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Study: Covid-19 bailout cash in developing countries goes to big companies, not the poor

  • Published at 12:11 pm April 22nd, 2021

Only a quarter of funds went to welfare, almost none to the informal economy

The vast majority of Covid-19 recovery funds have gone to big corporations instead of towards welfare, small firms, or to the informal economy, according to an analysis of public bailout funds disbursed in developing countries.

Analyzing data from nine countries — Kenya, South Africa, Sierra Leone, Bangladesh, India, Nepal, Honduras, Guatemala, and El Salvador — the report from the Financial Transparency Coalition (FTC) and partners found that 63% of pandemic-related funds went, on average, to big businesses in eight of the nine surveyed countries.

Only a quarter of the funds went to social protection, the FTC said in a media release.

However, the total corporate stimulus is likely to be even larger, as these numbers do not include expected revenue shortfalls from tax cuts, especially in Bangladesh and India, or the cost of tax amnesty programs, as in Bangladesh and Honduras.

“By the end of 2021, 150 million people are expected to fall into extreme poverty due to the pandemic,” said Matti Kohonen, director of the FTC.

“But in most countries, the main bailout funds are going to big corporations, while those most impacted by this crisis in the global south — the poor, informal workers, and smaller businesses — are being left out. This threatens to further widen the gap between rich and poor, and increase countries’ mounting debt, all while undermining countries’ healthcare and social protection systems,” Kohonen added.

The report also found that in Kenya, 92% of Covid-19-related bailout funds went to big corporations, rather than to those facing poverty.

This made Kenya’s corporate tax rate the lowest in East Africa, fuelling tax competition.

Sierra Leone fared slightly better, with 74% of announced funds going to big trading corporations. But that proportion increased to 92% when taking into account funds that have been allocated.

Only one country surveyed, Guatemala, spent more bailout money on social protection than on other categories, worth a total of 54%, followed by India at 38%, South Africa at 32%, and Honduras at 23%.

Only 2% of funds in the countries surveyed went to support workers in the informal sector, even though they often make most of the workforce.

Some countries like Bangladesh, South Africa, Nepal, and Honduras did not allocate any funds for these workers. This comes even though, for instance, Bangladesh sees 87% of its workforce work in the informal sector.

Additionally, much of the money allocated to small and medium enterprises (SMEs) never reached these companies.

In Bangladesh, only a third of funds allocated for smaller businesses had been disbursed by the time of the FTC’s survey, the media release adds.

Similarly, in Guatemala, much of the money allocated to SMEs was diverted to other projects.

The FTC’s new report also warns about a lack of transparency of the recovery funds, including those provided by the World Bank and the International Monetary Fund.

In Kenya, for instance, the World Bank provided $50 million in immediate funding to support the country’s emergency response — funds that are now unaccounted for. This is partly due to most international monitoring systems looking at initial funding announcements, rather than tracking the actual disbursement of funds.

“Recovery packages averaged 3.9% of GDP across surveyed countries, far below the 10% target announced by the UN Secretary-General António Guterres. This has happened against a backdrop of rising poverty, economic recession, and ongoing austerity measures — much of which we saw even before the pandemic started,” Kohonen said.

To address the dangerous imbalance in existing Covid-19 relief funds, the FTC recommends implementing a minimum corporate tax rate of at least 25%, in line with the proposal from the United Nations Financial Accountability, Transparency and Integrity (FACTI) Panel.

The FTC further suggests adopting or raising taxes on the wealthy, corporations, and high-income earners to ensure those who can afford to pay would shoulder the lion share cost.

Implementing public beneficial ownership registries, to know who benefits from recovery spending, and profits made during the pandemic has also been recommended by the coalition.

The FTC also recommends introducing greater accountability to provide transparency on the conditions attached and disbursements made of Covid-19 recovery funds, including World Bank funds.

FTC is a global civil society network, operating as a collaborative coalition of 11 civil society organizations based in every region of the world. It works to curtail illicit financial flows through the promotion of a transparent, accountable, and sustainable financial system that works for everyone.

The Financial Transparency Coalition members are Asian Peoples Movement on Debt and Development; Centre for Budget and Governance Accountability; Christian Aid; European Network on Debt and Development; Fundación-SES; Global Financial Integrity; Latin American Network on Debt, Development, and Rights; Pan-African Lawyers Union; Tax Justice Network; Tax Justice Network Africa; and Transparency International.

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