The economic cost of corruption

An anti-corruption strategy has not produced significant results so far.

KARACHI: Corruption in Pakistan hurts the economy as well as businesses. Although it has widespread implications for each and every aspect of life, the economy bears the main brunt.

Transparency International Pakistan (TIP)has released a report showing a slight improvement in the Corruption Perception Index. Pakistan’s rank has edged up in the 2013 index from 27 to 28.

Despite the fact that conditions have improved a bit due to a peaceful transfer of power, maturity of political parties and an independent and powerful judiciary, corruption is still prevalent with full force. TIP has stated in its report, “Corruption within the public sector remains one of the biggest challenges, faced not only by Pakistan but the world as a whole, particularly in areas such as political parties, police justice system, privatisation, etc.”

Unbearable loss

In Pakistan, corruption has caused an unbearable loss to the economy in recent decades. A newspaper has reported that the estimated loss corruption caused was more than Rs12 billion per day including Rs7 billion of tax evasion.

The tax-to-GDP ratio remains low at 8% mainly due to corruption as a former finance minister says corruption has caused a loss of more than Rs500 billion to the national exchequer.

The ongoing energy crisis, which cripples economic activity, is also an outcome of corruption. According to a rough estimate, corruption in the energy sector- including theft and line losses- has cost the economy approximately Rs100 billion in the past five years.

These pilferages have turned into a massive circular debt, leading to acute energy shortages.

Unchecked corruption

Unchecked corruption over the years has had a significant and damaging impact on foreign direct investment as well as the credibility of institutions has been questioned. The World Bank highlighted this in a report on Pakistan’s investment climate.

According to the bank, corruption, a serious and growing obstacle to the investment climate, is largely associated with business-government interface. Corruption is considered a severe constraint by more than half of all the firms (57%) in Pakistan, significantly higher than the 40% figure in 2002 and much higher than those of the competitive countries, with the exception of Brazil and Bangladesh.

It is common for firms to pay informal payments to government officials to get things done.

The main source of political corruption is the development budget where funds are allocated to elected members of national and provincial assemblies who prefer to recover millions of rupees they spend on their election campaign.

Similarly, allotment of land (agricultural, industrial, commercial and residential) to officers and bureaucrats is also a source of corruption.

Various efforts over the past few years have been made to develop institutional mechanisms to tackle the problem. For instance, a national anti-corruption strategy was developed in 2002 during the Musharraf government when National Accountability Bureau was given comprehensive powers to investigate and prosecute cases.

But this strategy has achieved nothing significant in 11 years mainly because of the credibility loss.

The writer has worked for Radio Pakistan as a business host and comments on economic policy

Published in The Express Tribune, December 30^th, 2013.

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