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Integrity in IMF emergency lending: what worked?

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The Covid-19 pandemic caused the largest global economic recession since the Second World War. Many countries turned to the International Monetary Fund (IMF) for support and external financing to cushion the blow. The IMF provided over US$100 billion of emergency support using its Rapid Credit Facility, and is considering issuing further relief through Special Drawing Rights. As the Fund’s MD Kristalina Georgieva said: “Please spend as much as you can, but keep the receipts.” 

In the spirit of keeping the receipts, the IMF encouraged countries to make voluntary commitments to good governance of emergency support resources. These commitments were the first of their kind and included two connected policy areas critical to making sure the money was well spent: procurement and beneficial ownership transparency.

Public procurement is government’s number one corruption risk, and the use of anonymous companies have been linked to 70% of grand corruption cases. Beneficial ownership information on the companies winning emergency contracts empowers governments to know who they’re doing business with, especially during the supply chain disruptions caused by the pandemic. By encouraging commitments on both, the IMF took a strong stance on promoting good governance and accountability and that is worth celebrating.

So, one year on, how effective were the IMF commitments in encouraging good governance and transparency? And what are the lessons learned? 

Together with our friends at Open Ownership, we worked with a consultancy called Oxford Insights to understand the impact of these commitments in 11 countries (Bolivia, Ecuador, Honduras, Kyrgyz Republic, Malawi, Moldova, Nepal, Nigeria, South Africa, Uganda). Oxford Insights specifically sought feedback both from reformers in government and from civil society watchdogs. You can read the full summary report here.

We wanted to explore what more the IMF could do in emergency situations and in its economic dialogue with finance ministries more generally to support impactful implementation of these and future commitments so they make a difference on the frontlines of an emergency. 

To get the IMF’s feedback on our focus, we engaged the team in charge of following up on these commitments and we appreciate their openness and thoughtful reflections on what we learned and what could be improved in future emergency lending.

Our work complements a Transparency International and Human Rights Watch study looking at four countries’ IMF rapid credit facility commitments on transparency more generally.

How effective were the IMF commitments in encouraging good governance and transparency?

It would be fair to say that the implementation of the commitments was hit and miss.

Countries did make progress on the transparency of their emergency procurement, however most of the interviewees told us that progress didn’t seem to be due primarily to the IMF. It was mostly the result of existing reforms, other partners and support, including from OCP and local civil society, that were leveraged to respond to the pandemic response. Examples here are Moldova and Ecuador. That said, some interviewees also told us that the existence of the IMF commitments provided them with additional incentives and leverage to advance existing reforms. 

The commitments on beneficial ownership were seen as more catalytic. 

New policies were created and an ambition to collect beneficial ownership information was stated by a number of governments for the first time. Nonetheless, implementation has been lagging, with a lack of clarity on what beneficial ownership information should include, how to disclose it in line with the spirit of the commitments and only poor quality data being disclosed. Nonetheless, civil society partners and others cited the IMF commitments were a clear driver in government action and also in expanding their work to include beneficial ownership. 

It is worth noting that we found a disconnect between government agencies in charge of collecting and disclosing beneficial ownership and procurement information and a disconnect between both of them and the government ministries negotiating a commitment with the IMF, which was usually the Ministry of Finance.

Lessons learnt & next steps for the IMF

Everyone we interviewed noted that they welcomed the IMF emphasizing improved fiscal governance during the pandemic and that public procurement and beneficial ownership were important dimensions of the response. Public procurement was uniquely in the spotlight as governments scrambled to secure PPE and medicines resorting to emergency procedures and sole sourcing. Beneficial ownership of the companies receiving public money was especially important given the supply chain disruptions that took place during the pandemic — government buyers had to find a whole new set of suppliers. 

We completely agree with this assessment. Our number one lesson is that a bit more follow up by the IMF would go a long way. Where the IMF did offer assistance — say on beneficial ownership in Ecuador — it was favorably received. And our number two lesson is that the IMF has the influence to encourage countries to set commitments that are clear, precise and ambitious improvements on the status quo.   

The IMF should not shy away from the leadership role it took on with these commitments, but step up to improve the effectiveness of procurement and beneficial ownership transparency commitments in its lending. We recommend:

The IMF rapid credit facility commitments were an important first step, the progress made could be even greater if these commitments are strengthened, set a clear bar for governments to aim for and become integrated into wider lending approaches across the organization.

This feels especially important as the IMF, governments and other financial institutions gear up to spend unprecedented sums shoring up the global economic recovery, It has never been more important to strengthen fiscal governance, public procurement systems and corporate registries to support smarter, fairer and better public spending by governments as we look to build forward better from the pandemic. 

Download the full summary report

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