Improving Governance and Fighting Corruption for Inclusive Growth in the Caucasus and Central Asia

The COVID-19 health and economic crisis underscores, as few other major events in modern history have, the vital role of public institutions. When emergencies strike, it is the state’s responsibility to respond, especially when millions of lives and livelihoods are at stake. That is why ensuring that institutions are operating effectively and above all trusted by the people they serve is the cornerstone for building stable, safer and more inclusive economies. The time for action has never been more opportune.

A newly released IMF report, which examines how countries in the Middle East, North Africa and Central Asia have grappled with governance issues in recent years, confirms that governance and anti-corruption reforms would be indispensable to build back better and spur a strong and sustainable recovery.

This report confirms once more the importance of improving governance and reducing corruption in boosting growth: they lead to better economic outcomes and sustained macroeconomic stability by making the use of public resources and the provision of government services more effective, and by fostering investor confidence and competitiveness.  What’s more, effective governing and fiscal institutions can strengthen social cohesion, and ensure that growth benefits are better shared throughout society.

So, given the importance of these reforms, how are countries in the Caucasus and Central Asia (CCA) faring?

The good news is that progress has been made.

For instance, Georgia, Kazakhstan and the Kyrgyz Republic have improved access to budget information in recent years. Others, such as Azerbaijan and Uzbekistan, have ramped up procurement reforms, which are critical to ensuring that government contracts and projects are negotiated through an open, competitive process. Georgia reformed its tax codes and business registrations as well as public financial management procedures. Armenia requires legal entities in the extractive industry and financial sector to provide information on their beneficial owners and publish their basic ownership information, reducing the risks of corrupt activities. Several CCA countries have started simplifying processes for businesses and individuals, thereby improving access to services. For example, Kazakhstan has now a large network of “Public Service Centers”, which offer hundreds of government services and Azerbaijan has developed a digital public service window that has been used by 5 million people over the last four years.

While there are encouraging signs throughout the region, much work remains to address weak governance and corruption. Tackling remaining weaknesses in fiscal and financial governance, notably in terms of transparency and accountability, can bring large dividends—improvements that are already being demanded by the public in these countries. This is a long-term endeavor that requires a full commitment from society, strong leadership, and continued focus and action on multiple fronts.

While recognizing that countries’ reform priorities will vary according to national circumstances, there are some key areas of reforms that we have identified for the region:

-Improving transparency and accountability. This includes expanding access to information—including budget and central bank information—, designing open and transparent procurement processes with publication of contracts and beneficial ownership of awarded entities, establishing strong internal controls and external oversight of public finances that includes independent audit, strengthening accountability of SOEs—given the dominant role they play in many countries in the region—, and enhancing asset declaration regimes.

-Streamlining rules and enforcing them fairly. Fiscal institutions’ operations and related rules and regulations, such as tax codes, could be further simplified, modernized and better enforced, thereby increasing their efficiency and fairness. Streamlining business procedures would help reduce red tape -and vulnerabilities to corruption- and improve investment climate as would enhancing financial supervisory frameworks.

-Beefing up anti-corruption frameworks. This would involve adopting laws and regulations, drawing on international conventions and good practices, putting in place effective institutions to enforce them, continuing to strengthen AML/CFT frameworks, and facilitating information-sharing at the domestic and international levels.

Reform efforts could be supported by further leveraging technology. For example, e-government services can be used among other things to provide full access to information, file and pay taxes, procure goods and services, and channel transfers using biometric technology and digital payments.

Each country will have to establish its own road map to reform. The IMF will continue to actively support CCA countries’ governance reform efforts through policy advice and capacity development, with a focus on fiscal governance, central banking, financial supervision, Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) and statistics. By working together with a collective commitment to building stronger, more open, and more accountable institutions, we can all emerge from the trials of this past year on a path toward a better, more inclusive future.

The author is Jihad Azour, the Director of the International Monetary Fund’s Middle East and Central Asia Department.

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