The way the fiscal situation in the country is expected to shape up in view of the developments anticipated over the next few years on the economic front due to the extravagant budgetary proposals announced on Friday last, one cannot rule out the possibility of the government of the day, no matter of which political hue, would have to seek by October-November this year a generous IMF bailout package.
This is happening because of less than efficient management of the economy by the PMLN government in the last five years despite having received an injection of $1.5 billion of unencumbered assistance from Saudi Arabia almost in the very first quarter of the first year of its tenure and now a Chinese loan of $ one billion with only one month left in its tenure and in between it had received windfall savings of billions in oil import bill as the world oil prices had plummeted by more than half from $ 150 a barrel that had existed at the fag- end of the Zardari government that ended in 2013.
However, the government which would approach the Fund for a bailout package would have to reckon with the IMF's recently unveiled framework for "enhanced" engagement with countries on corruption and governance issues. This is going to be in addition to the normal conditionalities attached to such bailout packages.
The Transparency International (TI) regards this new IMF document as a major step forward in terms of both language and ambitions, for example including references to the links between corruption, inequality and the loss of trust of citizens.
The Fund has also commendably opened in its process of self-reflection leading up to this point, for example questioning its own use of euphemisms such as "need for a level playing field" when addressing corruption issues."
The stated purpose of the new enhanced framework is to ensure that corruption issues are dealt with "systematically, effectively, candidly, and in a manner that respects uniformity of treatment."
This will apply to the IMF's yearly reviews of its member countries, and also to the conditions which come with IMF lending programmes. If properly implemented this new framework could mean a significant shift in the IMF's engagement with anti-corruption.
That being said, in view of the Transparency International, some of the fundamental constraints of the IMF in this area remain in place.
"As IMF staff have made clear during discussions with civil society organizations, its primary mandate is macroeconomic stability, and it can only address corruption risks when they are severe enough to have a potential impact on the economy. The IMF will continue to avoid interfering in individual enforcement cases, and will not use its findings to publish rankings of its member countries," observed TI.
The TI, therefore, has raised three valid questions concerning the Fund's approach to corruption in the context of its new framework.
Question 1: Will the IMF publish its basic findings on corruption risks in country reports?
The new framework commits the IMF to a basic assessment of corruption and governance risks in all its member countries. Where it finds these to be severe ('macro-economically critical' in IMF speak), it will apply a more in-depth assessment and issue policy recommendations.
From an anti-corruption perspective, a summary of the basic IMF assessment in each country report would be a highly valuable resource, including in cases where they consider corruption risks as not severe.
For example:
"While country X's corruption and governance risks were not found to be macro-economically critical, a number of significant risks and vulnerabilities in its anti-corruption institutional framework remain. The rapid influx of overseas investment into the real estate market represents a major risk factor. Vulnerabilities include widespread exemptions to public procurement processes and the lack of resources available to the Financial Intelligence Unit. Staff urges authorities to proactively address these issues as part of a comprehensive anti-corruption strategy."
Featuring a brief standard section like the one above in a 70+ page country report would not dramatically alter the mandate of the IMF. At the same time, it would provide much-needed support to actors in the country advocating to address the issues, both within government and from civil society, said IT.
It would also signal to corrupt networks that the Fund is watching, both for anti-corruption progress as well as decline, while providing a basic public record over time of Fund engagement in each country. Lastly, being more candid about corruption risks and vulnerabilities with citizens, not just with authorities behind closed doors, may also help to restore public trust.
Question 2: How many 'spillover' countries will the IMF assess?
As the IMF paper recognises, corruption in one country is often facilitated by weaknesses in the anti-money laundering frameworks of another; what the IMF calls "spillovers". In 2014, for example, Scottish shell companies played a key part in a $1billion raid on Moldovan banks involving corrupt judges and officials. It cost Moldova around an eighth of its annual GDP, almost bankrupting the economy.
