The world is facing a crisis of trust in institutions across all sectors that shows no sign of abating. In 20 out of the 28 countries surveyed by the Edelman Trust Barometer for 2018, average trust in government, business, NGOs and media was below 50%.

There are many reasons behind this heightened sense of dissatisfaction – the long tail of the global financial crisis, a perception that economic rewards are not being shared fairly, and growing anxiety about future job prospects. But when I talk to young people all over the world, one theme comes up repeatedly: corruption – the abuse of public office for private gain. I am convinced that corruption both feeds on and is fed by the broader crisis of trust, which sustains a vicious cycle that undermines economic health and social cohesion.

By siphoning off precious reserves of trust, corruption makes it harder for society to take the collective decisions needed to advance the common good.

The economic and social costs of corruption are clear. Consider, for example, the effects of corruption on the public accounts. It robs the tax system not only of revenues but of its very legitimacy. Corruption can also shift government spending away from valuable areas in health, education, and social protection, toward wasteful projects that enhance neither productive capacity nor human wellbeing.

Given all this, it is not surprising that new research by the IMF found that corruption does serious damage to economic growth, investment, FDI, and tax revenues – and to income distribution and inclusive growth too.

In light of this, the IMF is stepping up its engagement in the corruption and governance arena. This is only right – the mandate of the IMF, after all, is to secure financial stability and sustainable and inclusive economic growth, and our ability to pursue this mandate is jeopardised by deep-seated corruption.

From this point on, we will be enhancing our analysis by making it deeper, longer, broader.

Starting with deeper: the cancer of corruption cannot be cured by criminal enforcement alone. That is not the job of the IMF, anyway. In my experience the best tonic for depleted trust is heightened transparency. The best way to fight corruption is to put in place robust, accountable and transparent institutions. Accordingly, the IMF will look not only at corruption itself, but at the cracks in the various institutional frameworks that might let corruption creep in. Especially important here is transparency over government budgets, so that nothing is hidden from view or obscured. It is also important to keep regulations clear and simple, to reduce opportunities for corruption and cronyism.

Profile What is the IMF? Show What is the IMF? The International Monetary Fund, created in 1945, is an organisation of 189 countries based in Washington DC. It is governed by, and accountable, to member countries.

Its goals are to ensure the stability of the international monetary system (exchange rates and international payments), to secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty.

The IMF has bailed out scores of countries over the years, including the UK in 1976 when the minority Labour government borrowed £2.3bn from the fund to stabilise the value of the pound; Iceland in 2008; and Greece in 2010, 2012 and 2015.​ The number of bailouts of African countries has also increased in recent years as states became more vulnerable to commodity price crashes.

The IMF was conceived at a UN conference in Bretton Woods in the US in July 1944 to build a framework for economic cooperation to avoid the devaluations that contributed to the Great Depression of the 1930s.

​Most funds for IMF loans are provided by members via payments based on their position in the world economy, although the IMF can also borrow. Its decision-making also reflects members' relative influence. The Fund, as it is known, is one of the world’s biggest holders of gold. Photograph: Yuri Gripas/X00866

When it comes to sealing up the institutional cracks, I believe that digitalisation offers much promise. As one example, fraud is more difficult to execute when tax transactions are fully electronic. IMF research found that using digital tools to clamp down on cross-border fraud could boost tax revenue by up to 2% of GDP each year. Similarly, digitalisation could help shine a light on wealth stashed away in offshore financial centres – which today amounts to a staggering 10% of global GDP.

In terms of the “longer” focus, there may be countries where corruption has long been entrenched, with little harm to the economy surfacing today. But corruption hurts the economy through the slow atrophy of institutional trust.

The broader focus suggests that where bribery is concerned, it takes two to tango. If a corrupt official is taking a bribe, somebody else is giving a bribe, and somebody else again is often helping to stash away the proceeds. It is wrong, both morally and economically, to pin the blame solely on officials in recipient countries. The net also needs to capture foreign investors, large corporations, and financial institutions that supply and conceal the payments.

In today’s world, where funds can move quickly with little oversight, corruption is a global problem warranting a global response. For this reason, the IMF is asking countries with large financial and foreign investment sectors to volunteer for a check-up to see whether they criminalise and prosecute foreign bribery and have mechanisms to stop the laundering and concealment of dirty money.

Restoring trust will not be quick or easy. But an important first step must be to build a strong foundation of governance and tackle corruption head-on. Otherwise, we will not be able to make progress on the pressing economic challenges of our times – including jobs and productivity growth, inequality and opportunity, and climate change.

• Christine Lagarde is the managing director of the IMF