Role of Governance in Developing CountriesGROUP -

PRATIK AGARWAL ()SAURABH SINGH()KOUSHLENDRA SINGH()

OUTLINE

Importance of Good Governance & Anticorruption

Governance: Framework & Measurement

Priority Areas for Improving Governance

Operational Strategy on Anticorruption

The direction of causality …

Burkhart and Lewis-Beck (1994) found that while higher per capita incomes foster democracy, democracy in turn does not foster higher incomes

B. Friedman (2005) argues that higher living standards encourage more open, tolerant and democratic societies

Growth causes governance to improve ...

… and better governance causes growth

Using measures of rule of law, bureaucratic quality and corruption, Chong and Calderon (2000) found significant causality from good governance to growth and vice versa – i.e. “good governance” both contributes to and results from strong economic performance

Other studies have dealt with the potential for reverse causation by using exogenous instruments for the governance indicators and concluded that good governance has a significant and strong causal impact on economic performance …

… but the debate on causality continues …

Governance & Corruption – Not the same thing!

The manner in which the Stateacquires and exercises itsauthority to provide public goods and services

Using public office for private gain

Governance

Corruption

Corruption is an outcome – a consequence of the failure of accountability relationships in the governance system

Governance Systems: Actors, Capacities and Accountability

Outcomes: Services,

Regulations, Corruption

Political Actors & Institutions• Political Parties

• Competition, transparency

Executive-Central Govt

Service Delivery & Regulatory Agencies

Subnational Govt & Communities

Check & Balance

Institutions• Parliament• Judiciary• Oversight

institutions

Civil Society & Private Sector•Civil Society

Watchdogs•Media

•Business Associations

Cross-cutting Control Agencies (Finance, HR)

Citizens/Firm

s

Citizens/Firms

Citi

zens

/Firm

s

Citizens/Firms

Political Accountability• Political competition, broad-based political parties• Transparency & regulation of party financing• Disclosure of parliamentary votes

Checks & Balances• Independent, effective

judiciary• Legislative oversight (PACs,

PECs)• Independent oversight

institutions (SAI)• Global initiatives: UN, OECD

Convention, anti-money laundering

Citizens/Firm

s

Citizens/Firms

Citi

zens

/Firm

sCitizens/Firms

Decentralization and Local Participation• Decentralization with accountability• Community Driven Development (CDD)• Oversight by parent-teacher associations & user groups• Beneficiary participation in projects

Civil Society & Media• Freedom of press, FOI• Civil society watchdogs• Report cards, client surveys

Private Sector Interface• Streamlined regulation• Public-private dialogue• Extractive Industry Transparency• Corporate governance• Collective business associations

Effective Public Sector Management

• Ethical leadership: asset declaration, conflict of interest rules

• Cross-cutting public management systems: meritocracy, public finance, procurement

• Service delivery and regulatory agencies in sectors

Good Governance has many dimensions

Control of Corruption: one Aggregate Indicator (selected countries from 204 worldwide, for illustration, based on 2004 research data)

-2.5

0

2.5

EQU

ATO

RIA

L G

UIN

EA

KO

REA

, NO

RTH

TUR

KM

ENIS

TAN

UZB

EKIS

TAN

TAJI

KIS

TAN

BA

NG

LAD

ESH

VEN

EZU

ELA

ZAM

BIA

RU

SSIA

KO

REA

, SO

UTH

MA

UR

ITIU

S

SOU

TH A

FRIC

A

GR

EEC

E

ITA

LY

BO

TSW

AN

A

SLO

VEN

IA

CH

ILE

FRA

NC

E

SPA

IN

UN

ITED

KIN

GD

OM

NET

HER

LAN

DS

NO

RW

AY

NEW

ZEA

LAN

D

FIN

LAN

D

Poor Gov-ernance

Governance Level

Margins of ErrorGood Governance

Source for data: : 'Governance Matters IV: Governance Indicators for 1996-2004’, D. Kaufmann, A. Kraay and M. Mastruzzi, (http://www.worldbank.org/wbi/governance/govdata/); Colors are assigned according to the following criteria: Dark Red, bottom 10th percentile rank; Light Red between 10th and 25th ; Orange, between 25th and 50th ; Yellow, between 50th and 75th ; Light Green between 75th and 90th ; Dark Green above 90th.

Comprehensive Fiscal oversight:

Are the aggregate fiscal position and risks are monitored and

managed?

Information:Is adequate fiscal, revenue and expenditure information

produced and disseminated to meet decision-making and management purposes?

