The IMF and Good Governance

March 14, 2016

The IMF places great emphasis on promoting good governance when providing policy advice, financial support, and technical assistance to its member countries. The IMF also has strong measures in place to ensure integrity, impartiality, and honesty in the discharge of its own professional obligations.

Good governance is key to economic success 

Governance is a broad concept covering all aspects of the way a country is governed, including its economic policies and regulatory framework, as well as adherence to the rule of law. Corruption--the abuse of public authority or trust for private benefit--is closely linked: a poor governance environment offers greater incentives and more opportunities for corruption. Corruption undermines the public’s trust in its government. It also threatens market integrity, distorts competition, and endangers economic development. Since poor governance is clearly detrimental to economic activity and welfare, the IMF adopted in 1997 a policy on how to address economic governance, embodied in the Guidance Note “The Role of the IMF in Governance Issues.” 

Promoting good governance 

The Fund works with its member countries to promote good governance and combat corruption. In the context of its surveillance, lending, and technical assistance, the IMF covers economic governance issues that fall within its mandate and expertise, concentrating on issues that are likely to have a significant impact on macroeconomic performance and the sustainability of sound economic policies. In doing so, the IMF stresses evenhandedness across its member countries and collaborates closely with other multilateral institutions.

IMF surveillance involves annual reviews of countries’ economic policies, carried out through the so-called “Article IV consultations.” In the process, the IMF may provide policy advice, when relevant, on governance-related issues. 

Good governance is also promoted through IMF-supported lending. When seeking financial support from the IMF, country authorities describe their economic policies in a “Letter of Intent.” When warranted, specific measures to strengthen governance may be included and thus become part of the program’s conditionality. Many of the structural conditions in IMF-supported programs focus on improving governance, including through better fiscal expenditure control, publication of audited accounts of government agencies and state enterprises, streamlined and less discretionary revenue administration, greater transparency in the management of natural resources, the publication of audited central bank accounts, and better enforcement of banking supervision.

In all of these areas, the IMF also provides technical assistance that benefitsgood governance. In addition, the IMFassists instrengthening countries’ capacity to combat corruption by advising on appropriate anti-corruption legal frameworks.

IMF programs and initiatives that promote good governance

The IMF promotes good governance through specific initiatives that tie in with its surveillance, lending, and technical assistance. Several initiatives involve close collaboration with the World Bank and other organizations.

Integrity starts at home

As a means of safeguarding its resources, the IMF assesses the governance and transparency frameworks within central banks of countries to which it lends money. In the process, it promotes sound oversight, internal control, auditing, and public financial reporting mechanismsinthese critical financial institutions.

To promote good governance within its own organization, the IMF has adopted a number of integrity institutions, including a Code of Conduct for Staff—bolstered by financial certification and disclosure requirements, and sanctions—a similar Code of Conduct for Members of the Executive Board, and an Integrity Hotlineoffering protection to “whistleblowers.” The IMF Ethics Office advises the institution and its staff on ethics issues, inquires into alleged violations of rules and regulations, and oversees the ethics and integrity training program for all staff members.