Corruption and non-development expenditure deter Bangladesh from higher growth

Bangladesh has received a lot of applause from the international community for its relatively higher growth and significant development outcomes despite its poor governance and dysfunctional political system. It has surpassed Pakistan in terms of GDP per head in US dollar converted at the market exchange rates in 2017 although Bangladesh started from a much lower position in economic, developmental and social indicators. In some development indicators Bangladesh has outranked many other developing countries of similar income level including its economically advanced South Asian neighbours such as India. However, much of its development outcomes is credited to the NGOs.

Pundits as well as non-economist general public often tend to compare Bangladesh’s development to Pakistan’s and are often seen to enjoy telling stories of how Bangladesh has excelled Pakistan over the last three decades. But they forget to caution against two important caveats attached to these development outcomes achieved by Bangladesh. Corruption and excessive non-development expenditure have been eroding the economy from inside.

Studies done by Paolo Mauro, the World Bank and many others mention substantial loss of growth due to corruption in Bangladesh. Surveys show people's concern over widespread corruption and inequality. They designated corruption as number one problem in Bangladesh.

According to Transparency International, in 2020 Bangladesh’s corruption index was below Pakistan’s and only above Afghanistan’s in South Asia. Afghanistan and Nepal have elevated their positions by 11 and 6 points respectively since 2012. Myanmar has elevated its position by 13 points since 2013. But Bangladesh has held on to the same position having the score of 26 in 2020 as was in 2012.

Taha Siddiqui, a Pakistani journalist in his article "Why Pakistan’s economy is sinking", suggests that it is corruption which enables the elites to evade taxes. Only one per cent of the population pays taxes in Pakistan which is one of the lowest tax-to-GDP ratios in the world. He explains that on one hand, there is a huge non-development expenditure of which 30% is eaten up by the defence and the viscous cycle of debt servicing cost, and on the other hand, there is a very meagre tax collection, which compels the government to borrow more.

The situation which prevailed in Pakistan for a long time, has led economy to today's status where one-third of the population live under the poverty line, the value of its currency has been exacerbating continuously, growth rate fell by almost 50 per cent from 6.2 per cent to 3.3 percent even before the pandemic and inflation has been hovering around 13 per cent.

However, Pakistan seems to be trying to reduce its government spending as share of GDP. In 2004 it dramatically reduced the spending to 19.84% while in 2008 Bangladesh's government spending rose to 18.39%. In 2011 Bangladesh and Pakistan came to closer in government spending as a share of GDP— Bangladesh 17.99% and Pakistan 23.03%. In both the cases, a substantial amount of operating cost i.e., non-development expenditure constitutes the total government spending.

Gross operating balance as a percentage of GDP might be taken as a proxy for operating costs consisting of compensation of employees, purchase or procurement of goods and services, miscellaneous expenses etc., which, in turn, indicates the level of corruption. On one hand, it shows the revenue and expenses on the other. Low revenue indicates low tax collection and high expenses indicates excessive day-to-day running of the government or non-development expenditure. In both ways it indicates corruption.

In 2015 Bhutan’s gross operating balance (7.98) was much greater than Bangladesh’s (0.93) which came down to 0.86 in 2016. It is alarming because one of the main reasons why Pakistan economy is faltering is its negative balance which was -3.29 in 2015.

The government's ability to collect tax may be considered a proxy for corruption because it shows how many people evade and avoid taxes. In 2014 taxes on incomes, profits and capital gains, as a share of GDP Pakistan collected 3.54% and Bangladesh did 2.65%.

In Bangladesh we came to know a lot of corruption scenarios. Let’s present a few anecdotes from newspaper reports here. ‘Beximco profits Tk 77 from each vaccine dose’ which is a sign of crony capitalism where governments favour businessmen who support it and obviously, it is done against people’s interest. ‘One pillow cost TK. 5957.00; one spoon cost TK. 97 thousand; TK. 5500-worth of books was purchased at TK. 85, 500.00; one curtain cost TK. 37, 500.00’ which indicates the embezzlements of public funds in the name of purchase or procurement of goods and services and miscellaneous expenses. The other forms of embezzlements include ‘116 government officials are set off abroad to learn how to cultivate peanuts’; ’'16 government officials are set off abroad to learn how to dig ponds’.

Health expenditure as a percentage of GDP Bangladesh was the lowest in South Asia in 2018 and in education it was a little higher than the lowest in 2011, which kept decreasing from 2012 onwards. While health and education are the basis of human capital, Bangladesh is lacking and lagging, and it is showing similar signs as Pakistan. While Pakistan’s defence budget is the main debacle to economic growth, Bangladesh is increasing its spending on defence. From 2010 to 2020 Bangladesh government’s military expenditure increased at almost regular intervals. In 2010 it was 2552 million and in 2020 it was 4335 million.

High corruption as reflected in the embezzlement cases mentioned above, kick-backs as practised in a crony capitalism, increasing defence budget and huge non-development expenditure are all alarming for Bangladesh now as was for Pakistan in the past.

* Dr. NN Tarun Chakravorty is a visiting professor of economics at Siberian Federal University, Russia, and editor-at-large, South Asia Journal. He may be contacted at [email protected]