Американский Научный Журнал TRENDS OF FINANCING FOR DEVELOPMENT IN GEORGIA

Abstract: Financing for Development is often associated with grants, concessional loans and financial aids; however, it is often unclear and obscure exactly what kind of financing this implies; what the purpose/objective of the financing is and what the actual outcomes are. This article aims at shedding a light on these very issues. It will be attempted to discuss financing for development of Georgia and its actual outcomes against the background of global trends in financing for development. Together with the concept of financing for development and main components implied in financial flows necessary for development the rationale of development and its measures are also analysed in the article. Скачать в формате PDF
32 American Scientific Journal № ( 21 ) / 201 8
ЭКОНОМИКА, ЭКОНОМЕТРИКА И ФИНАНСЫ
T R E N D S O F F I N A N C I N G F O R D E V E L O P M E N T I N G E O R G I A

Tea Kasradze
Prof. Dr. of Economics, Faculty of Business
Caucasus International University (CIU)
Tbilisi, Georgia
e-mail: tkasradze@hotmail.com ; Tea.kasradze@ciu.edu.ge

Abstract: Financing for Development is often associated with grants, concessional loans and financial aids;
however, it is of ten unclear and obscure exactly what kind of financing this implies; what the purpose/objective of
the financing is and what the actual outcomes are. This article aims at shedding a light on these very issues. It will
be at tempted to discuss financing for development of Georgia and its actual outcomes against the background of
global trends in financing for development. Together with the concept of financing for development and main
components implied in financial flows nece ssary for development the rationale of development and its measures
are also analysed in the article.

Keywords: Financing for Development (FfD), Official Development Assistance (ODA), International Finan-
cial Flows, Foreign Direct Investments (FDI), Sustai nable Development .

Introduction:
The term of financing for development (FfD) fre-
quently features in modern academic works and re-
searches, reports of states and international organisa-
tions. For a broader public this terminology is associ-
ated with grants, concessional loans and financial ai ds;
however, it is often unclear and obscure exactly what
kind of financing this implies; what the purpose/objec-
tive of the financing is and what the actual outcomes
are. This article aims at shedding a light on these very
issues. It will be attempted to d iscuss financing for de-
velopment of Georgia and its actual outcomes against
the background of global trends in financing for devel-
opment.

Brief Discussion of the Rationale of Develop-
ment and Its Measures:
Development is a complex concept. There is no
uni versal interpretation for it and, hence, there are no
measures, as, to a certain extent it is based on individual
perceptions and attitudes and often these perceptions
ran counter to statistics.
The global understanding of development has
changed over the years. In a traditional understand-
ing, development implies economic growth. This is a
process under which country and society develops, pro-
gresses and becomes richer. Accordingly, traditional
measures for development are economic indicators
such as GNP an d GDP.
The roots of such interpretation are related to col-
onization period.
Later, views about development have changed.
According to the new and more comprehensive defini-
tion, this is a process of changes that improve the wel-
fare of people and quality o f their life, their social wel-
fare, and allows meeting population’s needs. Economic
growth can be considered to be both favourable and un-
favourable for such development. Qualitative indica-
tors are preferred to be used over quantitative indicators
according to which it is possible to measure the quality
of life.
The recent views about the definition of develop-
ment were formed by the end of the 20 th century, when
the concept of the so -called sustainable development
emerged. S ustainable development is develop ment
that promotes prosperity and economic opportunity,
greater social welfare, and protection of the envi-
ronment – offers the best path forward for improv-
ing the lives of people everywhere [1].
Unfortunately, we don't yet have a single index to
measure s ustainability that brings together social, eco-
nomic and environmental changes. The most com-
monly used index to measure progress currently is
gross domestic product (GDP). However, we know that
GDP measures only economic development, and in-
cludes activities that may actually be damaging from a
sustainability point of view. Other well -established
measures include the Human Development In-
dex (HDI) that only covers health, inequality and edu-
cational issues [2] .
As mentioned above, the mankind started to
think about the essence of development quite a long
time ago, however, from the 21 st century, com-
pletely new era of development started when mem-
ber states of the UN and international organisations
agreed to combine efforts to achieve eight Millen-
nium Development Goals (MDGs) by the end of 2015.
In theory, MDGs concerned all countries but in re-
ality these goals were to be achieved for the countries
with poor, developing and transit economy with the fi-
nancial support of rich, developed countries and inter-
national organisations. Originally, in 2001, the UN sup-
posed that in order to reach the goals, USD 61bn per
year would be additionally necessary; later in 2002, this
figure increased to USD 63 -72bn; in 2005, it was sup-
posed that this figure was from USD 82 to USD15 2bn;
and in the beginning of 2011, OECD Development
Centre published a report Revisiting MDG Cost Esti-
mates , according to which achieving first 6 goals only

