THE WORLD BANK GROUP A World Free of Poverty

Helping Countries Combat Corruption: The Role of the World Bank

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1. Key Messages

The purpose of this report is to provide a framework within which the World Bank can approach corruption. Such a framework is needed to guide Bank activities at four levels:

  • Preventing fraud and corruption within Bank-financed projects.
  • Helping countries that request Bank support in their efforts to reduce corruption.
  • Taking corruption more explicitly into account in country assistance strategies, country lending considerations, the policy dialogue, analytical work, and the choice and design of projects.
  • Adding voice and support to international efforts to reduce corruption.

The first level has long been a concern of the Bank. Procurement and loan disbursement policies have been progressively refined to ensure the efficient use of Bank resources. Further initiatives are under way to streamline procurement and disbursement and to promote borrower accountability. The second level is partly familiar territory, partly new. While the Bank has helped countries reform economic policies and strengthen public institutions for many years, its involvement in explicit anticorruption strategies is novel. In the past year a small but growing number of countries have approached the Bank for assistance, adding to the larger number of countries in which the Bank is already supporting policy and institutional reform that, among other things, contributes to the fight against corruption. The third level is more difficult terrain, but unavoidable if the Bank is to confront corruption squarely as a development issue and provide relevant policy advice to borrowers. The fourth level is a new area for the Bank, but one in which a strong lead has been given by the Bank's president, and in which prospects for collective action are good.

Each level is linked with the others. Preventing fraud and corruption in Bank-financed projects should be done in ways that build the capacity of national procurement and financial management systems. If the Bank is to help countries design and implement anticorruption strategies, it needs to integrate an awareness of corruption risks and costs into the economic and social analysis it undertakes. And since corruption is a global problem, the Bank's efforts to help individual developing countries deal with this issue will be enhanced by more active participation in international efforts.

Corruption should be explicitly taken into account in country risk analysis, lending decisions, and portfolio supervision if it affects project or country performance and the government's commitment to deal with it is in question. Lending and, with due respect to legal obligations, disbursement decisions will be guided by:

  • Whether Bank projects are likely to be affected by corruption during design or implementation, or thereafter.
  • The extent to which the achievement of development objectives is compromised by corruption.
  • The willingness of the government to act to control corruption if it threatens the effectiveness of Bank projects and/or economic and social development.

The scope and nature of the Bank's response will be tailored to the type and extent of corruption being addressed. In all cases, the Bank's activities will be defined by its Articles of Agreement and focus on the economic issues within its mandate. The Bank recognizes that corruption is a complex and sensitive topic and that staff will need careful guidance on how to approach it in the country dialogue, in the lending program, and in economic and sector work.

The Bank's approach grows from an understanding that:

  • Corruption is a global problem (chapter 2). Corruption exists in all countries to varying degrees. It is systemic in many of the countries that borrow from the Bank and in some industrial countries. And corruption has significant transnational dimensions that the Bank must consider. Current efforts by OECD countries to criminalize foreign bribery and end its tax deductibility are strongly welcomed.
  • Sustainable development requires the control of corruption (chapter 2). A growing body of empirical evidence supports what Bank staff and many others have long sensed—that the social and economic costs of corruption are high and fall disproportionately on the poor. Corruption also burdens the private sector, deters foreign investors, and harms the environment. It undermines trust in government and diminishes the effectiveness of public policy.
  • Corruption puts political support for aid programs at risk. Corruption undermines the effectiveness of aid and threatens to erode political support for it. The Bank's ability to continue to support the development efforts of poor countries depends critically on maintaining confidence that aid works.
  • A window of opportunity has opened to address corruption in a more comprehensive way (chapter 2). Bank staff, other donors, and many borrowers strongly support such efforts.
  • Corruption is a governance issue, and can be addressed by the Bank within the framework established for governance (chapter 2). The Bank can take many actions within its Articles of Agreement to help countries fight corruption. However, the Bank must focus on the economic concerns within its mandate and must refrain from interfering in countries' political affairs.
  • Tackling corruption is neither easy nor quick (chapter 3). Corruption is a symptom of deeper-seated factors. The causes are complex, and the means to control it are not fully understood. Corruption thrives when economic policies are poorly designed, education levels are low, civil society is underdeveloped, and the accountability of public institutions is weak—conditions that exist in many settings but are particularly prevalent in some developing countries. Corruption often has a political dimension and reflects the way power is exercised in a country. And it is constantly changing its form in response to changes in the global economy and technical innovation. Like others working in this area, Bank staff must address the issue with humility, realizing that we have much to learn. Approaches that work in one setting can have unintended consequences in another, and the Bank must constantly evaluate the effectiveness of its efforts.
  • Political will is essential (chapter 3). The sustained reduction of systemic corruption requires committed leadership and support from citizens and civil society. External actors like the World Bank can help, but aid conditionality cannot substitute if political will is missing.
  • The Bank should address corruption more explicitly than in the past, but in ways that reflect its mandate and its comparative advantage (chapter 3). In the past the Bank was often reluctant to confront corruption openly because of the issue's political sensitivity and the lack of demand from borrowers for assistance in this area. As an institution that believes in the power of public policy to achieve development goals, the Bank needs to more readily acknowledge the effect corruption has on the programs of its borrowers and be ready to help where it can be effective.

