The World Bank’s ‘Papergate’
This evident leakage is just the tip of the iceberg given other forms of kickbacks and corrupt practices
The writer is a development anthropologist. He can be reached at ali@policy.hu
As the global economy is reeling from the Covid-19 pandemic, poorer countries are becoming increasingly desperate, and asking international financial institutions — like the International Monetary Fund and the World Bank — to reschedule their debts and provide them access to more loans.
Amidst this desperate situation, an important working paper released by the World Bank will probably not get the attention it deserves. This paper titled “Elite Capture of Foreign Aid: Evidence from Offshore Bank Accounts” suggests that a significant amount of the development aid being disbursed by the World Bank in the name of helping the poor is being diverted or stolen.
Such findings may not seem to be much of a surprise to many who remain skeptical about the ability of entities like the World Bank or the IMF to alleviate global poverty. However, this paper is very important as it has used World Bank data itself to show how the amount of cash in offshore accounts controlled by local elites increases by about 7.5% when the World Bank sends in aid to poor countries. This evident leakage is just the tip of the iceberg given the other forms of kickbacks and corrupt practices through which local elites amass wealth.
While the above paper is based on data from over 20 aid-dependent countries — and does not include Pakistan — one suspects the situation in Pakistan would not be significantly different. The infamous Panama Papers revelations made evident how prominent Pakistanis are also skilled in hiding illicitly obtained wealth overseas.
The effectiveness of foreign aid is the subject of much controversy. How aid is spent, how much of it ultimately stimulates growth, or how well it delivers human development outcomes or reduces poverty are all issues up for debate.
The fact that many of the countries that receive foreign aid have high levels of corruption invokes fears that a lot of aid flows are ending up in the pockets of the ruling politicians, their cronies, and other self-interested elites. Aid disbursements to highly aid-dependent countries coinciding with sharp increases in bank deposits in offshore financial centres known for bank secrecy and private wealth management thus clearly proves the phenomenon of aid capture.
Most international organisations that work in developing countries complain about corruption, bribery, and general misuse of public funds. Yet, a paper based on World Bank data, prepared in collaboration with economists at the research division of the World Bank, now demonstrates that World Bank aid is also prone to misappropriation.
Moreover, once this damning paper was prepared, the World Bank apparently tried to censor these findings. News stories began reporting on these delay tactics and it was only after one of the paper’s authors had released the paper on his own website, that the World Bank relented, and decided to officially publish this paper.
Then the World Bank’s Chief Economist resigned after only 15 months on the job, fueling speculations that this abrupt departure was provoked by contentions stirred by what is being dubbed the World Bank’s “Papergate”.
It is understandably embarrassing for the World Bank — which portrays itself as the leading development agency aiming to reform and spur growth in poor countries — to have its own aid being captured by elites. Yet, there is no justifiable reason to suppress or deny such important evidence, as doing so will just enable ill-planned and inadequately-executed development financing initiatives to continue increasing the debt burden of poor countries.
Published in The Express Tribune, June 19th, 2020.
Amidst this desperate situation, an important working paper released by the World Bank will probably not get the attention it deserves. This paper titled “Elite Capture of Foreign Aid: Evidence from Offshore Bank Accounts” suggests that a significant amount of the development aid being disbursed by the World Bank in the name of helping the poor is being diverted or stolen.
Such findings may not seem to be much of a surprise to many who remain skeptical about the ability of entities like the World Bank or the IMF to alleviate global poverty. However, this paper is very important as it has used World Bank data itself to show how the amount of cash in offshore accounts controlled by local elites increases by about 7.5% when the World Bank sends in aid to poor countries. This evident leakage is just the tip of the iceberg given the other forms of kickbacks and corrupt practices through which local elites amass wealth.
While the above paper is based on data from over 20 aid-dependent countries — and does not include Pakistan — one suspects the situation in Pakistan would not be significantly different. The infamous Panama Papers revelations made evident how prominent Pakistanis are also skilled in hiding illicitly obtained wealth overseas.
The effectiveness of foreign aid is the subject of much controversy. How aid is spent, how much of it ultimately stimulates growth, or how well it delivers human development outcomes or reduces poverty are all issues up for debate.
The fact that many of the countries that receive foreign aid have high levels of corruption invokes fears that a lot of aid flows are ending up in the pockets of the ruling politicians, their cronies, and other self-interested elites. Aid disbursements to highly aid-dependent countries coinciding with sharp increases in bank deposits in offshore financial centres known for bank secrecy and private wealth management thus clearly proves the phenomenon of aid capture.
Most international organisations that work in developing countries complain about corruption, bribery, and general misuse of public funds. Yet, a paper based on World Bank data, prepared in collaboration with economists at the research division of the World Bank, now demonstrates that World Bank aid is also prone to misappropriation.
Moreover, once this damning paper was prepared, the World Bank apparently tried to censor these findings. News stories began reporting on these delay tactics and it was only after one of the paper’s authors had released the paper on his own website, that the World Bank relented, and decided to officially publish this paper.
Then the World Bank’s Chief Economist resigned after only 15 months on the job, fueling speculations that this abrupt departure was provoked by contentions stirred by what is being dubbed the World Bank’s “Papergate”.
It is understandably embarrassing for the World Bank — which portrays itself as the leading development agency aiming to reform and spur growth in poor countries — to have its own aid being captured by elites. Yet, there is no justifiable reason to suppress or deny such important evidence, as doing so will just enable ill-planned and inadequately-executed development financing initiatives to continue increasing the debt burden of poor countries.
Published in The Express Tribune, June 19th, 2020.