American Scientific Journal № (21 ) / 201 8 33
at the global stage required financing over USD 120bn
per year, which was unrealistic at the expens e of exter-
nal funding only. Moreover, the economies of reach
countries were in crisis at the time and the report indi-
cated the need to direct internal resources (tax and other
revenues) of the poor, developing and transit countries
towards this aim.

How is Development Financed?
There can be two components implied in financial
flows necessary for development [3]:
1. Official development financing (ODF), which
in turn comprises of:
- domestic revenues of developing countries
(internal financing) the growth of which decreases the
need for external financing;
- Official development assistance (ODA) – bi-
lateral and multilateral concessional loans and grants;
- bilateral and multilateral non -concessional fi-
nancing that are mobilised from international financial
inst itutions or private sources and are mainly used for
infrastructure or for funding other income generating
projects;
2. Private external financing, by means of for-
eign direct investment and other portfolio flows, which
are mostly aimed at growth and are not u sed for social
objectives.

The Domestic Sources of Official Financing for
Development:
Domestic revenue of a country plays a particular
role in financing development irrespective whether the
country is high -income or low -income. Public finances
are the ma in source of investments necessary for sus-
tainable development. In 2011 , developing countries
(except for China and India) mobilised USD 2.8 trillion
for financing development. Out of this, USD 2.3 trillion
has been mobilised in the form of internal revenu es by
governments, which is quite a high indicator. However,
it does not meet the common needs of sustainable de-
velopment goals. In the recent years, many developing
countries improved their tax to GDP ratio, however,
there is still a large gap between the indexes of devel-
oped and developing countries.
It should be noted that, according to this indicator,
Georgia is far ahead of other countries not only in the
region but high income countries as well (Chart 1).
However, similar to many developing countries, inter-
nal revenues are not sufficient to finance development
and it still needs support from outside.

Chart 1. Trends of Tax Revenue in % of GDP in Georgia and other Countries in the Region:
Data Source: https://data.worldbank.org/indicator/GC.TAX.TOTL.GD.ZS?locations=XN

Until 2000, the volume of investments by the de-
veloped world was approximately 4. 5% of the global
output, whereas savings were around 4%. The gap be-
tween these figures required external finance for devel-
opment. It amounted averagely to USD 40 bn per year
in the 1980s and USD 80 bn in the next decade. A group
of developing countries has had higher savings than in-
vestments since 2000. Surplus is about over USD 340
bn per year. According to experts, this trend will con-
tinue in future as well [3].
However, the developing world, is not homogene-
ous and unfortunately, this trend will not apply to many
countries of Africa, Latin America and the Caribbean,
as well as developing countries and countries in transi-
tion in Europe, including Georgia. These countries still
need large external financing and unfortunately, this
need will most likely persi st in future too.

External Sources of Official Financing for De-
velopment:
Official Development Assistance is a significant
external source of financing for development. ODA
stands for flows that promote the economic develop-
ment and welfare of developing countries. These flows
are concessional and have grant elements of at least 25
percent. ODA cannot be used for military purposes.

