Corruption retarding investment in Pakistan: WB

By Ansar Abbasi

ISLAMABAD: The World Bank finds corruption a serious and growing obstacle to the investment climate in Pakistan besides expressing dissatisfaction over the issue of governance in the country.

In its 128-page draft report on Pakistan’s Investment Climate dated March 16, 2009, the WB said that corruption is largely associated with business-government interface and reveals that the menace is more widespread here as compared to other countries though the bribe rates here are lower. Referring to a survey conducted for the formulation of the draft report, the Bank says that results show that perceptions about corruption in Pakistan are based on actual experiences with paying bribes by the investing firms. It reveals that the firms making investment in Pakistan have to pay bribes even to get water, telephone and electricity connections.

In view of WB clarification to The News Wednesday’s report on power sector and its observation that this correspondent has drawn inferences from the Bank’s draft report, select portions of the report pertaining to governance and corruption are being reproduced to end any confusion being deliberately created about the findings of WB in its draft report.

On the issue of government, the report in its page 64 and para 135, said, “Consistent interpretation and application of rules and regulations is an important reflection of good governance. Discretion or lack of predictability and consistency in the interpretation of rules and regulations (by government officials) is indeed a severe problem in Pakistan. Only 46 per cent of firms in Pakistan believe that the officials interpret rules consistently, compared with 60 per cent in comparator countries.”

On the issue of corruption, the report’s para 136 states, “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 per cent) in Pakistan, significantly higher than the 40 per cent figure from 2002 and much higher than those of the comparator countries, with the exception of Brazil and Bangladesh. It is common for firms in Pakistan to pay informal payments to government officials to get things done. In 2006, three out of every four firms strongly agreed or tended to agree with the preceding statement.”

Para 137 of the report says, “Results show that perception about corruption in Pakistan are based on actual experiences with paying bribes. In other words, the probability that a firm reported corruption as a serious obstacle rises by 29-percentage point (against 57 per cent in the full sample) if the firm experienced at least one incident of bribe. As with perceptions of corruption, bribe incidence in Pakistan has increased 20 per cent over time-from 40 per cent in 2002 to 48 per cent in 2007.”

Para 138 of the report says, “The amount of bribe paid in Pakistan is difficult to estimate but available evidence suggests it is not too high by international standards, although it varies by region. Firms were asked the amount of bribe that firms in their industries pay to government officials to get things done. The bribe rate (as a percentage of annual sales) in Pakistan equals 0.7 on average, compared with 1 per cent in comparative countries. Firms in Islamabad (including Rawalpindi) reported the highest bribe rate of 2.7 per cent, followed by firms in Karachi (1.4 per cent), and Lahore where the figure was less than 0.1 per cent. The findings suggest that relative to other countries, bribery in Pakistan is more widespread (affects a larger proportion of firm), but the bribe rate is lower although not by a significant amount.”

Para 140 of the reports says, “Compared to other countries, Pakistan has a high overall incidence of bribe due to tax and labour inspections-despite having a smaller percentage of firms that are inspected. Compared to other countries, the ‘conditional incidence’ of a bribe is the highest in Pakistan. This means that for each inspection, the likelihood that a firm in Pakistan will be requested or was requested to pay the bribe higher than it is in any of the comparator countries. In contrast, firms in Egypt have almost twice as many inspections but much less incidence of bribes. These findings are consistent with the conclusions that curtailing corruption in Pakistan requires not only a reduction in the interaction between government functionaries and the private firms, but also greater check and balances on government officials as well.”

The report says while the government has taken steps to tackle corruption but much remains to be accomplished. On page 49 and in para 99, the reports said, “The incidence of informal payments or gifts to obtain telephone connections has almost doubled since 2002; it represented one of the few negative developments in the (telecom) sector. The percentage of firms that face requests for bribes or speed money to obtain new telephone connections has increased from 19 in 2002 to 34 in 2006, highlighting a marked increase in corruption. Pakistan is second only to Bangladesh (71 per cent) in terms of corruption in this sector.”

On page 44 and in para 88, the report also talked of corruption in another factor restricting access to water supply to firms. “62 per cent of all the firms surveyed (that have applied for new connections) were reportedly asked to make informal payments or gifts in order to obtain water connections…firms in Pakistan face the severest corruption on this front relative to its international comparators.

Every firm in the chemical sector that had applied for a (water) connection was asked for such a payments.” On the issue of power connection the report on page 37 para 69 says, “A stunning 84 per cent of firms that applied for connections had to make informal payments in order to obtain electricity services-a startling increase from the 25 per cent firms that reported making such payments in 2002.”

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