Washington—Amid growing global concerns over corruption in public and private sectors and its consequences on nations’ growth, Managing Director of International Monetary Fund, IMF, Christine Lagarde, has said that corruption undermined prosperity because of its micro economic implications.
Lagarde, a lawyer, who gave a key note address at the opening ceremony of the 2016International Bar Association, IBA Annual Conference in Washington D.C., said there was short supply of integrity governance, despite its high demand.
The event, which took place on Sunday evening at the Walter W. Washington Convention Centre, was attended by IBA President, David Rivkin, and other delegates, including Bar leaders across the world.
According to Lagarde, “corruption undercuts countries’ efforts to deliver sustainable and inclusive growth. How?
“First, by weakening fiscal capacity. When citizens feel that wealthy individuals are able to avoid paying taxes through bribes, it delegitimizes the whole system. And not surprisingly, other people decide not to comply, which undermines the ability of the state to raise revenue
“At the same time, government spending becomes skewed toward areas with greater opportunity for graft, such as public procurement for construction projects.
One study has found that in eight European countries, public projects were on average 13 percent higher because of corruption.
‘’In extreme situations, the combination of depressed tax revenues and inefficient public spending can result in large fiscal deficits and critical debt situations.”
Speaking further on how to address the problem, Lagarde said: “Uncertainty and the cost of doing business increase with corruption, which acts as a tax on investment.
‘’Government borrowing costs can also be affected. For example, evidence of corruption in Petrobras contributed to a series of credit downgrades for Brazil in the past year and a widening in market spreads.