34 American Scientific Journal № ( 21 ) / 201 8
OECD defines and periodically updates the list of coun-
tries eligible for ODA.
In these countries per capita income should be less
than USD 12 276. As early as in 1970 The UN sought
its long -term goal o f achieving 0.7% index of
ODA/GNI (Official Development Assistance/Gross
National Income) in developing countries, whereas ac-
cording to the World Bank this index for such a country
as Georgia amounted to 3.29% in 2015 .
The picture of the dynamics of offic ial financial
resources for development of Georgia and several
countries in the region in 2007 -2015 is given in the
Chart 2 below.
Chart 2. Official Development Flow in Georgia and Other Countries in the Region, Millions of US Doll ars
Data Source : the world Bank, available at: https://data.worldbank.org/indicator/DT.ODA.ALLD.CD

For the analysis of official financing for regional
development the statistics for ODA/GNI is presented
below in Chart 3.
Chart 3. ODA/GNI Trends in Georgia and other Countries of the Region
Data Source : The World Bank, availabl e at: http://databank.worldbank.org/data/reports.aspx?source=2&se-
ries=DT.ODA.ODAT.GN.ZS&country

American Scientific Journal № (21 ) / 201 8 35
This last chart shows that in Georgia, compared
with other countries in the region, the amount of official
funding is characterised by trends of decrease in terms
of GNP but is still high and is something to be consid-
ered. Decrease of percentage of ODA in central gov-
ernment expenditure can be considered to be a positive
trend. It indicated increase in the internal resource of
financing for development.
As regards state and state guaranteed loans from
international finance institutions and other sources,
their contribution to financing for development, is
smaller compared to other sources in the context of any
category of a country.

Private external financing:
The role of external private financing inflows for
financing for development is irreplaceable. It is simi-
larly important for both low -income and high -income
countries.
A significant component of private finances is for-
eign direct investment (FDI). In any category of state,
even in low -income countries, there are significant in-
flows of FDI.
According to the world investment reports, the
foreign direct investment inflows increased by 9% in
2013 up to 1.45 trillion and in developing countries the
global shar e of FDIs increased by 54% which is a rec-
ord indicator.
Foreign Direct Investment (FDI) inflows in 2014
declined 16 per cent to USD1.2 trillion. However, re-
covery is in sight in 2015 and beyond. FDIs flows today
account for more than 40% of external devel opment fi-
nance to developing and transition economies.
In 2015, global flows of foreign direct investment
rose by about 40%, to USD1.8 trillion, the highest level
since the global economic and financial crisis began in
2008.
In 2016, global flows of foreig n direct investment
fell by about 2%, to USD1.75 trillion. Investment in de-
veloping countries declined even more, by 14 per cent,
and flows to LDCs and structurally weak economies re-
main volatile and low. Although UNCTAD predicts a
modest recovery of FDI f lows in 2017 –2018, they are
expected to remain well below their 2007 peak .
Developing Asia nowadays attracts more foreign
direct investments than the European Union and the
United States. However, developing and transit coun-
tries also steadily increase for eign investments. In
2014, the outflow of direct foreign investment
amounted to 39% of the total global outflow of foreign
direct investments, which in 2000, e.g. constituted
12%.
The role of private investments in reaching the
goals and objectives of sus tainable development is
great. However, search for private investments to fi-
nance development is related to many obstacles. Ac-
cording to the Sustainable Development Goals (SDGs)
report, in 2016, private funds have been mobilised in
sustainable development sectors such as climate change
adaptation, infrastructural development, food safety,
health and education, and investments. Currently there
is UDS2.5 trillion deficit in the sustainable sector, in
terms of investments, whereas according to the report,
in f uture, the investment needs for developing counties
will be from 3.3 to 4.6 trillion USD [4].
The volumes of FDI Georgia received for years
are given on Chart 4:
Chart 4: FDI net inflow in Georgia, USD
Data Source: The World Ba nk, available at: https://data.worldbank.org/indicator/BX.KLT.DINV.WD.GD.ZS

Chart 5. Percentage of FDI flows in Georgia in terms of the entire amount of foreign flows in according to
years:

36 American Scientific Journal № ( 21 ) / 201 8
Data Source: https://public.tableau.com/views/Shareofnon -ODAflows/ODAvsNON -
ODA?:embed=y&:display_count=no?&:showVizHome=no#1

Despite the fact that the amount of FD that entered
in Georgia in 2015 was decreased, its share is consider-
ably higher mainly due to the decrease in personal
transfers and ODA.

