By Toby McIntosh
The International Monetary Fund’s “governance diagnostics” program, which among other things addresses transparency issues in the countries evaluated, will continue to expand and more effort will be put into follow-up, according to an IMF official.
Under the diagnostics program, countries volunteer to be evaluated by IMF staff members, who engage with government officials and others to develop a detailed report and an action plan. The reports, 14 so far, can run to more than 100 pages and take about a year to produce. They touch on topics including contracting policy, tax administration, rule of law and access to information.
The reports, most of which are public, document what reforms the governments have pledged to undertake. The diagnostics are one part of the IMF’s work on governance, which the IMF Executive Board reviewed last April.
The IMF directors found “compliance rates for governance-related benchmarks to be somewhat disappointing,” according to the minutes of the meeting, and they called for more monitoring.
The scope of the problem was highlighted in an IMF staff report to the Board, which said “high corruption vulnerabilities are found in about 60 percent of the membership” and ascribed these largely to an array of governance problems.
Doing follow-up diagnostic reports has not been a regular practice, but the IMF official who preferred not to be named, said that the agreements with Mauritania and Sri Lanka include new provisions, for six month progress reports and annual reexaminations of the action plans.
The official said the Fund is “starting some work at going back to look” at countries on which diagnostics were done in the past.
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Publication Typical, But Not Always
Most, but not all, of the reports get published. Under IMF transparency rules, publication is encouraged but not required.
Some publication gaps occurred because of a change in governments. This was the case for Mali, Sudan, and Zimbabwe, the official said. (The IMF issued an eight-page report based on a mission to Mali conducted in early 2021 prior to the 2021 coup.)
Reports on Paraguay and Honduras were done before publication was encouraged and thus are not public, the IMF official said. No report has been published In Peru, because the exercise “was a little nonstandard,” he said. According to a 1983 IMF report, diagnostics were underway in Tunisia and Lebanon in 2023, but no reports have been issued.
Overall, it appears that eight diagnostic efforts did not result in published reports.
Fourteen reports that have been published since 2014 are cited on the IMF website where published reports are posted.
Reports have been published for: Cameroon, Central African Republic, Benin, Equatorial Guinea, Democratic Republic of Congo, Guinea-Bissau, Mauritania, Moldova, Mozambique, Republic of Congo, Sri Lanka, Ukraine, Zambia and Zimbabwe. The most recently concluded report, on Mauritania, is in French, and has been revealed in country, but not on the IMF’s site.
A summary of the April 2023 IMF Board meeting indicates that directors found the number of countries volunteering for review to be “still below expectations.”
Diagnostics examinations are ongoing in Burkina Faso, Burundi, Ghana, Haiti, Lebanon and Malawi, according to the official. This information is not on the website.
Issuance of the report on Ghana appears to be imminent. On Nov. 9, 2023, an IMF press release said an IMF mission to Ghana had visited and predicted completion in the first quarter of 2024.
Value Without Publication Seen
The value of the diagnostic process “isn’t exclusively because it gets published,” the official said, but added that more recently the IMF has emphasized the importance of publication.
The process generates “a whole set of discussions within the government,” he said. The governance issues “are usually about power and allocations of powers, and deep institutional histories,” he commented.
The diagnostics are effective in part because they define a program of reform that allows others, such as civil society organizations and others “to crowd in,” the official observed, thus creating “some momentum.” The IMF itself doesn’t fund much in the way of governance reform programs, that being more the province of the World Bank and other institutions.
The report on Mauritania was leaked in the press a couple of months before being made public, but general, the official said, media attention to the diagnostic reports is light. He noted that in Sri Lanka interest in the diagnostic, issued late last year, was heightened because of a similar report issued shortly before by Transparency International Sri Lanka.
A forum on governance diagnostics (recorded), featuring officials from Mauritania, was conducted April 19 during the IMF/World Bank Spring Meetings.
Governance Prescriptions: One Example
The prescriptions from the governance diagnostics often dovetail with IMF recommendations for government action in other contexts. But the recommendations don’t necessarily result on government action, as one example shows.
The January 2021 diagnostic report on the Central African Republic (CAR) begins by speaking of various vulnerabilities to corruption. “The authorities are aware of these weaknesses, and they have emphasized a national strategy to fight corruption, and more generally, to improve governance as a factor of development,” according to the first paragraph of the 54-page diagnostic.
A 19-item table summarizes the recommendations, beginning with the reporting of assets by pubic officials. “Even though the Constitution provides for the requirement to file these declarations,” the report states, “lawmakers have not provided for any imposition of penalties in cases of noncompliance.”
The report also describes the benefits of action on governance issues, stating, “Solving governance issues in revenue collection could generate gains of roughly CFAF 135 billion (10½ percent of GDP).”
Two years later, asset disclosure comes up in a May 2023 report on the CAR, one of the periodic IMF “Article IV” reports on countries that define the terms of IMF financial support. The report says “the resumption of the budget support requires improvements to fiscal governance and transparency.” More specifics are spelled out in the report, such as passage of a new mining code and the release of more budget information.