In recent assessments, the Fund has not consistently addressed these types of spillover risk. For example, its latest report on Australia makes not a single mention of corruption, bribery or money laundering, despite widespread concerns about gaps in Australia's anti-money laundering system - gaps with the potential to have a significant impact on the economies of other countries.
The new policy urges IMF members to volunteer to be assessed, irrespective of whether they themselves are experiencing "severe" corruption. On the same day as the paper was launched, the IMF announced that the G7 members plus Austria and the Czech Republic had already volunteered.
How successful will the IMF be in getting more countries to sign up? Will the remaining G20 members go next, for example?
Question 3: Will the IMF seek input from anti-corruption NGOs in its country assessments?
At the high-level panel discussion between TI and IMF which accompanied the launch of the Fund's new framework, all participants including IMF director Christine Lagarde stressed the crucial role civil society is playing in fighting corruption.
Under the new policy, IMF staff will be tasked with assessing the quality of the legal and institutional framework that is charged with combating corruption. This is not an area that can easily be tackled during a country visit, nor in which government self-assessments tend to be reliable.
Where there are concerns about issues such as discretionary public spending or anti-money laundering bodies lacking coordination and effectiveness, among many others, anti-corruption NGOs can provide up-to-date, evidence-based input regarding institutional vulnerabilities. The Financial Action Task Force (FATF), the global anti-money laundering body, has also included civil society input as part of its country visit procedures.
Over the last 20 years, governments and international institutions have made, large numbers of anti-corruption commitments. Increasingly, the work of anti-corruption campaigners is focused on the essential (if sometimes boring) work of publicly tracking whether those promises are being put in place.
The Transparency International has claimed that it was already marking its calendars for 2019: what will the IMF have to show for the one-year anniversary of its new anti-corruption policy?
The new IMF Framework consists of four elements:
The first element is designed to enable the Fund to assess the nature and severity of governance vulnerabilities-including corruption. This includes an assessment of those state functions that are most relevant to economic activity, namely (i) fiscal governance; (ii) financial sector oversight; (iii) central bank governance and operations; (iv) market regulation; (v) rule of law; and (vi) Anti-Money Laundering and Combating the Financing of Terrorism.
Given its particularly pernicious impact on a member's ability to achieve sustainable inclusive growth, the assessment will also examine the severity of corruption.
The second element will guide the Fund's assessment of the macroeconomic implications of governance vulnerabilities taking into account the applicable standards for surveillance and the use of Fund resources.
The paper lays out empirical evidence of the negative impact of governance vulnerabilities on economic performance, which provides a strong basis to determine that these vulnerabilities should be addressed in surveillance when they are assessed as severe.
The third element provides a framework for policy advice and capacity development support to members where Fund engagement is warranted.
And, the fourth element focuses on measures designed to prevent the private actors from offering bribes or providing services that facilitate concealment of corruption proceeds.
The Executive Board of the Fund has noted that adoption of the Framework for Enhanced Fund Engagement will promote a more systematic, candid, and evenhanded engagement on governance issues, including on corruption.
Directors underscored that, in circumstances where corruption is systemic, the failure of the Fund to address these issues in surveillance and in Fund-supported programmes, gives rise to reputational risks and could also undermine the safeguarding of Fund resources.
Directors agreed that the Fund's engagement should continue to be guided by the 1997 Governance Policy. They emphasized that the overall objective of the policy is to assist members in strengthening governance, including the tackling of corruption. Directors welcomed the systematic approach relied on in the Framework for Enhanced Fund Engagement to assess the severity of governance. They concurred that the state functions identified are appropriate given the Fund's mandate regarding economic activity.
In that context, they emphasized that the analysis of the rule of law should focus on those aspects that are critical to economic performance and, in particular, the protection of property and contractual rights. Directors also emphasized that governance vulnerabilities may manifest themselves in regulatory capture, including in the area of financial sector oversight.
Directors agreed that the Fund's assessments of governance vulnerabilities should be holistic, relying on both quantitative and qualitative information. They also agreed that, to the extent possible and where relevant, staff would rely on information already obtained by the Fund, including from member authorities, in the context of existing Fund activities.
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