The Pursuit of Economic Development

Abstract

The article poses the question of what is economic development and how it should be pursued. In the aftermath of the Cyprus bail-in and the blanket approach of the Government to attract foreign investment the author reminds that failed projects do not promote the cause of sustainable economic development. The point is also made that although cost benefit analysis and risk analysis can indicate viable capital investment projects (public and private), one should bear in mind that a developmental project should be both viable financially (from the Owner’s and Bank’s perspective) but also from the point of view of the Economy. Special concessions, subsidies, relaxations and tax exemptions made by a Government over-eager to attract foreign investment may indeed make a financially viable project non-viable from the Economy’s perspective. In order to successfully accelerate the pace of economic development, three areas of focus are suggested to take measures for so as to: 1) institutionalise and enhance the credit risk assessment of commercial banks, 2) set up a Development Bank to source and position new long term loan funds and lead the way in the financing of major projects in the economy, 3) create the capability of Government to have independent expert advise on the structuring, evaluation and financing of public sector and Public-Private-Partnership (PPP) projects.

Keywords: Cost-Benefit Analysis, Project Evaluation, Risk Analysis, Repayment Capability, Corporate Lending, Credit risk

JEL Classification: D61, G17, G21, G32, G33, H43