Conclusion:
MDG terms expired on 2015. As the information
submitted above shows, rather large internal and exter-
nal financial resources have been mobilized to achieve
MDGs. However, about 1 billion people still live on
less than USD1.25 a day – (the World Bank measure on
poverty ) and more than 800 million people do not have
enough food to eat. Women are still fighting hard for
their rights, and millions of women still die in
childbirth.
Therefore, 17 Sustainable Development Goals
have been elaborated by UN that could trans form the
world by 2030. One of the major challenges for SDGs,
similar to MDGs is to mobilize the required finances.
In order to determine the financing needs and resources
intergovernmental committee of experts on sustainable
development financing was set up in 2013 . In August
2014, the Intergovernmental Committee of Experts on
Sustainable Development Financing adopted its report :
“proposing options on an effective sustainable develop-
ment financing strategy to facilitate the mobilization of
resources and th eir effective use in achieving sustaina-
ble development objectives” . According to experts’
calculations, the cost of providing a social safety net to
eradicate extreme poverty will amount to about
USD66bn a year, while annual investments in improv-
ing infras tructure (water, agriculture, transport, power)
could be up to a total of USD7tn globally [5].
Public finances and aids have great role in achiev-
ing sustainable development goals. According to the
prognosis made by the World Bank, 50 -80% of the
funds neces sary for achieving SDGs, should be mobi-
lized through internal resources, economic growth be-
ing the primary source. MDGs did not make express
focus on economic development of countries. One of
the targets of the eighth sustainable development goal
– decent work and economic growth - is 7% growth of
GDP in the least developed countries. The very eco-
nomic growth is the significant precondition for mobi-
lising huge financial resources needed for achieving the
goals. The contribution of ODA is great too. In 2016 ,
official d evelop ment assistance p eaked at USD
142.6 billio n . Co ntrib utio n made b y private in-
vestments is similar ly vital for achieving SDGs.
However, mobilizing private investments for sustaina-
ble development is related with many challenges. There
is a de ficit of 2.5 trillion of investments in the sector of
sustainable development. According to the report pre-
pared by experts, the investment needs of developing
countries are in the vicinity of USD 3.3 -4.5 trillion.
Unfortunately, neither major conference o n
financing for the SDGs held in July 2015 in the
Ethiopian capital Addis Ababa could offer countries
any new, innovative sources for sustainable develop-
ment . Focus is still made on collecting more taxes and
fighting against tax evasion.
Time will show how countries and international
community will manage to mobilize deficit financial
resources necessary for sustainable development goals.
It should, however, be borne in mind that accessibility
of the required financing only is not enough. While fi-
nances are vital for development, it does not mean that
the countries with more income have greater progress
in achieving the development goals. Good governance
based on transparency and accountability and ade-
quately functioning institutions are si milarly vital in
achieving these goals.
References :
[1] Promote Sustainable Development, [online],
Available at: http://www.un.org/en/sections/what -we -

American Scientific Journal № (21 ) / 201 8 37
do/promote -sustainable -development/ , [accessed 5
May 2018]
[2] Bizikova L. Denton P. (2017). How Should We
Measure Sustainable Development? [online], Available
at: http://www.huffingtonpost.ca/development -
unplugged/sustainable -development -
goals_b_9829340.html , [accessed 12 May 2018]
[3] Homi Kharas (2014). Financing for Develop-
ment: International Financial Flows after 2015 ,
[online], Available at:
https://www.brookings.edu/research/financing -for -
development -international -financial -flows -after -2015/ ,
[accessed 22 Apr. 2018]
[4] World Investment Report (2014), [online],
Available at:
http://unctad.org/en/pages/newsdetails.aspx?Original-
VersionID=790&Sitemap_x0020_Taxon-
omy=UNCTAD%20Home , [accessed 12 May 2018]
[5] The Guardian, Sustainable developme nt goals:
all you need to know (2015), [online], available at:
https://www.theguardian.com/global -develop-
ment/2015/jan/19/sustainable -development -goals -
united -nations , [accessed 24 May 2018]

