The significant drawbacks highlighting the Human resources, the financial resources and natural resources affect the overall Mobilization of resources in a nation.
- Foreign aid comes with its fair share of restrictions and conditions.
- While foreign direct investment is helpful in attainment of commercial objectives of the concerned investor, it does little for the host country’s developmental plans.
- Limited Domestic public resources:
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- It makes least developed countries (LDCs) highly dependent on external resources which limit their policy space and create some dependency.
- Low – income countries are in a state of perpetual struggle with poverty. In such a situation, resource mobilization can be a challenge. This is a major reason why a majority of developing economies rely on foreign direct investment, export earnings, foreign aid, and other external sources.
- If a consistent and significant economic growth must be achieved, it is vital to decrease the rate of poverty in the economy.
- Weak Domestic taxation and fiscal policies:
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- The fiscal discipline is hardly seen in developing countries. They often resort to deficit financing to pursue development.
- The taxes are not broad-based and tax evasion is common in developing countries which squeeze out the chances for public expenditure.
- A strong foundational support for uninterrupted sustainable development must also be attained.
- Lack of National and sub-regional development banks with rural penetration:
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- Though India is enjoying the presence of big national and international banks but the financial inclusion at rural level has been a myth.
- Moreover, 2008 financial crisis brought national development banks back onto the policy agenda, as countries sought sources of long-term financing to stimulate economic recoveries, and there is greater international acceptance of such banks. However, poorer and smaller developing countries may face greater obstacles in setting up such banks, due to funding and technical constraints.
- Illicit financial flows from developing countries:
- Illicit financial flows involve resources that have been obtained, transferred or used illegally or illicitly.
- A common concern with regard to illicit financial flows from developing countries is the identification of flows considered potentially damaging to economic development.
- In developing economies, vital development resources are being lost because of the ease with which capital flight can flourish in the context of a burgeoning yet opaque international financial system [and] closely related to this is the idea that illicit capital flows from developing economies are indicative of deeper structural problems of political governance in these countries.
- Concerns over illicit financial flows therefore reflect a range of relevant policy concerns, yet underlying analytical frameworks and empirical methodologies continue to be the subject of debate. Illicit financial flows need not be illegal if relevant legal frameworks do not adequately reflect wider public social and economic interests or do not cover such flows.
- International tax cooperation:
- The combating of illicit financial flows has been a core driver of international tax cooperation in recent years.
- In general, international tax cooperation assumes particular importance in a world of hyper globalization, in which tax systems in some countries can affect public revenue collection in other countries.
- Such cross-national effects can result from tax evasion, for example if high net worth individuals place financial assets in tax havens, as well as from illicit financial flows arising from the creative accounting or transfer pricing practices of multinational enterprises.
- Lack of Multilateral development Banks:
- Financing needs to support the achievement of the Sustainable Development Goals are considerable.
- Lack of financing is not due to a shortfall in global savings; at the global level, institutional investors currently have assets under their management totalling $115 trillion. Most are in the form of developed country securities and other assets that offer low returns.
Multilateral development banks and other international banks, existing and new, are therefore needed to bridge finance from end-savers to development projects. Development banks can thus be key players in development by providing long-term financing directly from their funding sources, by tapping into new sources and by leveraging additional resources, including private, through the co-financing of projects with other partners.
