Corruption has become one of the major threats to economic development in Zimbabwe — particularly in government and state entities — costing the country billions of dollars. The International Monetary Fund (IMF) recently approved a Staff-Monitored Programme meant to assist the country implement a raft of macro-economic and structural reforms to revive the ailing economy. Zimbabwe Independent business reporter Kudzai Kuwaza (KK) this week spoke to IMF representative to Zimbabwe Patrick Imam (PI) on the scourge of corruption. Below are excerpts of the interview:
KK: Why does the IMF care so much about corruption?
PI: Well, the reason is simple. The job of the IMF is to protect global economic stability and promote strong, sustainable and inclusive economic growth. And this becomes difficult, if not impossible, to achieve in the presence of entrenched corruption.
And let us also be upfront. Corruption is a global problem. No country is immune to corruption. Whether rich countries or poor ones, big countries or small ones, all have some elements of abuse of public office for private gain.
KK: How does corruption affect economic development?
PI: Basically, corruption impairs the ability of a government to do its job effectively and efficiently. It undermines the ability to raise revenues, and it distorts spending decisions.
Rather than investing in projects with high social and economic returns like schooling, roads or hospitals, investments may be redirected to projects that generate kickbacks instead. For example, the IMF did a recent study showing that among low-income countries, the share of the budget dedicated to education and health is one-third lower in more corrupt countries. It also impacts the effectiveness of social spending. In more corrupt countries school-age students have lower test scores.
This is bad for growth and for economic opportunities. And it is bad for equity and fairness, as the poor lose out most from the diminished social spending and investments in sustainable development. It is also bad for economic stability, as the toxic combination of low revenues and wasteful spending lets deficits run too easily out of control.
But besides the direct costs of corruption, you also have indirect costs. By eroding people’s trust in government and institutions, corruption makes public policies less effective and weakens the foundations of a healthy economy. It degrades social norms and undermines civic virtues.
For example, when the wealthy do not pay their taxes, the entire tax system loses legitimacy. When cheating is rewarded, and when elites are viewed to play by different rules, trust in the fairness of the system will evaporate.
All of this is especially debilitating for the youth. When corruption is deeply embedded, far too many young people find that they have no prospects and cannot contribute to society. They lose the motivation to invest in their education, knowing that getting ahead depends on connections rather than ability. They become disillusioned and disenchanted.
So, it is really no surprise that the absence of widespread corruption is one of the key factors explaining differences in well-being across countries.
KK: Can you describe the IMF’s new framework for stepping up engagement on governance and corruption in member countries?
PI: Sure. So last year, the IMF announced a new framework for how to assess governance in countries. We had a policy that was spelled out in 1997, and that had not moved with the times.
Broadly speaking, the 1997 policy remains the basis for fund engagement on governance issues. But the new framework enhances the engagement on governance and corruption and aims for a more systematic, effective and I would say candid engagement with member countries.
The work on corruption is now embedded in our general work that promotes good governance in key areas such as public financial management, financial sector oversight, and also anti-money laundering.
The IMF board felt that this broader focus is necessary. This is because governance weaknesses are harmful in their own right, but they also open the door to widespread corruption.
To be truly effective, anti-corruption strategies must go beyond merely throwing people in jail. They require broader regulatory and institutional reforms. At the end of the day, the cure for corruption is strong, transparent, and accountable institutions. We all know that sunlight acts as a disinfectant.
As a first step therefore, we have developed a clear methodology for assessing the nature and severity of governance weaknesses, using a broad array of indicators. The next step is to assess the economic impact of the governance lacunas that are identified, and to provide country-specific policy recommendations on how to respond to them.
The new guidance is already being implemented in our surveillance and capacity building work. We have conducted some governance diagnostic missions in Peru and Mozambique recently. For Zimbabwe, a similar governance diagnostic assessment is planned for July and September and work is already underway.
KK: What can concretely be done to fight corruption?
PI: There is no silver bullet to combat corruption. By its very nature, corruption is a multi-dimensional problem that varies from country to country. So the fight against corruption has to be tailored to the local conditions.
What all countries that succeeded in combatting corruption have in common is above all strong political will at the highest level. It requires persevering on many fronts and to build strong and transparent institutions that can turn the tide against corruption.
