Is the IMF doing enough to tackle corruption?

It is over two years since the International Monetary Fund (IMF) sent the world a clear signal of its ambition to play a leading role in the fight against corruption.

Through the adoption and high-profile launch of a framework for "enhanced" engagement with its member countries on governance issues, the IMF committed to increase its dedication to anti-corruption through various channels, including through its regular yearly assessments of member countries (known in IMF-speak as “Article IV reports”).

The Fund committed to tackling corruption “systematically, effectively, candidly, and in a manner that respects uniformity of treatment” in its reviews of member countries.

Since then, Transparency International has been tracking the IMF's progress in implementing this framework. This blog is our second annual review of the Fund’s progress, and part of a new IMF series, Tracking the Trillions.

The Fund’s swift response to COVID-19 has further increased attention to its anti-corruption framework, an area we will be taking a closer look at in a forthcoming blog.

We reviewed IMF assessments for 96 countries published between 2019 and February 2020 and compared each country report to its pre-framework counterpart.

For each report, we conducted a simple word count for standard terms, including corruption, anti-corruption, bribery, good governance, money laundering, anti-money laundering, and related acronyms like AML (anti-money laundering).

We also reviewed a smaller group of reports, to examine the extent to which the IMF’s anti-corruption recommendations were specific and actionable.

An analysis of these keywords shows that the IMF is undoubtedly more outspoken about corruption and related issues than it was before the publication of its 2018 framework. Across 96 countries, mentions of corruption increased by 185 per cent, while mentions of money laundering increased by 89 per cent.

In addition, we found a number of country reports in which the Fund makes specific, actionable recommendations.

For example, the report on Afghanistan includes detailed recommendations to strengthen the country’s asset declaration system, while the report on Benin references a need for full independence of the anti-corruption agency.

While the results of our analysis are encouraging, the IMF could significantly improve its anti-corruption efforts if it incorporated more time-bound recommendations in its country reports. Building on the significant improvements the IMF has already made in specific cases, if the Fund were to extend this approach to more countries, over time the institution could become a critical source of pressure for targeted national reforms.

Despite an overall increase of corruption-related mentions, there continues to be a wide variance in the way the IMF addresses corruption across countries.

For example, our analysis found 40 per cent of the total mentions of the keyword, “corruption,” are concentrated in just 10 country reports. In fact, the top three country reports – Afghanistan, Iraq and Kazakhstan – contained 20 per cent of the total mentions.

Meanwhile, 18 of 96 country reports have no mentions of corruption in their Article IV reports, including Rwanda, Hong Kong, Croatia, Portugal, South Korea, and Singapore.

By comparison, prior to the publication of the 2018 framework, three country reports contained nearly 40 per cent of corruption mentions.

While the IMF has made good progress since the framework was released, it still has a lot of work left to do to better address good governance and anti-corruption issues.

For example, two of the top three countries mentioned above – Afghanistan and Iraq – have specific sections dedicated to corruption-related issues, however, what is not yet clear is why some countries get this in-depth treatment and others don’t.

Luckily, the IMF has a unique window of opportunity to improve its approach. In 2021, the IMF Board will review the enhanced framework. In advance of that review, the IMF should publish its methodology, even if in draft form, to allow civil society experts and anti-corruption practitioners to provide input and feedback.

Being more open about the way the IMF carries out its country assessments would have several benefits:

First, greater transparency would help the IMF strengthen its methodology. The Fund continues to be a black box in the way it determines whether corruption is “macro-critical” in certain countries, which also affects the nature of its anti-corruption recommendations. In addition, the IMF currently does not share its criteria for how it determines which countries deserve a more in-depth assessment to examine important governance factors, including corruption.

While few of these methodological challenges are likely to have easy answers, gathering inputs from a variety of sources, including civil society, could help increase IMF’s chances of finding an effective solution.

Second, in addition to sharing its methodology, the IMF could improve its effectiveness by sharing its calendar of country visits. This would allow civil society organizations, academics, and other international organizations to better understand how and when they can contribute to IMF national assessments and help the IMF receive more informed input.

Last, but not least, to reduce the risk of overlooking important weaknesses in national anti-corruption efforts, it is important that the IMF more systematically and consistently consider input from other anti-corruption experts. This includes external experts and those from civil society.

In this way, for example, the IMF might have avoided a scenario where it took nearly two years to address the systemic implications of the Danske bank scandal,despite warnings from other institutions like the Financial Action Task Force (FATF), which previously flagged significant weaknesses in Denmark’s anti-money laundering system.

Since 2018, when the IMF first adopted its enhanced framework, it is clear that the Fund has taken its commitment to tackle corruption seriously, and that it can play a role in driving change at the national level. Translating that initial progress into sustainable, widespread impact, however, will take a longer term commitment. These efforts, together with an openness to make necessary adjustments, will help strengthen the Fund’s approach.

Next year, all anti-corruption eyes will be on the IMF Board and its review of the enhanced framework. What signal will it choose to send?

This blog is part of our series, Tracking the Trillions, which takes a closer look at how the IMF can tackle corruption, while promoting transparency and accountability.