## IMF Survey : Fighting Corruption Critical for Growth and Macroeconomic Stability—IMF Paper

_IMF News, May 11, 2016_

## Source details

**Canonical URL:** [IMF Survey : Fighting Corruption Critical for Growth and Macroeconomic Stability—IMF Paper](https://www.imf.org/en/news/articles/2015/09/28/04/53/sores051116a)

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## Bibliographic details
- Published: May 11, 2016

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### Overview and key findings
- Publication: IMF Survey, May 11, 2016.
- By vigorously reducing corruption, countries can improve economic stability and boost growth and development.
- Public corruption is defined as an abuse of public office for private gain and afflicts economies at all stages of development.
- Corruption is described as “macro-critical”—critical to the achievement of macroeconomic stability, which is at the core of the IMF’s mandate.
- A recent estimate put the annual cost of bribery at around $1.5 to $2 trillion (roughly 2 percent of global GDP).
- The economic and social costs of corruption could potentially be even larger.

### How corruption hampers economic growth (enumerated mechanisms)
- Weakens the state’s capacity to raise revenue and perform core functions:
  - Harms the culture of compliance and increases tax evasion.
  - When tax exemptions are viewed as arbitrary, citizens have less incentive to pay taxes, reducing state revenue and public services, with negative consequences for growth.
- Inflates costs in public procurement and undermines quantity and quality of public spending:
  - Funds can be siphoned off through off-budget transactions.
  - Lowers resources available for public investment and priority spending, aggravating infrastructure gaps and impacting growth.
- Creates macroeconomic and financial stability risks:
  - Lower public revenues push countries to rely more on central bank financing, creating an inflation bias.
  - Corruption weakens financial oversight and stability through poor lending and regulatory practices and weak banking supervision.
- Raises cost of accessing financial markets and hampers private sector:
  - Lenders factor in corruption risk, raising costs.
  - Increases uncertainty for firms and acts as a barrier to entry for new entrants.
  - Resources are diverted to rent-seeking instead of productive activities.
- Social and environmental costs:
  - Reduced allocations for social programs and resources lost through corruption limit human capital build-up.
  - Weaker, poorly enforced environmental regulations lead to more pollution and excessive extraction of natural resources.
  - Systemic corruption can lead to political instability and conflict; natural resource abundance can accentuate the situation.

### Mitigating strategies and policy guidance (four building blocks)
- Transparency:
  - Adopt international standards on fiscal and financial transparency.
  - Ensure transparency in extractive industries given their relative share in many economies.
  - Support international standards on transparent corporate ownership.
  - A free press plays a key role in exposing corrupt practices.
- Rule of law and enforcement:
  - Ensure a credible threat of prosecution; enforcement must also target the private sector.
  - In some cases, set up new specialized institutions where existing ones are corrupt.
  - Establish an effective anti-money laundering framework to minimize laundering of proceeds of corruption.
- Deregulation and simplification:
  - Eliminate excessive regulation that creates rents allocated at discretion of public officials.
  - De-regulation and simplification are cornerstones of efficient anti-corruption strategies.
  - Ensure an adequate institutional framework is in place when transitioning from state-controlled monopolistic markets.
- Legal framework and institutional capacity:
  - A clear legal framework is required, but implementation depends on effective institutions.
  - Develop a cadre of competent public officials who are independent of private influence and political interference.
  - Leadership must set a personal example and ensure decisive action is taken when needed.

### IMF role and perspective
- The IMF has been actively engaged in helping members design and implement anti-corruption strategies given the potential impact of corruption on macroeconomic stability and sustainable economic growth.
- The paper, Corruption: Costs and Mitigating Strategies, draws on extensive literature and IMF country experience to provide practical guidance to policymakers.
- Emphasis on a comprehensive approach: short-term measures with immediate impact must be complemented with preventive measures and strict enforcement.

*IMF Survey : Fighting Corruption Critical for Growth and Macroeconomic Stability—IMF Paper (IMF Survey, May 11, 2016).*

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## References

- [https://www.imf.org/en/News/country-focus](https://www.imf.org/en/News/country-focus)
- [PRESS CENTER](http://presscenter.imf.org/)
- [IMF Research](https://www.imf.org/en/news/search)
- [Read the paper](http://www.imf.org/external/pubs/cat/longres.aspx?sk=43888)
- [Blog: Corruption: A hidden tax on growth](https://blog-imfdirect.imf.org/2015/11/05/corruption-a-hidden-tax-on-growth/)
- [Video: IMF seminar on individual integrity in public sector governance](http://www.imf.org/external/mmedia/view.aspx?vid=4550336329001)
- [Book: Governance and corruption and economic performance](http://www.imf.org/external/pubs/nft/2002/govern/)
- [IMF fiscal transparency code](http://www.imf.org/external/np/fad/trans/)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2015/09/28/04/53/sores051116a_