KK: If the IMF is so pre-occupied with corruption, then why does the IMF deal with corrupt governments and why does the IMF still lend taxpayers’ money to very corrupt countries?
PI: As I said earlier, the problem of corruption exists everywhere to some extent, so if we were not allowed to deal with countries that have governance problems, then by that logic there would be little work for us as our engagement with most governments would be constrained.
Look, our mandate is to help all our member countries, regardless of the political regime. To make sure that the money lent by the IMF does not leak, we examine the procedures that the central bank has in place to safeguard IMF resources. When we lend, we also include conditions to improve institutions so that the likelihood of corruption is reduced. But we are under no illusion that a corrupt country can be made perfect overnight. This is precisely why we are here to help and work towards improvement.
Our objective as the IMF is to support our country members in their reform efforts and in ensuring macro-economic stability. In some cases, this means providing financial support when countries are facing significant imbalances.
In such cases, there are often institutional weaknesses that contributed to the problems. But these weaknesses should not prevent the Fund from engaging with these countries. What is key is that the countries are willing to address their institutional weaknesses. This could include, for example, increase transparency and integrity in the fiscal area via strengthening audit institutions, for instance.
Overcoming rampant corruption certainly is macro-critical, and if a country fails to make sufficient progress on this front, the Fund can suspend its engagement. We have done this recently with Ukraine in 2016 and Malawi in 2013, for instance.
KK: Procurement is another area prone to corruption, you say. Why is this, and what can countries realistically do to tackle the problem?
PI: In most countries, purchase of goods and services by the government is an area of particular risks. And this is not a surprise.
First, procurement usually represents a large share of the government budget. Second, public officials have wide discretion to negotiate contracts with private firms. This can be misused for large personal gains. The risks tend to be higher with public investment as projects often have unique features, rendering cost comparisons difficult and thus making it easier to conceal bribes and inflate costs.
But countries can take steps to reduce the vulnerabilities to corruption. These include promoting wide competition in public procurement as well as high transparency to ensure that all potential bidders have access, at the same time, to the same level of information to bid and avoid favouritism. Another important measure is the fair treatment of complaints for non-selected bidders.
KK: The IMF’s advice primarily focusses on what individual countries can do. Can you be more specific about the multi-lateral approach to curbing corruption?
PI: Let us be honest. To a large extent, fighting corruption will depend on the domestic efforts of countries. Having said that, we do see a significant role for international cooperation on different fronts. Let me give you some examples.
As I just mentioned, there are increasing efforts in combating bribery by multi-national companies that bribe officials in foreign countries. For example, many countries have committed to making it a crime under the OECD anti-bribery convention.
While there has been progress in many areas of international co-operation, more can be and should be done. A critical area for improvement is to improve the international exchange of information to fight tax evasion and to investigate and prosecute corrupt acts. We have seen from the leaked Panama Papers how many individuals hide their money, for instance. Finally, international institutions can also help by disseminating good practices in institution building.
KK: What are your plans in the SMP to improving governance in Zimbabwe?
PI: I think the question should be what the authorities are doing to fight corruption. We know that the Transitional Stabilisation Programme (TSP) aims to tackle corruption upfront and the President, on various occasions, including the Independence Day speech this year committed his government to fight corruption.
The TSP targets explicitly the eradication of corruption, which is a major source of leakages to public revenues and imposes large costs to various productive activities.
Therefore, one of the main objectives of the SMP is to assist the authorities to address these governance vulnerabilities. The government is committed to publish its own diagnostic assessment of Zimbabwe’s governance vulnerabilities by December 2019. The assessment will focus largely on legal aspects. This encompasses evaluating the rule of law, anti-corruption institutions and anti-money laundry rules.
It also includes an assessment of fiscal governance issues, public financial management and governance issues at parastatals. The legal aspects of central bank governance would also be covered. An action plan to address the identified governance vulnerabilities will then be drawn and published. In fact, technical assistance missions on governance from the IMF are planned for July and September of this year.
KK: Your final word?
PI: Yes, the fight against corruption should be owned and driven by Zimbabweans. It is not something that Zimbabwe should do to satisfy the international community. It’s something that Zimbabwean people are demanding. The ultimate responsibility to fight corruption relies squarely on the authorities. The international community can and will help at the technical level, but in the end, the success will be driven by domestic political will.
Source : Zimbabwe Independent