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Checking the Receipts from Pandemic-Related Spending

Summary:
By Chady El Khoury, Jiro Honda, Johan Mathisen, and Etienne Yehoue Governments around the world are playing a crucial role in providing lifelines to people and firms to help combat the pandemic and its economic fallout. To support the effectiveness of these efforts, it is important that such spending be subject to adequate transparency and accountability. The IMF presses for better governance through greater transparency. To this end, the IMF has called for ensuring transparency and accountability in pandemic-related spending, so that the money and measures help the people who need it most, using the adage, “spend what you must, but keep the receipts.” The IMF presses for better governance through greater transparency, and has sought specific governance measures for countries receiving

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By Chady El Khoury, Jiro Honda, Johan Mathisen, and Etienne Yehoue

Governments around the world are playing a crucial role in providing lifelines to people and firms to help combat the pandemic and its economic fallout. To support the effectiveness of these efforts, it is important that such spending be subject to adequate transparency and accountability.

The IMF presses for better governance through greater transparency.

To this end, the IMF has called for ensuring transparency and accountability in pandemic-related spending, so that the money and measures help the people who need it most, using the adage, “spend what you must, but keep the receipts.”

The IMF presses for better governance through greater transparency, and has sought specific governance measures for countries receiving IMF financing during the crisis. These include commitments to publish pandemic-related procurement contracts and the beneficial ownership of companies awarded these contracts, as well as COVID-19 spending reports and audit results.

The measures are tailored to country circumstances and the severity of corruption risks. In addition, all recipient countries commit to undertake a Safeguards Assessment—a due diligence exercise that is aimed at ensuring that a country’s central bank is able to provide reliable information and transparently manage the funds that it receives from the IMF.

Addressing corruption is a long game. These emergency spending measures are not silver bullets and will only go so far in addressing deeper challenges. Longer-term governance and corruption vulnerabilities will continue to be addressed under the IMF’s broader 2018 Framework for Enhanced Fund Engagement on Governance, with a focus on multi-year IMF lending arrangements, annual health checks of IMF member countries, and capacity development.

Are the receipts coming in?

A year into the emergency response, information is becoming available on the progress in implementing these governance measures in pandemic-related spending.

  • On publication of contract information, most of the commitments have or are in the process of being met, including, for example, in the Dominican Republic, Guinea, Nepal, and Ukraine. In some countries, capacity constraints contribute to limited progress. In these cases, the IMF is providing capacity development to support implementation.
  • Collecting and publishing the beneficial ownership of contracting companies is a measure that aims to deter corruption, including by facilitating the detection of potential conflicts-of-interest involving public officials. It requires bidding companies to provide the names of the people with effective control over a company, that is the “beneficial owners.” This information is provided to the procurement agency, which must publish it.

Implementation of this innovative practice has proven challenging in some cases, with only half of the countries (including Benin, Ecuador, Jordan, Malawi, and Moldova) having implemented this commitment or made substantial progress toward it.

However, such commitments made in the context of IMF financing during the pandemic have helped spur some countries, such as Kenya and the Kyrgyz Republic, to adopt this reform on a permanent basis. That is, beyond just pandemic-related spending.

  • On audits of emergency spending, the deadline for conducting ex-post audits is typically set at 3-12 months after the end of the fiscal year. Accordingly, it is too early to assess implementation—most audits are in preparation based on existing systems.

However, some countries, such as Jamaica, Honduras, Maldives, and Sierra Leone have already taken early action by conducting risk-based, real-time audits. Where needed, the IMF is also stepping up its capacity development to help supreme audit institutions fulfill their responsibility, while also supporting efforts to ensure that such information is easily retrievable.

  • On reporting of pandemic-related spending, most countries are, or will shortly begin, publicly reporting on execution of this spending.
  • Safeguard assessments are being undertaken rapidly, with the pace of these assessments doubling after the pandemic’s onset.

Tackling deeper challenges

Beyond these measures focused on accountability and transparency in the crisis response, broader governance and anti-corruption reforms are also progressing in the context of multi-year IMF financing arrangements.

Such reforms cover multiple areas, including fiscal governance in countries such as Ecuador, The Gambia, Jordan, Liberia, Rwanda, and Senegal; anti-corruption and anti-money laundering frameworks in Angola, Armenia, Republic of Congo, Kenya, and Tunisia; and financial sector oversight and central bank governance in Liberia and Ukraine, among others.

Beyond IMF financing

Transparency and accountability in the crisis response are important for all countries, regardless of their income level, and such measures are of course commonplace in many countries beyond those receiving IMF financing.

These efforts vary. For example, some countries publish comprehensive spending information on dedicated transparency portals as in Brazil, Colombia, Costa Rica, France, and Peru. Others, such as South Korea, conduct frequent external audits to verify pandemic-related spending. Some develop clear guidelines for emergency procurement, as in Spain, and/or detect conflicts-of-interest by analyzing beneficial ownership data and financial disclosures of senior public officials, as in Romania.

Through the IMF’s regular “Article IV” health check of the economies of its members, and through regular policy dialogue, IMF staff continue to discuss transparency and accountability in pandemic-related spending, such as in Poland, the United Kingdom, and the United States, and, more generally, in fiscal, monetary, and financial sector measures.

Building on progress

Sustained country engagement on governance and anti-corruption will be necessary to support effective implementation of reforms undertaken during the pandemic and beyond. A key component is implementing the IMF’s 2018 Framework—which remains a priority for the IMF and goes beyond anti-corruption to address fiscal governance, financial sector oversight, central bank governance, market regulation, rule of law, and anti-money laundering frameworks. As the critical capacity to implement governance measures varies across countries and by type of measure, IMF staff will also continue to provide tailored capacity development on these issues through channels such as technical assistance, training, and webinars.

The IMF will take stock of progress in implementing the 2018 framework in mid-2022, with a view to assessing how it can continue to support member countries in strengthening governance.

Efforts to enhance governance will depend even more crucially on high-level political ownership of reforms, international cooperation, and a joint effort with civil society and the private sector, among other stakeholders. Progress also requires sustained implementation of reforms over an extended period. Such progress is not easy, but it is nonetheless achievable—and it is essential for fostering stronger and more inclusive economic growth.

 

 

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