stepping up engagement on governance and corruption in member countries.\n- This engagement will be embedded in broader work promoting good governance in areas such as public financial management, financial sector oversight, and anti-money laundering.\n- Rationale for broad focus:\n  - Governance weaknesses are harmful in their own right and open the door to widespread corruption.\n  - Anti-corruption strategies must go beyond prosecutions to include broader regulatory and institutional reforms.\n  - \"The most durable 'cure' for corruption is strong, transparent, and accountable institutions.\"\n  - Governance weaknesses can help corroborate corruption assessments, since corruption is often hard to measure and strongly correlated with general lapses in governance.\n- Historical context:\n  - The IMF has had a governance policy in place since 1997.\n  - The policy calls upon the IMF to address governance and corruption issues when they have a significant macroeconomic impact, to work with partner institutions (especially the World Bank), and not to interfere in politics or individual enforcement cases.\n  - A review found the policy principles sound but implementation uneven, with inconsistent standards and analyses that \"too often lacked clarity.\"\n- New framework goals:\n  - More systematic, evenhanded, effective, and candid engagement with member countries.\n  - Develop a clear and transparent methodology for assessing the nature and severity of governance weaknesses, looking at a broad array of indicators:\n    - Quality of the budgetary institutions that handle taxing and spending.\n    - Soundness of financial sector oversight.\n    - Integrity of central banks.\n    - Transparency and impartiality of market regulation.\n    - Predictability of aspects of the rule of law vital for economic health, especially contract enforcement.\n    - Adequacy of frameworks to fight money laundering and terrorism financing.\n    - Direct assessment of the severity of corruption.\n  - Assess the economic impact of identified governance and corruption fault lines and provide country-specific policy recommendations.\n  - Consider these issues over a longer time horizon to capture harm from slow institutional decay.\n  - For lending programs, evaluate whether problems hinder the ability of countries to implement economic reforms."
    },
    {
      "heading": "Supply side of corruption",
      "content": "- Corruption is \"a two-handed phenomenon\": every bribe taken is a bribe given.\n- Funds received through corruption are often concealed outside the country, frequently in the financial sectors of major capitals.\n- Countries may have \"clean hands\" at home but \"dirty hands\" abroad.\n- To address facilitation of corrupt practices by private actors, the IMF will encourage member countries to volunteer for assessments of their legal and institutional frameworks to determine whether they:\n  - Criminalize and prosecute foreign bribery.\n  - Have mechanisms to stop the laundering and concealment of dirty money.\n- Nine countries—the entire G7 plus Austria and the Czech Republic—have volunteered for this assessment, described as \"a major vote of confidence in the new framework.\""
    },
    {
      "heading": "Implementation and expected outcomes",
      "content": "- Implementation actions:\n  - More assessment and discussion of governance and corruption in IMF surveillance and lending programs.\n  - Stepped-up capacity development to help countries strengthen regulatory frameworks and institutions.\n- Institutional principles guiding engagement:\n  - Be candid, rigorous, transparent, and evenhanded.\n  - Work closely with member countries and partner institutions.\n- Intended outcome:\n  - Harnessing transparency (\"sunlight\") to reduce places where corruption can hide, putting the global economy on a healthier and more sustainable path.\n  - Expectation of \"progressively fewer dark corners left for corruption to hide.\"\n\nBy Christine Lagarde, April 22, 2018 — IMF blog.\n\n---\n\n\n References\n\n- framework\n\nSource: https://www.imf.org/en/blogs/articles/2018/04/22/shining-a-bright-light-into-the-dark-corners-of-weak-governance-and-corruption"
    }
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    "Authors: Christine Lagarde",
    "Published: April 22, 2018",
    "Entrenched corruption is \"economically pernicious,\" undermining the ability of countries to deliver inclusive and sustainable economic growth.",
    "Empirical results presented in the paper show:",
    "Mechanisms through which corruption harms economies:",
    "The IMF Executive Board endorsed a new framework for stepping up engagement on governance and corruption in member countries.",
    "This engagement will be embedded in broader work promoting good governance in areas such as public financial management, financial sector oversight, and anti-money laundering.",
    "Rationale for broad focus:",
    "Historical context:",
    "New framework goals:",
    "Corruption is \"a two-handed phenomenon\": every bribe taken is a bribe given.",
    "Funds received through corruption are often concealed outside the country, frequently in the financial sectors of major capitals.",
    "Countries may have \"clean hands\" at home but \"dirty hands\" abroad.",
    "To address facilitation of corrupt practices by private actors, the IMF will encourage member countries to volunteer for assessments of their legal and institutional frameworks to determine whether they:",
    "Nine countries—the entire G7 plus Austria and the Czech Republic—have volunteered for this assessment, described as \"a major vote of confidence in the new framework.\"",
    "Implementation actions:",
    "Institutional principles guiding engagement:",
    "Intended outcome:",
    "[framework](http://www.imf.org/en/Publications/Policy-Papers/Issues/2018/04/20/pp030918-review-of-1997-guidance-note-on-governance)"
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