After the much-publicised Padma bridge episode, the World Bank has now realigned its approach to tackling corruption in projects.
Previously, the multilateral lender would wash its hands off projects as soon as allegations of corruption surfaced. But now, in essence, it will carry on with the projects but will work with local authorities to identify and snuff out the issues.
“When evidence of corruption comes to light, its response should not be to disengage, but to engage differently,” it said in its Country Assistance Strategy Progress Report.
The anti-poverty organisation's new approach to handling graft would involve: enhancing oversight, changing procurement arrangements, prioritising institutional reforms or shifting to analytical or technical work that will change the political economy and build stronger domestic coalitions for reform to enable future assistance.
The WB cancelled its financing for the Padma bridge project in June 2012 after corruption allegations were brought up against some public servants.
Although talks had revived, Bangladesh ultimately withdrew its request for funds in January 2013, just before the expert panel reported that the government did not carry out the full and fair corruption investigation it had promised to.
Project implementation suffered, with allegations of corruption in the bridge project prompting the WB to reconsider its approach to governance in the country, to find ways to remain engaged while also taking a more pro-active approach to addressing governance challenges, the WB said.
“In the course of this reconsideration, the Bank found that its efforts to improve governance in Bangladesh have had limited success due to unrealistic expectations, short timelines, and misreadings of political will," it said.
The WB found that any disengagement carries a cost. For example, the bank committed $4.6 billion for Bangladesh for three fiscal years from 2010 through to 2013, but it achieved only 87 percent of the planned projects.
The June 2012 cancellation of WB's $1.2 billion financing for the Padma bridge project resulted in a portfolio below targeted levels, said the report.
Furthermore, the Independent Evaluation Group of the WB found that decisions to disengage have affected its relationship with clients, resulted in losses of knowledge and momentum and left important development objectives unaddressed.
In response, the WB has decided to change its attitude to correct the deficiencies.
It is now applying stronger integrity safeguards to centralised expenditures (where it directly supervises procurement, financial management, compliance and value-for-money such as for large-scale infrastructure contracts), including the use of forensic auditing, independent procurement agencies and independent reviews of government processes, to verify compliance and detect corruption where risks are very high.
For decentralised expenditures (that is, small expenditures at local levels where the WB relies on intermediaries to supervise procurement, financial management, compliance and value-for-money), the lender's enhanced safeguards may involve better record-keeping, strengthened management information systems and stronger supervision.
At the same time, the WB continues to assist the government in building systems to manage its own corruption risks, especially in budget formulation and management, public procurement, audit and parliamentary oversight, banking supervision and payment systems, and local government.
The aim of this work is to enable continued WB engagement, even in challenging integrity environments and sustained improvement in country governance systems over time.
The WB board approved $1.8 billion for Bangladesh for fiscal 2013-14, with plans to lend $1.32 billion for the current fiscal year, said the multilateral agency.
The lending programme for fiscal 2014-15 and the revised results framework aim to prepare for a more selective WB engagement in future.
The WB will start to reengage in areas that are critical for growth, while consolidating past achievements in service delivery through additional financing to ongoing projects.
Then, under the new strategy to be developed in fiscal 2014-15, the basis of the multilateral lender's engagement will shift from financing to analytical and technical assistance in areas such as health and education, where alternative financing is relatively available and policy and institutional arrangements are mature.
The move would free up WB resources for areas such as energy and transportation infrastructure, where progress has been limited and WB has a strong comparative advantage as a reform leader and financier.
The progress report also evaluated the development outcomes of the WB projects in Bangladesh.
It said the country's record on public sector performance and corruption is mixed.
Bangladesh's overall Country Policy and Institutional Assessment rating fell from 3.5 in 2007 to 3.3 in 2011-12.
The rating for public sector management and institutions, which strongly influences International Development Agency's performance based allocation, was only 2.9 in 2012, below IDA and South Asia averages.
Although Bangladesh's ranking in Transparency International's Corruption Perception Index rose from the bottom of the list of 159 countries in 2005 to 144 out of 176 countries in 2012, it remains below Nepal and Pakistan.
“Progress on high-profile corruption cases has been limited, and on occasion the government has allowed undeclared income to be recognised at lower tax rates,” said the report.
It also said governance-related vulnerabilities in the banking sector are also a concern: fraud in several state-owned commercial banks in fiscal 2012-13 resulted in losses exceeding $500 million.
“There has been limited progress in holding perpetrators accountable,” the report added.