First the central bank of Switzerland came up with the explosive news that the deposits by Bangladeshi citizens with different Swiss banks rose by 62 per cent year-on-year to 372 million Swiss franc (Tk 32.36 billion) at the end of 2013. Now the United Nations Development Programme (UNDP) explodes the bombshell that the illicit financial outflows from Bangladesh account for 30.4 per cent of its gross domestic product (GDP) of over $100 billion in 2010. Clearly, there are more destinations than just the Swiss banks where money from Bangladesh are clandestinely hidden. The eight least developed countries, including Bangladesh, under the UNDP scrutiny suffered draining money out of them to the tune of $20-28 billion annually by the year, 2008. There is every reason to suspect that the amount has only gone up over the years. The sum was then roughly equivalent to the Official Development Assistance (ODA) they received but now the amount of outflow is likely to be more than the sum received.
Although endemic, as the UNDP views, capital flight has increased in recent years. The reason can be attributed to both internal wealth creation as well as misappropriation of fund meant for development. Actually there are underlying structural weaknesses that people behind capital flight take full advantage of, in pressing for their illegal operation. The illicit outflow of such an enormous amount of money was made possible through balance of payments' leakages, trade 'misinvoicing' and unreported remittances. Accomplishing such illegal acts is near impossible if financial regulation and governance regime are sound. Capital flight can as well be legal if money is transferred and invested abroad following international monetary regulations. But in case of Bangladesh and seven other countries which the UNDP has been watching over decades for this type of financial malpractice, it is simply stashing away money in foreign banks with ill motives.
First, the money drained out so weakens the financial base of a country. Second, because such large sums are unaccounted for, the government is deprived of the due revenues on those. Third, in most cases the money is not legally earned. Corruption may have triggered their possessors to stash away the money so that they do not have to face charges of possession of money inconsistent with their income. Both tax evasion and skirting around the law are accomplished at a single stroke. Reportedly, the amount drained out illegally could have financed at least 12 bridges like the one to be built on the river Padma.
If leakages in the balance of payments account for 83.1 per cent of the total capital flight, it surely points accusing fingers at businesspeople, powerful vested interest groups, a section of administrative hub and other relevant quarters such as banks responsible for approving under- or over-invoicing. Trade liberalisation against the backdrop of inadequate regulation of financial system and capital account leave loopholes for dubious parties both at home and abroad to take away money for keeping as deposits with foreign banks. The Bangladesh Bank has been trying hard to establish its supervisory role but it has so far not been enough to get the act together because of lack of full support from political leadership.
Political instability triggers capital outflows -- legal or illegal but then it must be admitted that the problem primarily stems from widespread corruption, avarice and lack of love for the country. It is evident that the privileged have been betraying their compatriots on many counts. First, they claim irrational shares of the country's wealth to the deprivation of the silent majority. Then in their rush for securing their and their progenies' future, they divert the unearned money to foreign accounts. They feel no compunction that their act undermines domestic resource mobilisation and erode the country's tax base. Then it is an indication of a breakdown of governance in the country of origin and also of the international financial system. After all, it is linked, albeit indirectly, to ODA. A country short of capital has naturally to look for ODA abroad.
Sure enough, capital flight should largely correlate with a country's economic policy, financial reforms, regulatory reforms etc., but when political stability eludes it, all segments of people get jittery. Those privileged and powerful make the most of the situation. In Bangladesh political coteries have made it an unwritten law that they will prevail everywhere, only more so when there is money to be made. In-country or country-level analysis for arriving at the determinants of capital flight will only be possible as much as the beneficiaries will allow the exercise to yield results. After all, they belong to the same interest group and even their political rivalries do not stand in the way of their becoming birds of the same feather.
If illegal income can be stopped, capital flight will naturally dry up. But a country that has ranked number one on the corruption index for five consecutive years has a long way to go before it says goodbye to unethical financial practices. Yet it is surprising that the country is still on course of the millennium development goals (MDGs). It has been possible simply because at the grassroots level, the simple and not so educated farmers and workers have been doing their best to infuse fresh blood into the country's economy.
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