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© 2021 International Monetary Fund
WP/21/98
IMF Working Paper
Institute for Capacity Development
Governance for Inclusive Growth
Prepared by Maksym Ivanyna and Andrea Salerno1
Authorized for distribution by Valerie Cerra
April 2021
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
Abstract
The government’s ability to deliver inclusive growth crucially depends on the quality of governance. This paper reviews the linkages between governance and inclusive growth, and key policies to improve governance. The policies include (1) structural reform, automation, improving rules and procedures (including for fiscal and monetary policies) to limit the discretion and hence the space for policy errors; (2) human resource policies, capacity building, effective anti-corruption frameworks to incentivize public officials to make decisions in the best public interest; and (3) transparency, accountability, and inclusive political institutions to inform and monitor policymaking.
JEL Classification Numbers: O43, O17, H11, H83, D73
Keywords: governance, institutions, corruption, anti-corruption frameworks, transparency and accountability, inclusive political institutions, structural reform, automation
Authors’ E-Mail Addresses: MIvanyna@imf.org; ASalerno@imf.org
Contents
Abstract
I. Introduction
II. Causes of Poor Governance: Corruption and Lack of Capacity
III. Effects of Poor Governance on Inclusive Growth
IV. Policies to Improve Governance: Overview
V. Reducing Discretion When Policy Decision is Made
A. Structural Reforms to Reduce Government Discretion
B. Case for Government Intervention: Automation, Outsourcing, Rules, and Procedures
Rules and Procedures: Examples of Public Financial Management and Tax Administration
Rules and Procedures: Example of Central Bank Safeguards Assessment
Rules and Procedures: Example of Financial Sector Assessment Program (FSAP)
VI. Reducing the Likelihood of Poor Governance
A. Encouraging Good Governance: Human Resource Policies, Political Institutions, and Capacity Building
B. Discouraging Poor Governance: Tangible and Non-Tangible Cost, Supply-Side Measures, Anti-Money Laundering, and Anticorruption Frameworks
Preventing Criminals from Benefiting from the Proceeds of Corruption: Anti-Money Laundering Frameworks
VII. Monitoring and Informing the Policy
A. Transparency and Accountability
B. Official Anti-Corruption Institutions
C. Engaging Civil Society
Examples of IMF’s Governance Policy Advice in Selected Countries
VIII. Conclusion
References
Figures
Figure 1. Corruption as a Major Obstacle to Do Business
Figure 2. Main Effects of Poor Governance: Summary
Figure 3. Less Education and Health Spending in Countries with Poor Governance
Figure 4. Bribery Dynamics Around the World
Figure 5. Improving Governance Decomposed
Figure 6. E-Government on Rise
Figure 7. Reducing the Likelihood Of Poor Governance Through A Magnifying Lens
Figure 8. Open Data Across Government Activities
Tables
Table 1. Public Wage Statistics from around the World, 2008–201
With contributions by Chady Adel El Khoury, Francisca Fernando, Maksym Markevych, and Joel Turkewitz. We thank Jaime Sarmiento Monroy for the research assistance. We also thank Olivier Basdevant, Valerie Cerra, Moya Chin, Sharmini Coorey, Barry Eichengreen, Alice Flora French, Torben Steen Hansen, Ashraf Khan, Sebastian Pompe, Keyra Primus, as well as participants in the Inclusive Growth book seminar series organized by the IMF Institute for Capacity Development for their comments. This is a draft of a chapter that hasbeen accepted for publication by Oxford University Press in the forthcoming book titled: “How to Achieve Inclusive Growth”, edited by V. Cerra, B. Eichengreen, A. El-Ganainy, and M. Schindler due for publication in 2021.