Comprehensive, Policy-based, budget:

Does the budget capture all relevant fiscal transactions, and is the process, giving

regard to government policy?

Budget Realism:Is the budget realistic, and implemented as

intended in a predictable manner?

Control:Is effective control and

stewardship exercised in the use of public funds?

Accountability and Transparency:

Are effective external financial accountability and

transparency arrangements in place?

PEFA’s Performance Measurement Framework

Six PFM System Aspects

Priority Areas for Improving Governance Strengthening Public Management Systems

Strengthening public finance management & accountability E-procurement for greater transparency and competition

Improving front-line service provision Instituting citizen report cards and monitoring Strengthen community monitoring and oversight

Strengthening Leadership & Ethics for good governance

Strengthening global checks and balances: Instituting transparency in extractive industries Strengthening global initiatives to curb transnational corruption

Budget realism Tanzania MTEF

Budget Comprehensiveness

Oversight by CSOs &Professional groups

Information

AAA support merging planning and budgeting in Lesotho

Control

IFMIS in Sierra Leone, accounting training in Africa

Civil society monitoring of Chad Oil Fund, Professional Accountancy Institutions in DRC, Mali, Guinea and Kenya

Internal control and audit support in HIPCs

Bank interventions to build capacity: multiple targets and tools (AFR)

Parliamentary Oversight

Support for Parliamentary oversight in Ghana, Kenya and Zambia; Supreme Audit Institutions in Cape Verde, Sierra Leone and Senegal

Fiduciary Risk

That donor resources will not be used for the purposes intended

Reputational Risk

That large amounts of aid in countries with corrupt leaders will tarnish donors’ reputation

Development Effectiveness Risk

That poor governance-corruption will undermine the impact of

development efforts in general and in donor-supported projects

Corruption pose three significant risks

1 Afghanistan2 Angola 3 Azerbaijan 4 Bangladesh 5 Belarus 6 Cambodia 7 Central African. Rep.8 Chad 9 Comoros 10 Congo, Dem. Rep.11 Cote D'Ivoire12 Djibouti13 Equatorial Guinea14 Gambia, The 15 Guinea 16 Guinea-Bissau17 Haiti 18 Iraq19 Kazakhstan20 Korea, North

21 Kyrgyz Rep.

22 Lao, PDR23 Lebanon

24 Liberia25 Libya26 Myanmar

27 Nigeria

28 Paraguay

29 Sierra Leone

30 Somalia31 Sudan

32 Swaziland

33 Tajikistan

34 Togo

35 Turkmenistan

36 Uzbekistan

37 Venezuela

38 Yemen, Rep.

39 Zimbabwe(Countries in blue are inactive WB borrowers)

Notes: Data on left: Countries listed in alphabetical order using 2004 data. These countries scored in the bottom quartile on the main corruption question in the World Bank’s 2004 CPIA which covered 135 countries AND scored in the bottom quartile on the 5 questions on broader governance issues in the 2004 CPIA OR scored in the bottom quartile on the 2004 Control of Corruption component of the WBI/DEC Kaufmann-Kraay Aggregate Governance Indicator. Countries not included in the 2004 CPIA but included in the WBI/DEC index are here if they fell in the bottom quartile of that index (Afghanistan, Iraq, North Korea, Liberia, Libya, Myanmar, and Somalia). This list includes inactive borrowers and ineligible countries. Inactive countries are defined as those with no lending/grants in SAP for FY04-06.

Challenges in Identifying High-Risk Countries Country

RankCountry

Source: TI Corruption Perceptions Index (CPI) 2005

2005 CPI Score

117 Afghanistan, Bolivia, EcuadorGuatemala, Guyana, LibyaNepal, Philippines, Uganda

2.5

126 Albania, Niger, Russia, Sierra Leone 2.4

130 Burundi, Cambodia, Congo (Republic), Georgia, Kyrgyzstan, Papua New Guinea

2.3

137 Azerbaijan, Cameroon, Ethiopia, Indonesia, Iraq, Liberia, Uzbekistan

2.2

144 Congo (Democratic Republic), Kenya, Pakistan, Paraguay, Somalia, Sudan, Tajikistan

2.1

151 Angola 2.0152 Cote d’Ivoire, Equatorial Guinea, Nigeria 1.9

155 Haiti, Myanmar, Turkmenistan 1.8158 Bangladesh, Chad 1.7

Help countries that request support in

their efforts to reduce corruption

Prevent fraud and corruption in donor-

financed projects

Anticorruption as key filter in design of

country assistance strategies

Support international efforts to reduce

corruption

Anti-Corruption Strategy

World Bank

Thanks