The economics of Corruption

Business Recorder

Prime Minister Imran Khan while addressing the opening ceremony of the second Belt and Road Initiative (BRI) in Beijing on “Shaping a Brighter Future” highlighted five impediments to achieving sustainable development goals including his pet theme: white collar crime. While his audience was not domestic yet few Pakistanis who listened to the speech were unaware of his overarching domestic focus with what, he firmly believes, has political as well as economic beneficial implications: bring the guilty, as in corrupt politicians, to book.

Pakistan ranked 117th out of a total of 175 countries in 2018 in the corruption perception index compiled by Transparency International. And averaged at around 109.4 position from 1995 to 2018 attaining an all time high ranking in 2005 at 144 position (Musharraf era) and an all time low of 39 in 1995 (Benazir Bhutto was the Prime Minister from 19 October 1993 to 5 November 1996).

Pakistan Tehrik-i-Insaaf (PTI) has consistently raised the issue of corruption during the tenures of the status quo parties – both when in opposition and now in government; and Prime Minister Imran Khan as well as his Cabinet appointees continue to accuse senior leadership of opposition parties of massive corruption and reiterate their mantra at all fora: that there will be no deal (national reconciliation ordinance) with the corrupt.

Khan’s critics’ counter-attack is to highlight the significant number of Musharraf acolytes in his cabinet, noted by Musharraf in a recent press conference in Dubai when he stated that “half of the [present] ministers are mine. [The] law minister and the (incumbent) attorney general were my lawyers;” Hafeez Sheikh, Jehangir Tareen and Sheikh Rashid were also members of the Musharraf cabinet. In addition, the list of Khan’s cabinet members include many from the Zardari and Nawaz Sharif led administrations as well – a damning indictment to Imran Khan’s claim that he will not give an NRO to the corrupt even at the cost of his prime ministership.

Corruption is not only an issue in Pakistani politics but its negative repercussions have been the subject of much discourse internationally. The United Nations has quantified a loss of 3.6 trillion dollars to the global economy each year from corruption with Secretary General Guterres stating that corruption “is an assault on the values of the United Nations,” and is a major impediment to achievement of sustainable development goals. The UN website further maintains that corruption can take many forms including “bribery, embezzlement, money laundering, tax evasion and cronyism, to name a few. Whatever its shape, corruption always comes at someone’s expense, and it often leads to weaker institutions, less prosperity, denial of basic services, less employment and more environmental disasters. Fighting corruption is a global concern because corruption is found in both rich and poor countries, and evidence shows that it hurts poor people disproportionately. It contributes to instability, poverty and is a dominant factor driving fragile countries towards state failure.”

Pakistan has been subjected to all forms of corruption and sadly while the incumbent administration maintains it has a policy of zero tolerance on corruption yet quite a few of the appointments – in the cabinet, the bureaucracy and as heads of state owned entities – have been made on the same basis as in the past: cronyism with the claim that if they don’t deliver they will be fired, if they are indicted for previous corruption they will not be protected, and their use of state machinery for personal benefit will not be allowed. While this may be apparent in the case of Aleem Khan it is not so in other instances including Azam Swati’s.

Organization for Economic Cooperation and Development (OECD) in a recent article stated that “estimates show that the cost of corruption equals more than 5 percent of global GDP (2.6 trillion dollars, World Economic Forum) with over one trillion dollars paid in bribes each year (World Bank). It is not only a question of ethics: we simply cannot afford such waste.”

OECD has itemized four major costs of corruption all relevant to Pakistan today: (i) increase in the cost of doing business (including drawing out negotiations reminiscent of several projects including China Pakistan Economic Corridor projects); while on a macro level corruption distorts the market mechanism and deters domestic and foreign investments thus stifling growth. In Pakistan cartelization is prevalent even in those products where the number of buyers is very large which implies consumers pay higher prices as perfect competition conditions do not prevail. A case in point is sugar, cement etc.; (ii) waste or inefficient use of public resources whereby investments are not allocated to sectors and programmes which present best value for money but to those which offer best prospects for personal and or political enrichment; an example is the sizeable investment in Metrobus and/or BRT while education and health facilities remain appallingly inadequate; (iii) exclude poor from public services and perpetuate poverty with the poor bearing the cost of higher tariffs (Pakistan tariffs are high because of poor governance of the energy sector associated with incompetence as well as corruption); and (iv) corrodes public trust, undermines rule of law and de-legitimizes the state – a condition that many maintain accounts for the electoral victory of PTI last year.

The World Bank considers corruption a major challenge to its twin goals of ending extreme poverty by 2030 and boosting shared prosperity for the poorest 40 percent of people in developing countries. It states that “successful anti-corruption efforts are often led by a ‘coalition of concerned’ – politicians and senior government officials, the private sector, and by citizens, communities, and civil society organizations. Increasingly, successfully addressing corruption will require the concerted attention of both governments and businesses, as well as the use of the latest advanced technologies to capture, analyze, and share data to prevent, detect, and deter corrupt behavior…..Much of the world’s costliest forms of corruption could not happen without institutions in wealthy nations: the private sector firms that give large bribes, the financial institutions that accept corrupt proceeds, and the lawyers and accountants who facilitate corrupt transactions. Data on international financial flows shows that money is moving from poor to wealthy countries in ways that fundamentally undermine development.”

Some countries have set up specialist organizations to deal with corruption but these have achieved success in some countries and not in others – National Accountability Bureau (NAB) is a prime example of the latter. To date the PTI government is reliant on NAB to root out past corruption however it has so far not taken any measures to deal with present/ongoing corruption or set up a mechanism for appointments divorced from political considerations. Sadly this appears to be unlikely as long as the Prime Minister is reliant on bureaucrats/politicians and/or technocrats with a long history of key appointments in previous administrations with performance no better than their predecessors.

To deal with current corruption through institutional strengthening the Prime Minister appointed Ishrat Hussain to head the task force on restructuring government. The recommendations of this task force have not been shared with the public but Ishrat Hussain, a retired international bureaucrat, has reportedly suggested a review of NAB laws with the objective of instilling confidence in the civil servants who feel humiliated when summoned by NAB. And not surprisingly recommended merit based appointments though he has, sadly, not touched upon the selection process itself or if he has then it has not been publicized.

What is required is for a system to be put in place on the lines of what was recommended by the apex court back in 2013 on a petition filed by Khawaja Asif: “a commission headed by and comprising two other competent and independent members having impeccable integrity….is required to be constituted by the federal government through open merit based process having fixed tenure of four years to ensure appointments in statutory bodies, autonomous bodies, semi autonomous bodies, regulatory authorities to ensure appointment of all the government controlled corporations, autonomous and semi-autonomous etc. The Commission should be mandated to ensure that all public appointments are made solely on merit.” Sadly, while Prime Minister Nawaz Sharif did appoint three men of integrity in 2013 yet when they did not endorse the Prime Minister’s selections for specific positions, he refused to take their recommendations into consideration, prompting their voluntary resignations. Imran Khan would do well to see the implementation of this order.

To conclude, Imran Khan’s focus remains on bringing the guilty in previous administrations to book, more particularly the heads of the families of the leaders of the other two national parties – Sharifs of PML-N and Zardaris of the PPP – however he has yet to turn his attention to making administrative changes to forestall ongoing corruption/nepotism/cronyism. One would have hoped that he had first focused on plugging all leakages from the system (estimated at over a 500 billion rupees in Federal Board of Revenue alone) and begin to de-link executive control over appointments before proceeding to hold the previous administrations (and those serving under them) accountable.

Comments are closed.