Bribery eats up 2% of global economy: IMF

IMF Managing Director Christine Lagarde takes part in a forum on strengthening the international tax system during the annual International Monetary Fund, World Bank Spring Meetings.
IMF Managing Director Christine Lagarde takes part in a forum on strengthening the international tax system during the annual International Monetary Fund, World Bank Spring Meetings.PHOTO: AFP

WASHINGTON (AFP) - The International Monetary Fund said on Wednesday (May 11) that bribery sucks up between US$1.5 and US$2 trillion (S$2.1-2.7 trillion) annually around the world, dragging down economies and worsening social services for the poor.

In a new report on the economic impact of corruption, the IMF said that bribery, graft and other cheating common in both rich and poor countries limits economic growth and undermines sound government policies.

In a speech prepared for the global Anti-Corruption Summit in London on Thursday, IMF Managing Director Christine Lagarde said that more and more leaders are openly seeking help to fight the scourge.

"Both poverty and unemployment can be symptoms of chronic corruption," she said, according to the text of her speech.

"While the direct economic costs of corruption are well known, the indirect costs may be even more substantial and debilitating, leading to low growth and greater income inequality."

Ms Lagarde dismissed the idea that corruption is a stubborn cultural phenomenon in many countries. In fact, it is common across cultures, and countries with diverse backgrounds have found ways to address it, she said.

The late Singapore leader Lee Kuan Yew "was very effective in both signalling a zero-tolerance policy towards corruption and building competent institutions at a time when corruption was pervasive in Singapore," she noted.

The economic impact of corruption is hard to quantify, according to the IMF report released Wednesday. But despite claims that it helps "grease the wheels" to make economies work, the overall impact is very negative.

The cost of bribery alone tops more than two per cent of global gross domestic product - a broad measure of economic output - and because it is tainted, that money is often sucked out of economies to offshore havens, meaning it does not contribute to growth.

Corruption perpetuates economic inefficiency, undermines public policy, and exacerbates inequality, the report says. It also scares off both domestic and foreign investors.

"Investors actually seek out countries that can give them the assurance that, once an investment is made, they will not be blackmailed into providing bribes," Ms Lagarde said.

The report says that data shows that higher corruption generally correlates with lower social services for the poor. That in part is because government budgets in more corrupt countries get loaded up with the kinds of spending - like big-ticket projects - that offer greater graft opportunities.

Ms Lagarde said that the IMF includes guidance on anti-corruption measures in its support programs for governments, because "pervasive corruption makes it harder to conduct sound fiscal policy."

Certain approaches have proven effective in a number of countries: paying civil servants more; setting up special anti-corruption courts; punishing companies for corrupt practices in other countries; and creating special offices to collect taxes from the largest taxpayers, to improve compliance.

But Ms Lagarde also stressed the need for rule of law and firm leadership.

"Prosecuting the powerful 'big fish' - which is necessary in order to send a clear signal of commitment and change - can only be achieved if a country's leaders visibly support the process," she said.