Our track record in maintaining transparency does not inspire confidence
The rapid spread of the coronavirus has resulted in an unprecedented global health crisis. Naturally,governments across the world have had to take wartime measures in promoting health and safety of their citizens. As a response to the current health crisis, the Bangladesh government announced a countrywide “soft” shutdown, restricting movement of people, suspending public transportation, and closing most businesses.
The government also unveiled an unprecedented stimulus plan to cushion the economic blow from the crisis. Initially, on March 31, a Tk5,000cr stimulus package was declared for the export-oriented industry, mostly to pay for the salaries and funding short-term loans for the factory owners.
As the economic impact of the crisis became more obvious in the following weeks, the government responded with a range of new stimulus packages amounting to Tk67,750 crore ($7,990 million). A significant amount of this money would be spent on financing affected industries and service sectors through low interest bank loans.
Also,under the stimulus package, banks would finance small and medium enterprises (SMEs) through low interest loans.The government has allocated a further Tk12,500cr for a one-off cash support of Tk2,500 to 5 million families. Bangladesh Bank also announced a moratorium on loan payments until June 30. In addition, various other measures have been taken by different government apparatus to mitigate the financial impact of the coronavirus crisis. All these measures are aimed at significantly promoting health and economic safeguards during the crisis, and help the economy bounce back quickly.
Unfortunately, extraordinary outbreaks like this also create opportunities for corruption, particularly at times when institutions and oversights can be weak and confused. This can significantly diminish the effectiveness of the well-intentioned measures undertaken by the government.
Indeed, Transparency International has already flagged up the importance of ensuring transparency and accountability in the disbursements of public funds during the crisis. A number of vulnerable areas of corruption, ranging from procurement of medical equipment and pricing of drugs in the health sector to transparency of reporting of Covid-19 cases have been identified.
In the context of Bangladesh, it is worth mentioning that the amount of stimulus package announced by the government is unprecedented,and like any other government in the world, the Bangladesh government would have no previous experience in managing such a mammoth bailout package.
The lack of proper monitoring mechanisms, combined with the need to swiftly disburse the stimulus package may, therefore,create significant opportunity for corruption during the current crisis. Already, there have been some newspaper reports regarding potential misallocation of the one-off cash payment announced by the government. Similarly, questions have been raised regarding the mode through which stimulus packages would be distributed.
Prior to the Covid-19 crisis, the banking sector in Bangladesh was already under a lot of strain due to the presence of significant amount of non-performing loans. The banking sector in Bangladesh, unlike many other countries, is characterized by the presence of strong political linkages. Consequently, the family-owners of the banks find it easier to override corporate governance mechanisms, including external audit, to sometimes engage in unscrupulous practices.
Under such circumstances, disbursing the stimulus package through the banking sector, already suffering from a severe lack of transparency, may create further corruption risk. We have already seen the Bangladesh Bank relax the criteria for disbursement of the stimulus package for cottage, micro, small and medium enterprises (CMSMEs).
Initially, the central bank allowed businesses meeting the marginal rating to qualify for the credit. The criteria was later changed to suggest that the commercial banks could now select borrowers based on “banker-customer relationship.”
However, no definition of such a relationship has been provided, leaving the commercial banks to make their own decisions regarding the nature of risk involved. This is highly unusual, and will potentially create another spike of non-performing loans.
Eventually, this may further deteriorate the financial position of many commercial banks. There have also been some media reports suggesting significant price hikes of drugs that are being advertised as cures for the coronavirus, and other irregularities in the health sector, including incidents of bribery to obtain hospital beds.
We are in the middle of a significant health crisis, and it is far too early to comment on the nature and extent of corruption across different sectors during this crisis. It is possible that an in-depth examination post the Covid crisis may reveal that many of the incidents reported in the media during the crisis, were, indeed untrue, and the disbursement process was effective, and efficient.
However, our past records in combatting corruption and promoting transparency in public spending is not very promising. Therefore, it might be worth considering some steps that might significantly allay concerns of corruption regarding the current health crisis. First, we need to be very specific on setting the criteria regarding the recipients of the government credit.
As mentioned in this article,terms such as “banker-customer relationship” do not go a long way in assuring the public that the credit would, indeed, reach its intended recipients, rather than few influential parties.
Similarly, a lot of controversy surrounding the disbursement of the one-off cash relief stemmed from the fact that the stimulus package would be distributed on the basis of a list prepared by a committee comprised of the parishad chairman, members, respected persons, and government officials.
A careful definition of the criteria for such relief would have potentially reduced the confusion around this scheme, and allowed the process to be more transparent. Secondly, the role of disclosures in ensuring accountability and transparency is well recognized as an anti-corruption mechanism.
To mitigate the risk that the stimulus packages distributed by the commercial banks do not end up in the “wrong” hands, the government can consider publishing the name of the recipient parties along with the amount of credit disbursed to them. Understandably, there might be potential issues relating to ensuring privacy of concerned parties.
However, the benefits of such disclosures will potentially outweigh the social costs involved, as the list would then be available for media and public scrutiny. Thirdly, the government can commit to make all information on how emergency relief funds are being spent available to auditors in the Comptroller and Auditor General’s (CAG) office. If the CAGs office is overwhelmed by the sheer volume of the work, services of independent audit firms can besought, as soon as practicable.
Priority should be given to critical areas such as health, public procurement, infrastructure, and social security expenditures. These measures are relatively simple to implement, and do not necessitate significant capacity development. However, this requires a political commitment from the part of the government regarding the transparent, fair, and efficient nature of the stimulus package, so that the desired health and economic benefits can be maximized.
After all, we do not want to seethe current health crisis followed by another pandemic, this time, that of corruption.
Dr Javed Siddiqui is an Associate Professor at the Alliance Manchester Business School,University of Manchester, UK. Email: [email protected]