White Paper reveals how 15 years of corruption bled the economy

Infographics: TBS

Between 2009 and 2023, illicit financial outflows averaged $16 billion annually – more than double the combined value of net foreign aid and FDI inflows, while politically influenced lending practices have left the banking sector with distressed assets equivalent to the cost of constructing 13.5 Dhaka Metro systems or 22.5 Padma Bridges as of June 2024.

These were the glimpses of the past 15-year regime's wide-ranging and deep-rooted manifestations of corruption particularly concerning the management of public resources unearthed by the White Paper on State of the Bangladesh Economy.

Delving deep into the distressed financial sector, it states that the depth of the banking blackhole exceeded Tk6.75 lakh crore at the end of FY24. Recognised non-performing loans (NPLs) alone have increased nearly ten times since 2010, reaching Tk2.11 lakh crore at end-June 2024, equivalent to seven Padma bridges.

Over the last decade, Tk13.4 lakh crore – an amount four times the cost of constructing Dhaka MRT 06 (Uttara-Motijheel) – has been funnelled through hundi transactions by syndicates of recruiting agencies and their exploitative recruitment practices for visa purchases, it finds.

Halving tax exemptions could double education funding and triple health allocations, underscoring the significant fiscal opportunities lost to corruption, it says, highlighting how systemic tax evasion, misuse of exemptions, and poorly managed public finances have deprived the state of critical resources, stalling development.

It also states how persistent loan defaults and high-profile scams have eroded financial stability and diverted capital away from productive sectors.

Headed by economist Debapriya Bhattacharya, the 12-member White Paper committee, formed on 29 August by the interim government, submitted its report to Chief Adviser Prof Muhammad Yunus yesterday.

Over the past 15 years, approximately Tk7 lakh crore have been allocated for procuring various goods and services, including the construction of roads, bridges, power infrastructure, hospitals, and educational facilities, among others. It is thus estimated that between Tk1.61 lakh crore and Tk2.80 lakh crore may have been used as bribes and extortions at various levels, the White Paper says.

Of the amount paid in bribes, between Tk77,000 crore and Tk98,000 crore simply went to government officials while a range of Tk70,000 crore-Tk1.40 lakh crore were extortions by politicians and their accomplices and the rest are spent on collusive payments, it estimates.

"Much of this money is often paid in cash or in kind, both domestically and internationally, by contractors to bureaucrats and politicians who have family members living abroad. This practice facilitates the laundering of significant amounts of corrupt funds outside the country," it states, adding that domestically, a significant portion of these funds is invested in sectors such as real estate, fisheries, agriculture, and transportation.

The White Paper Committee has identified 28 dominant channels of corruption which include banking loan scams, bank takeover, illicit financial outflows, politically motivated unviable projects, inflated project costs, non-competitive tender processes, awarding overpriced contracts, tax exemptions for elites, collusive corruption and commission-sharing.

The White Paper puts the banking sector on top of the most corruption-ravaged sector, followed by physical infrastructure, and energy and power, while information and communication technology (ICT) has been identified as one of the most corruption-affected sectors.

The pervasive corrupt practices highlight the urgent need for systemic reforms and robust accountability mechanisms to restore governance integrity and economic resilience, it says.

The report points out how misallocations of social safety net funds have left millions of vulnerable people out of social protection as 73% of social safety net beneficiaries were classified as non-poor as of 2022. Over 20 million individuals remain just two days of lost work away from falling into poverty, highlighting the systemic inequities exacerbated by corruption, it says.

The 399-page report exposed the "Kleptocratic Legacy" of unchecked corruption, abuse of public resources and misuse of discretionary power for a decade and a half.

"The fundamental reason for such misgovernance was predicated by a pervasive lack of democratic accountability originating from the fraudulent national elections of 2014, 2018 and 2024," it says. Such elections, along with disempowering local government elections, gave shape to a very centralised authoritarian government, which, for its own sustainability, promoted collusion between the ruling politicians, a section of the bureaucrats and certain business elites, reads the report.