Suggesting that asset disclosure had not occurred, the Article IV report says, “Moreover, publication of asset declarations would be critical to improving transparency and accountability in line with recommendations from the 2018 Article IV consultation.”
Four months on, in a November 2023 IMF report on the CAR, a section titled “Updated conditionality” says one goal continues to be “(iv) to operationalize the asset declaration law.”
Review of Governance Diagnostics Program Conducted
The IMF’s experience with governance diagnostic assessments since 2018 were reviewed in a March 2023 IMF staff report concluding that “governance diagnostics inform longer term engagement on governance and corruption with country authorities.”
“Governance diagnostics have informed IMF engagement with the membership,” according to the report, and the recommendations “have regularly featured in subsequent surveillance and Fund-supported programs” and in “program conditionality to support the implementation of key governance reforms.”
The report does not measure success in country achievement of the goals, which can be wide-ranging.
The report summarized them by categories:
- Fiscal governance (57 percent)
- Anti-corruption frameworks (14 percent),
- Rule of law (including effectiveness and integrity of the justice sector (10 percent),
- Anti-Money Laundering (AML) (8 percent),
- Financial sector oversight (4 percent) and
- market regulation and central bank governance and operations (3 percent each).
“Diagnostic reports provide candid but uneven discussions of corruption vulnerabilities,” according to a broader staff report on IMF governance. “While all recommendations are time-bound, most reports provide sequencing by identifying a limited number of priority measures in each area,” it says.
The report documents a “substantial” increase in governance reform as a condition of IMF support.
But the kinds of governance issues included skews to those that relevant to fiscal governance, rather than issues related to financial sector oversight, rule of law or anti-money laundering.
As for results, “[c]ompliance with governance-related benchmarks averages a somewhat disappointing 45 percent, comparable to other structural benchmarks,” the staff report says.
Action on rule of law benchmarks is particularly low, according to the report. “Across state functions, compliance rates ranged from 10 percent for rule of law benchmarks to 50 percent for fiscal governance benchmarks—though too much should not be made of the disaggregated statistics given the small number of benchmarks for some state functions and the impact of the COVID-19 pandemic (the statistics here exclude pandemic-related governance commitments).”
Concerning changes needed in the diagnostics program, “integration can be improved,” states the review, citing a follow-up with the Republic of Congo and reforms adopted there. Engagement with stakeholders such as CSOs and other international bodies are cited as a positive outcome.
Among the “lessons learned,” the report said, is that “continued focus is needed to tailor each exercise to country circumstances, while establishing greater structural and analytical consistency.” Another lesson is that “a careful balance needs to be sought between fragility/political economy constraints and the need for tackling governance weaknesses and corruption vulnerabilities.” Also, “Where corruption risks are deemed high and widespread, a deeper understanding of the nature and severity of corruption and identifying the most macrocritically relevant corruption vulnerabilities should facilitate the selection of issues to be addressed and the adoption of a holistic and integrated approach to the analysis.”
IMF Board Indicates Disappointment
The analysis, and another one, was discussed April 4, 2023, by the IMF Board in the context of an “in-depth stocktaking of the Fund’s engagement on governance and corruption, according to an IMF statement. “The Review papers find that Fund engagement with member countries on governance and corruption has been broadly systematic, candid, effective, and evenhanded, in line with the objectives of the 2018 Framework.” The Fund’s policies on governance are detailed in “Framework for Enhanced Engagement on Governance” (the “2018 Framework”).
Despite the supportive conclusion, the summary of the meeting also noted, “While many Directors also considered that the 2018 Framework has made the Fund engagement more evenhanded, many other Directors expressed lingering concerns about evenhandedness.”
The summary says directors “called for further efforts to ensure a fully evenhanded implementation of the 2018 Framework and address concerns by many Directors regarding evenhandedness,” but gives no specifics. “While Directors noted that the staff’s analysis found no evidence of systematic biases, many Directors found the results insufficient to draw conclusions,” the summary says.
“Directors also noted that only 13 countries have volunteered for the Fund to assess their frameworks for combatting transnational aspects of corruption—a number still below expectations—which may contribute to perceptions that the Fund’s engagement on governance issues is not sufficiently evenhanded,” the summary says.
While welcoming the assessments, the summary states, “Going forward, Directors called for further analysis on the effectiveness of the Fund’s engagement in these areas.” (The summaries do not identify directors by name.)
The directors “acknowledged that the proportion of governance-related conditions in Fund-supported programs has increased, with conditionality aligned with programs goals,” the summary continues.
However, “They considered compliance rates for governance-related benchmarks to be somewhat disappointing—albeit similar to those for other structural benchmarks in areas outside of governance.”
The Board summary includes a number of recommendations to strengthen work on governance, including “establishing mechanisms to improve monitoring of the implementation of governance-related Article IV recommendations.”
An update from the staff on the implementation of the governance framework in one to two years. A review by the Executive Board is to be conducted within four years.
