Kenya has requested the International Monetary Fund (IMF) for an in-depth assessment of how corruption and mismanagement of state resources drain its public finances. This follows a push by major shareholders at the fund to unlock lending for the country.
What is the IMF governance diagnostic programme?
It is an initiative by the IMF missions that monitors governance and transparency levels to curb graft and abuse of public office for private gain.
Governance diagnostics are designed to assess the severity of corruption risks, identify governance weaknesses associated to corruption vulnerabilities in key state functions, propose concrete reform measures to advance governance, integrity, and the rule of law, and produce a public report.
When did this governance diagnostic initiative begin?
In 1997, the IMF adopted a policy on addressing economic governance, embodied in the Guidance Note “The Role of the IMF in Governance Issues”. To further strengthen the implementation of this policy, the IMF adopted in 2018 a new Framework for Enhanced Engagement on Governance (Governance Policy) that aims to promote more systematic, effective, candid, and even-handed engagement with member countries regarding governance vulnerabilities—including corruption—that are critical to macroeconomic performance.
What does the IMF economic governance policy cover?
The policy focuses on State functions that are most relevant to economic activity; namely: fiscal governance; financial sector oversight; central bank governance and operations; market regulation; rule of law; and Anti-Money Laundering and Combatting the Financing of Terrorism (AML/CFT).
The policy also focuses on transnational aspects of corruption, particularly measures designed to prevent the bribery of foreign public officials or providing services that facilitate the cover up of corruption proceeds.
What are the main areas of concentration in the IMF governance diagnostics programme?
The IMF initiative concentrates on institutional reforms of the treasury, budget preparation and approval procedures, tax administration, accounting, and audit mechanisms, central bank operations, and the official statistics function.
Emphasis is similarly on reforms of market mechanisms, primarily on the exchange, trade, and price systems, and aspects of the financial system.
Further, the initiative looks into the regulatory and legal areas, with focus on taxation, banking sector laws and regulations, and the establishment of free and fair market entry such as tax codes and commercial and central bank laws.
Diagnostics also consider the soundness and alignment of the legal and organisational arrangements for fighting corruption with international standards and good practice.
How are countries added to the IMF governance diagnostics programme?
Countries voluntarily request the IMF to join its governance diagnostics programme. Given the importance of the “supply-side” and “facilitation” issues, the Fund has been urging members—irrespective of whether they experience systemic domestic corruption themselves—to voluntarily agree to have their systems assessed by the Fund in the context of surveillance, both concerning their anti-bribery frameworks and those aspects of their AML/CFT frameworks that seek to curb concealment of the proceeds of corruption by foreign officials.
How many countries have joined the IMF governance diagnostic programme?
Many countries had as of early 2023 requested governance evaluations including Central Africa Republic, Democratic Republic of Congo, Sri Lanka, Zambia, Benin, Cameroon, Republic of Congo, and Guinea Bissau. Others are the Islamic Republic of Mauritania, Mozambique, Ukraine, Paraguay, Tunisia, Gambia, Sudan, Lebanon, Moldova, and Equatorial Guinea.
How does the IMF identify governance problems?
In the context of Article IV consultations, programme negotiations, and technical assistance missions, the staff reviews aspects of poor governance that would influence the implementation and effectiveness of economic policies and private sector activities. The IMF may also look into greater transparency in macroeconomic policy implementation that could help build private sector confidence in government policies.
Does the IMF partner with other agencies in the governance audits?
The IMF collaborates with other multilateral institutions and donors in addressing economic governance issues.
How does the IMF communicate its governance audit findings?
The fund prepares governance diagnostic reports with respect to each audited country. The diagnostic reports are in-depth, country-tailored assessments of corruption and governance vulnerabilities that draw heavily on local knowledge and expertise and provide prioritised and sequenced recommendations.
All diagnostic reports provide time-bound policy recommendations tailored to the country’s needs and capacity, with varying degrees of prioritisation. For example, from a diagnostic review of Sri Lanka the IMF made sweeping recommendations including publication of asset declarations for senior officials (President, Prime Minister, ministers) on a designated website in line with Anticorruption law.
The Sri Lanka audit also recommended for changes to the country’s National Audit Act to enable the-the Auditor-General to levy surcharges on officers, including chief accounting officers, for failure to properly discharge responsibility for oversight and accountability for use of public resources.
Do the governance audit findings determine IMF funding engagements with countries?
Yes. Findings of the diagnostics have been featured in subsequent IMF engagement with member countries. They inform the country teams in programme design and are used by country authorities to plan and enact reforms.
The majority of governance diagnostics are undertaken in the context of discussions for a new programme or during an ongoing programme.
