Strong anti-corruption and transparency in governance reform: The key to lasting change

When countries face economic crisis that is further compounded by poor governance, corruption and the mismanagement of public funds, it’s people who pay the price. Marginalised communities and groups at risk are the most vulnerable to the costs of economic crisis. Debt distress disproportionately affects low-income and least developed countries: More than half of the countries eligible for International Development Assistance (IDA) are in debt distress or at high risk of debt distress, and their interest payments on external debt have quadrupled since 2013. As a result, public services such as health and education go unfunded meaning people struggle to access the adequate healthcare and quality education needed to thrive. Between 2021 to 2023, interest payments exceeded education spending in 22 developing countries, and surpassed health spending in 45 countries.

Governance Diagnostic Assessments (GDAs) – in-depth reviews carried out by the International Monetary Fund (IMF) to assess corruption risks in a country – is a key tool used to address systematic vulnerabilities and provide recommendations to strengthen integrity and governance. GDAs were first introduced as part of the 2018 Framework for Enhanced Fund Engagement on Governance, as part of the IMF’s technical assistance and training. However, gaps remain in the process that risk GDAs falling short, as assessments remain voluntary (21 GDAs have been developed since 2021), limit the participation of civil society and have minimal accountability measures in place. As the IMF continues to review the terms and conditions of its lending practices, with an updated framework set to be published later this year, Transparency International is calling for stronger measures on anti-corruption and governance reform to be incorporated, including adjustments to how GDAs – and debt-sustainability assessments more broadly – are carried out and recommendations implemented.

Pakistan showcases the importance of governance reform for meaningful recovery – a country currently engaged in a US$7 billion IMF loan programme despite multiple previous engagements with and support from the organisation.

To address the ongoing cycle of economic turmoil Transparency International Pakistan recently conducted a Civil Society Governance Diagnostic Assessment – a civil society-led review of governance systems within Pakistan, designed to influence the GDA that is currently being carried out by the IMF. The assessment was conducted in collaboration with a variety of groups including civil society, local governments, law makers, academics and businesses within the private sector.

The review identified entrenched governance failures, that, if remain unaddressed can continue to undermine progress towards reform and keep Pakistan in a cycle of economic crisis. Specifically, the report highlighted risks on financial oversight, especially in the formulation and approval of budgets, unfair tax systems influenced by private interests that favours the wealthy, bid manipulation and bribery in public procurement and weak whistleblower protections.

In response to these recorded failings, the report identified a total of 54 practical and anti-corruption focused recommendations for governance reform, to be integrated into the IMF’s lending conditions. Such recommendations include the digitalisation of procurement procedures for uniformity and tracking, wider parliamentary oversight and robust transparency laws for greater accountability.

However, recommendations on their own are not enough. Strong accountability measures to ensure the enforcement and monitoring of these priorities is also needed to guarantee real progress being made.

This is something Transparency International continues to call for. In 2023, Sri Lanka underwent a formal GDA following the country’s 2022 economic collapse. The assessment, conducted with technical assistance of the IMF, uncovered serious governance failures – particularly the absence of key anti-corruption legislation such as a public procurement law which has led to large-scale corruption in the country. Nevertheless, despite the seriousness of the findings, and the subsequent priority recommendations put forward by the IMF – a majority of which reflected the concerns highlighted in the Transparency International Sri Lanka-led Civil Society governance diagnostic report – there was no clear and transparent mechanism to track Sri Lanka’s progress in fulfilling its priority governance commitments and, in turn, hold the government to account. In response, Transparency International Sri Lanka launched the Government Action Plan Tracker, to monitor and track the implementation of priority recommendations set out by the IMF governance assessment report in Sri Lanka. The tracker – a publicly available tool – highlights positive advancements towards reform as well as setbacks, delays and opacity in implementation, ensuring greater accountability and ensure that commitments are not ignored. The tracker is expected to reach the potential to indicate the impact of commitments on reducing corruption.

The extensive findings from Pakistan, and learnings from Sri Lanka highlight that strong anticorruption provisions are vital for economic stability and sustainable lending and borrowing.

Changes to lending conditions set by the IMF must embed governance and anticorruption criteria at the core of debt sustainability assessments. To ensure long term economic recovery, tools such as GDAs or Fiscal Transparency Evaluations must become a mandatory and transparent practice for all countries in debt distress and negotiations. Practical recommendations for recovery, coming from these assessments should inform conditions for lending, National Action Plans, Article IV reports and programme reviews. Civil society plays an essential role and must be included throughout the entire process – informing the assessments and supporting and monitoring the implementation. As part of ongoing discussions around the IMF governance reform, it is vital that anticorruption and transparency are fully embedded. Only then can we hope for long-term sustainable borrowing and lending.