Has the World Bank lost its way?

An event commemorating 50 years of partnership between Bangladesh and the World Bank was recently held at the World Bank headquarters in Washington. Prime minister Sheikh Hasina was present at the event. The event seems to have been a success except for the rather downcast and embarrassed expression on the face of the World Bank president David Malpass when the prime minister presented him with a picture of the Padma Bridge, and also the skirmish between pro and anti- government elements in front of the World Bank office.

In a report published on the occasion, ‘Bangladesh and the World Bank Group: 50 Years Together’, it was said that when Bangladesh emerged as an independent country on 16 December 1971, it had been one of the poorest countries in the world – the transformation of the country’s economy over the past 50 years is an amazing story.

Actually, a correction needs to be made here. It was on 26 March 1971 that Bangladesh emerged as an independent country and this is the day commemorated as Bangladesh Independence Day.

Before going into the main discourse, let me narrate a story. It is said Jan Tinbergen and Ragnar Frisch were members of the committee that evaluated the PhD research of economist Paul Samuelson. While interviewing him, they asked the student Samuelson all sorts of questions about his research and listened to his answers. After Samuelson left the room following the interview, it was time for them to make a decision. Tinbergen and Frisch looked at each other and said, “Did we pass?” In other words, the student had excelled, but what about them? In its development journey over the past 50 years, Bangladesh graduated with distinction. But has the World Bank passed? If so, how were its grades? Let’s look into this.

I may mention here that I have around 33 years of experience working with the World Bank, from back in 1989. And I worked directly as an official of the Bank in 2010 and later as their international consultant up until 2022.

Let me start with a bit of reminiscing. It was the start of the nineties and a wave of economic reforms and liberalisation was sweeping over developing countries. I, and a colleague Tapan, had just returned after completing our higher studies abroad and joined the National Board of Revenue. Our economy at the time was insular and fragile. The World Bank wanted Bangladesh to join the economic reforms and liberalisation bandwagon. Our senior officials were adverse to reforms and liberalization. They wanted things to continue as they were. We wanted reforms and liberalization to be implemented. However, we maintained, this should proceed at a rational pace, not overnight as the World Bank recommended. We were embroiled in regular discussions and debate with the World Bank mission at the time. But the objective of both sides was to take Bangladesh ahead. We would explain to our senior officials the necessity for reforms and liberalisation.

Our head was the finance minister at the time, Saifur Rahman. He would listen to our views and encourage us. We would explain to the World Bank mission that it would not be possible to carry out any reforms or liberalization if we follow their instructions to the letter. This would be implementable if some of the conditionalities are relaxed somewhat. They, in turn, explained matters to their seniors at the headquarters. And thus we successfully managed to implement trade liberalization under ‘Industrial Sector Adjustment Credit-2’ and tax sector reforms under ‘Public Resource Management Adjustment Credit’. Also, under these two credit programmes and IMF’s ‘Extended Structural Integration Facilities’, Value Added Tax was introduced. As a result, the economy gained momentum and the tax revenue-GDP ratio improved.

In the meantime, due to the low internal rate of return (IRR) on the Jamuna Multipurpose Bridge Project, the World Bank moved away from their earlier commitment. Three of us reevaluated the project feasibility and pointed out that certain important elements had been missing in the World Bank evaluation. If these were included, then the IRR would be elevated to their satisfaction. The World Bank accepted this and returned to funding the bridge. The country’s first large bridge was implemented in the shortest time and at the lowest cost.

A few years later through IDCOL and with the World Bank support, we implemented the world’s most successful solar home system initiative under the ‘Rural Electrification and Renewable Energy Development Project’. Under this initiative, solar power facilities were provided to around 20 million people in the remote areas of the country. The success of all these above-mentioned projects was because of the World Bank’s firm determination regarding reforms, flexibility in implementation and taking local views and analysis into cognizance.

Entering the second decade of the new century, the World Bank lost its way and funds for economic reforms were relegated to the back burner. They displayed inefficiency in taking decision regarding financing the Padma Bridge project. Without going into whether their allegations of corruption were right or wrong, the fact remains that because of the World Bank withdrawing from the project, Bangladesh lost the opportunity to implement Padma Bridge in the shortest time and at the lowest cost possible.

With new regulations being imposed on the economy at this juncture, many of the old reforms have been trimmed. Interest rates and foreign currency exchange rates were fixed through bureaucratic methods, reserves dropped, the banking system was derailed, default loans and money laundering broke all previous records, even those of the neighbouring countries. Corruption led to an increase in unnecessary expenditure and a shortfall in revenue.

Poverty alleviation took the backbench in the World Bank’s programmes. As a result, Bangladesh was pitched into an economic crisis. Disparity in income and wealth increased and so did the number of ultra poor.

The World Bank closes its eyes to all this. They are busy in increasing their loan disbursement and have been successful in this. As a result, where Bangladesh would fail to utilise their pledged funds in the past, now they even use the leftovers of funds pledged to African countries. Bangladesh’s dependence on the World Bank loans is on a steady rise.

The main attraction of the World Bank and such donor agencies is that their loans have low interest rates, long terms and grace period. There is a reason behind this. These donor agencies stand in the forefront when to come to receiving repayment on their loans. In other words, their loans must be repaid before anyone else’s loans. They will extract their loans under any circumstance and will never write off loans. For example, the newly independent Bangladesh declined to repay loans taken by Pakistan. But despite everything, the war-torn Bangladesh had to take responsibility to repay the USD 345.6 million for the part of project that had been implemented here.

That is why the chief executive of a US investment bank (probably Goldman Sachs) once said that if they were given the same amount of funds and same method and conditions of fund collection as the World Bank, they could have brought about much higher development in the developing countries.

We want the World Bank to become a true development partner, not a bank merely intent on transactions. We want it to be serious about economic reforms and poverty alleviation. If Bangladesh’s dependence on foreign loans decreases, that will be the symbol of success for Bangladesh-World Bank partnership. On this 50^th anniversary, may Bangladesh-World Bank partnership be successful in the days to come.

* Muhammad Fouzul Kabir Khan is a former secretary and economist and can be reached at [email protected]

* * This column appeared in the print and online edition of Prothom Alo and has been rewritten for the English edition by Ayesha Kabir