## IMF Executive Board Approves New Framework for Enhanced Engagement on Governance

_IMF News, April 22, 2018_

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## Bibliographic details
- Published: April 22, 2018

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### Adoption and purpose
- Press Release No. 18/142; April 22, 2018.
- Contact: IMF Communications Department; MEDIA RELATIONS; PRESS OFFICER: Raphael Anspach; Phone: +1 202 623-7100; Email: MEDIA@IMF.org.
- On April 6, 2018, the Executive Board adopted the policy framework set out in the staff paper “Review of 1997 Guidance Note on Governance—A Proposed Framework for Enhanced Fund Engagement.”
- The new Framework supplements “The Role of the IMF in Governance Issues: Guidance Note” (1997 Governance Policy) and responds to the July 21, 2017 Board review (“The Role of the Fund in Governance Issues—Review of the Guidance Note-Preliminary Considerations”).
- Objective: promote more systematic, effective, candid, and evenhanded engagement with member countries on governance vulnerabilities, including corruption, when these are judged to be macroeconomically critical.

### Framework elements
- The Framework consists of four elements:
  - Element 1: Enable the Fund to assess the nature and severity of governance vulnerabilities—including corruption—by assessing state functions 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) Anti-Money Laundering and Combatting the Financing of Terrorism. The assessment will also examine the severity of corruption.
  - Element 2: Guide the Fund’s assessment of the macroeconomic implications of governance vulnerabilities taking into account the applicable standards for surveillance and the use of Fund resources; the paper lays out empirical evidence of the negative impact of governance vulnerabilities on economic performance.
  - Element 3: Provide a framework for policy advice and capacity development support to members where Fund engagement is warranted.
  - Element 4: Focus on measures designed to prevent private actors from offering bribes or providing services that facilitate concealment of corruption proceeds.

### Executive Board assessment — main findings and guidance
- Directors welcomed the review of the 1997 Governance Policy and the adoption of the Framework for Enhanced Fund Engagement, noting the need for further guidance to enhance Fund engagement.
- Directors concurred that the 1997 Governance Policy remains an appropriate basis, and that the Framework will promote more systematic, candid, and evenhanded engagement on governance issues, including corruption.
- Reputational and resource risks: In circumstances where corruption is systemic, failure to address these issues in surveillance and Fund‑supported programs gives rise to reputational risks and could undermine safeguarding of Fund resources.
- Scope of analysis:
  - The state functions identified are appropriate given the Fund’s mandate regarding economic activity.
  - Analysis of rule of law should focus on aspects critical to economic performance, particularly protection of property and contractual rights.
  - Governance vulnerabilities may manifest as regulatory capture, including in financial sector oversight.
- Evidence and thresholds:
  - Assessments should be holistic, relying on both quantitative and qualitative information.
  - Staff should rely, where possible and relevant, on information already obtained by the Fund; data gaps should be specifically acknowledged.
  - Use of third‑party indicators should be consistent with Fund policy and should complement—not displace—Fund and other international organizations’ analysis.
  - The Fund should not publish country rankings of corruption or other general governance vulnerabilities.
- Surveillance and use of Fund resources (UFR):
  - The Fund should address governance issues and corruption in surveillance when the applicable standard of the Integrated Surveillance Decision has been met.
  - Determination of relevance to surveillance is based on whether governance and corruption vulnerabilities are sufficiently severe to significantly affect prospective or present balance of payments and domestic stability.
  - Flexibility in timing of inclusion in Article IV consultations is supported, in line with the approach for other long‑term issues.
  - For UFR, reforms to address governance and corruption vulnerabilities should be conditions for UFR when vulnerabilities are assessed as severe and addressing them is critical for achieving program goals.
  - Staff should recognize ongoing governance reforms in the member country; primary responsibility for governance lies with national authorities.
- Policy advice and capacity development:
  - Advice should be informed by the diagnosis, be specific and tailored to member circumstances and implementation capacity, and account for inherent complexity.
  - Emphasized importance of early and close engagement with authorities; authorities’ views should be adequately reflected in staff reports and informed sufficiently in advance.
  - Discussions should be open, transparent, candid, and use clear and direct language.
  - The Fund should continue to rely on expertise of other institutions (especially the World Bank) where it lacks comparative advantage, and collaborate to minimize duplication (e.g., AML/CFT responsibilities with FATF and other assessor bodies).
  - Capacity development support should be prioritized and well‑integrated into surveillance and UFR, anchored within a longer‑term framework, especially in fragile states.
- Transnational dimensions and private sector measures:
  - Directors supported increased emphasis on measures to prevent private actors from offering bribes or facilitating concealment of corruption proceeds, helping to reduce illicit financial flows.
  - Several jurisdictions volunteered to have legal and institutional frameworks assessed in future Article IV consultations; other jurisdictions are encouraged to volunteer.
  - Assessments will determine whether: (a) they criminalize and prosecute the bribery of foreign public officials; and (b) they have an effective AML/CFT system designed to prevent foreign officials from concealing the proceeds of corruption; assessments should take into account effectiveness of implementation.

### Implementation, governance, and follow‑up
- Management plan: adopt a centralized institutional process for assessing the severity and impact of governance and corruption vulnerabilities to ensure similarly‑situated countries are treated similarly in both surveillance and UFR.
- Implementation mechanism: the centralized process will be implemented by a standing Working Group with a key role in ensuring evenhanded implementation of the Framework.
- Resource assessment and review timeline:
  - Management intends to assess the resource implications of applying the Framework in the Administrative Budget for FY 2020.
  - Directors looked forward to regular updates from staff on implementation and a review by the Executive Board within three years of adoption.

_International Monetary Fund_

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## Content in this bundle

- **Policy Paper**
  - [Policy Paper (Markdown version)](/-/media/files/publications/pp/2018/pp030918governance-onepager.pdf.md){rel="alternate" type="text/markdown"}
  - [Policy Paper (PDF)](/-/media/files/publications/pp/2018/pp030918governance-onepager.pdf){rel="external" type="application/pdf"}

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## References

- [Review of 1997 Guidance Note on Governance - A Proposed Framework for Enhanced Fund Engagement](https://www.imf.org/en/publications/policy-papers/issues/2018/04/20/pp030918-review-of-1997-guidance-note-on-governance)
- [IMF Blog: Shining a Bright Light into the Dark Corners of Weak Governance and Corruption](https://blogs.imf.org/2018/04/22/shining-a-bright-light-into-the-dark-corners-of-weak-governance-and-corruption)
- [The IMF and Good Governance -- A Factsheet](https://www.imf.org/en/about/factsheets/sheets/2023/the-imf-and-good-governance)
- [IMF Surveillance -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)
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- [PRESS CENTER](http://presscenter.imf.org/)
- [http://www.imf.org/external/np/sec/misc/qualifiers.htm](http://www.imf.org/external/np/sec/misc/qualifiers.htm)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2018/04/21/pr18142-imf-board-approves-new-framework-for-enhanced-engagement-on-governance_