Despite the complexity and sensitivity of corruption, there are measures the Bank can take to help countries tackle the problem:

  • The Bank can help countries design and implement anticorruption strategies (chapters 5 and 6). With its considerable experience in helping countries reform economic policies and strengthen institutions, the Bank is well placed to support national anticorruption efforts. For governments intent on reform, a central part of controlling corruption is getting the basics of public policy and management right.
  • The Bank can pay more attention to corruption when designing and assessing economic reforms (chapter 5). Although most of the Bank's economic policy recommendations clearly reduce opportunities for corruption, there are some areas—including tax reform, expenditure reductions, infrastructure privatization, and environmental regulation—in which close attention should be paid to the capacity of governments to implement policy reform. If such capacity is lacking, policy change may increase the risk of corruption. The answer is not to forgo reform, but to consider and help strengthen institutional capacity in tandem with policy design.
  • The Bank can put additional emphasis on strengthening public sector management and governance (chapter 6). Although many of the Bank's activities help build public institutions, a greater focus on this goal is warranted. Well-performing public sectors are characterized by a professional civil service, strong financial management, accountable organizations, and a capacity for effective policymaking. Fighting corruption also requires strengthening the rule of law through clear legislation, effective enforcement capacity, alert statutory oversight agencies, an independent judiciary, and an engaged civil society.

To play a more active role in these areas, the Bank needs to place a concern for corruption in the mainstream of its operational work and research. It needs to:

  • Ensure that the projects it supports and its operational procedures set an example of best practice, while taking into account their effect on borrowing countries (chapter 4). Bank projects must not be seen in isolation, since they are invariably affected by the overall system of public management and governance in borrowing countries. Moreover, in countries that depend on aid to finance their development projects, the lending operations and policies of the Bank and other donors deeply affect overall public management. The Bank's procurement and disbursement should progressively place more emphasis on borrower accountability, thereby contributing to stronger government financial management systems.
  • Raise the impact of corruption in its dialogue with borrowers (chapter 7). Where corruption is widespread and affects a country's development objectives and Bank-financed projects, the Bank needs to raise the issue with borrowers and seek ways to help governments and civil society address it.
  • Address corruption and its economic effects more explicitly in country assistance strategies and the design of projects (chapter 7). The country strategy should consider how the Bank might help a country address corruption when it is a problem. Design of projects should take account of corruption risks.
  • Build knowledge (chapter 7), by dedicating more resources to understanding the dynamics of corruption and how some countries have reduced it, disseminating such knowledge, and applying such learning actively in its work.
  • Fill critical skill gaps (chapter 7)—particularly in financial management, procurement, and public sector management.
  • Continue to build working relationships with partners (chapter 7), both in borrowing countries (including local NGOs and the private sector) and on a regional or global basis (including bilateral donors, NGOs, and international organizations). Doing so will help focus the Bank's efforts where it has a comparative advantage.
  • Become an active partner in multilateral efforts to control corruption and reduce transnational bribery (chapter 8). One important example is the current initiative, led by the OECD, to coordinate the criminalization of transnational bribery and the elimination of its tax deductibility in member states.

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