Ц И Ф Р О Н О М И К А К А К Ф А К Т О Р П О В Ы Ш Е Н И Я К А Ч Е С Т В А П Р О Ц Е С С А
Р А Ц И О Н А Л Ь Н О Г О П Р И Р О Д О П О Л Ь З О В А Н И Я

Купрюшин Александр Петрович
Доцен, канд. геогр. наук
«Воронежский институт экономики и социального управления»,
кафедра региональной экономики и менеджмента, г. Воронеж,
kap62@list.ru

Статья подготовлена при финансовой поддержке РФФИ в рамках научного проекта № 18 -010 -
00203 «Эффективное импортозамещение и рациональное природопользование как основа экономико -
экологической безопасности»

АННОТАЦИЯ
В научном проекте обосновывается особая значимость перехода от сырьевого типа хозяйствования
(т.е. не рационального потребления природных ресурсов ) к высокотехнологичному (производству, где
важно наличие природных ресурсов, их качество и рациональное использование) . Учитывая данную спе-
цифику научное исследование нацелено на характеристику трансформаций экономических отношений
сферы рационального природо пользования в контексте цифровой экономики и обозначение движущих сил
этого процесса.
Ключевые слова : рациональное природопользование, природные ресурсы, мировое хозяйство, циф-
jh\ZywdhghfbdZpbnjh\baZpbywdheh]bq_kdb_kbkl_fu^_l_jfbgZgluijbjh^hiheva h\Zgbykbkl_fguc
ih^oh^

С конца ХХ – начала ХХI вв. развитие миро-
вого хозяйства базировалось на экономике исполь-
зования природных ресурсов . Многочисленные по-
лезные ископаемые рассматривались как основопо-
лагающий фактор роста ВВП национальных
хозяйств, что обеспечило их «глобальное потреби-
тельство», а именно формирование системы, осно-
ванной на бесконечном нарастании эксплуатации
недр [7].
Только по приблизительным оценкам к 2000 -х
г.:
- общемировой объем добычи угля, нефти,
природного газа, металлических и неметалличе-
ских руд составлял около 100 млрд. тонн (в пере-
счете на единую систему измерений );
- сопутствующее образование минеральных
отходов, попутных смесей газов и парообразных
углеводородных и не углеводородных компонен тов
варьировалось от 23 до 80% в добытой минераль-
ной массе (в зависимости от технологии добычи)
[4; 5];
- из чистого объема добычи около 90 млрд.
тонн впоследствии трансформировалось в отходы
[7].
С 2000 -е г., из -за ускоренных темпов загрязне-
ния окружающе й среды производственными и бы-
товыми отходами и в силу других причин, началось
активное развитие цифровой экономики. Был запу-
щен процесс перехода от сырьевого типа хозяй-
ствования (т.е. не рационального потребления при-
родных ресурсов в экономическом произво дстве ) к
высокотехнологичному (производству, где важно
наличие природных ресурсов, их качество и рацио-
нальное использование) .
В частности, более чем в 50 -ти % различных
отраслей мирового хозяйства, сопутствующие та-
кой экономике информационные технологии т ранс-
формируется в основополагающий фактор роста
ВВП, постоянно повышая эффективность произ-
водственных процессов [6].
Учитывая выделенную специфику, исследова-
ние нацелено на характеристику трансформаций
экономических отношений природопользования в
контексте цифровизации . При этом приоритетно
решение следующих фундаментальных научных
задач:
- выделение логики трансформации природо-
пользования (в связи с существующим глобальным
экологическим кризисом) ;