As democratic accountability moved from the electorate to power brokers in business and the state institutions, growth slipped, and development regressed in economic, social and political domains, it says.

The White Paper committee digs into the allegations of corruption in awarding power plants in the form of commission and finds it difficult to estimate excess capacity payment. The total capacity/rental payment to the private sector from 2010-11 to 2023-24 was approximately Tk1.15 lakh crore. "Assuming the underutilisation of other power plants (gas, coal), the total excess capacity payment would not be less than Tk36,000 crore in the last 15 years," it says.

The prime minister held additional responsibility as minister for the Ministry of Power, Energy and Mineral Resources since 2009 and every single deal from a small solar plant to a mega project like Adani was approved by the Prime Minister's Office, it points out.

"Under her leadership, ruling political party members, lobbyists, private business, and independent power producers became major stakeholders in this sector bypassing due processes. The Energy Adviser, the State Minister, the Power Division were the conduit of corruption," the White Paper says.

On the allegation of corruption in awarding power plants in the form of commission, it says obviously there is no documentation of such transactions but 10% of the project cost is a conservative estimate. With an investment of $30 billion in electricity generation since 2010, at least $3 billion changed hands as a kick back, it suggests.

Was the growth real?

The White Paper describes how the previous regime's development policy prioritized the erection of "temples of development" such as the mega projects in power and transport, sidelining investment in small and medium entrepreneurs and farmers or making cities liveable.

"The determination of the Awami League government to cling to political power through rigged elections overlooked the full costs of these developmental strategies where the government, connected businesses and elite bureaucracy put democratic accountability on the back burner," it reads.

It cites how the "overdose" of "Unnoyon" (development) glorified the few "rights" (Padma Bridge, Dhaka Metro) and justified the many blatant "wrongs" (corruption).

Lifting growth to cross the Upper Middle Income threshold by 2031 and Higher Income Country threshold by 2041 ascended to the front and centre on national aspirations articulated by the establishment and their local and international cheer leaders, it states.

"This is not to say the economy did not grow. It did. The quality of 4%-5% annual GDP growth the economy did achieve was severely diluted by rising inequalities in income, wealth and opportunities," the White Paper says.

The GDP growth has tended to be overstated irrespective of political regimes, but the overstatement itself grew noticeably in the past decade, while inflation rates are understated, it points out.

It debunks the last decade and a half into the paradox of the fastest growth economy, stating that the "fastest" part of the narrative is a figment of biased measurement. "It did a major disservice by drugging the heads of policy makers and their local and international cheerleaders into the sands of hubris," comments the report.

The White Paper committee examines the growth narrative of the previous regime revealing how growth rate was overstated while inflation was under-reported to support the claim of the fastest growth economy.

"There was growth for sure, but not nearly as much as made out in the "Unnoyon" narrative of the previous regime," it says, stating that contrary to belief popular in this camp, growth has been slowing well before the pandemic.

The true inflation, it believes, may have been in the 15-17 percentage range rather than the CPI's 9 to 11 percentage range as reported by Bangladesh Bureau of Statistics (BBS).

Foggy data

Not just growth or inflation, the White Paper cites a shared lack of trust in other key indicators exports, public investment, agricultural production, bank balance sheets, revenue collection and public expenditures as well as official data on poverty, inequality, education, health, food security and energy.

Data on all of these must be taken with more than a grain of salt, it says, the data ecosystem of the past regime was "highly foggy and toxic for the gullible."

Political influence on data generation and reporting reached an unprecedented high under the past regime, the White Paper says, citing how inherent weaknesses and infrastructure deficiencies were made worse by the subordination of the BBS for political appeasement.

The middle income growth trap is not lurking any more, it is here in Bangladesh, it adds, noting that the historic change on 5 August 2024 has unlocked the window of opportunity to reform institutions and organisations to break out of the low middle income growth trap.