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Thursday, 23 September 2021

Messages from beyond the river

This year’s meetings of the Islamic Development Bank Group in the Uzbek capital Tashkent sent out important messages on the condition of the world economy

Mahmoud Mohieldin , Wednesday 8 Sep 2021
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The lands beyond the river” conjures up the history of the early Islamic conquests of the area between the Jayhun (Amur Darya) River in the south and the Sihun (Syr Darya) River in the north of Central Asia.

Today, this area roughly comprises the modern states of Uzbekistan, Tajikistan, southern Kazakhstan, and south Kyrgyzstan. The names of the cities and other geographical landmarks in it call to mind the major works of such famous theological and scientific scholars as Al-Tirmidhi, Al-Bukhari, Al-Farabi, Al-Khwarizmi, Al-Biruni and Ibn Sina. 

Some days ago, the Uzbek capital Tashkent hosted the annual meetings of the Islamic Development Bank Group (IsDB). The names of these brilliant scholars and others were echoed in the participants’ contributions and in the speech of the host country’s president, Shavkat Mirzoyev, who with deserved pride lauded their contributions to human civilisation.

The IsDB, headquartered in Jeddah, has done well by rotating the holding of its annual meetings among its 57 member states, providing opportunities for the greater participation of civil society and the local private sector, as well as opportunities to learn more about the different cultures and distinctive features of the member states and to gain insights into the Bank’s projects in the host country and opportunities for financing, investing, and participating in them.

The organisers were keen for the meetings to be attended in person this year, still uncommon due to the Covid-19 pandemic. The turnout at a high level of representation of countries, international organisations, and private-sector firms, despite the challenges of travel under the current circumstances, was remarkable, reflecting the widespread interest in the role of the bank and an appreciation for the host country.

The year’s IsDB meetings took place against the backdrop of a high-risk global economic environment and dangerous international political developments, the regional repercussions of which cannot be ignored, especially since the discussions were taking place in a neighbour of Afghanistan. 

Having followed the discussions and participated in a session dedicated to the role of the private sector, I believe the overall substance of the meetings conveyed five messages, set out below.

First, the world is growing further apart economically. After approximately two decades of economic convergence, when the growth rates of the developing countries exceeded those of the developed countries, the trajectory started to reverse in 2014.

US economist Jeffrey Frankel has attributed this reversal to a decline in opportunities for trade, stabilising the share of trade in the GDP of the developing nations, whereas until the 2008 global financial crisis the growth of trade in these countries was twice the rate of their overall economic growth. Since the onset of the Covid-19 pandemic, the crisis has grown more acute. Global economic growth this year is about six per cent, but most of the developing countries and emerging markets to which the ISDB member states belong fall below this global average. 

In large measure, this is due to the ability of the developed countries to inject funds and offer facilities to bolster their economies after the enormous efforts they made to provide vaccines against Covid-19 for their citizens. A telling fact is that while the countries in the IsDB make up 25 per cent of the world’s population, their share of the vaccines is less than 10 per cent of total available doses. Naturally, this disparity reinforces the disparity in opportunities for economic recovery.

Second, the repercussions of the economic divergence will not just be local. Divergence is not about ratings on economic indexes and other such data: they translate into very real circumstances affecting the conditions of life within countries, their prospects of development, and their external relations. It means an increase in extreme poverty, which now grips more than 120 million people in the developing countries, 80 per cent of whom live in middle-income countries. It also means an inability to meet people’s requirements in education and healthcare, outbreaks of epidemics, and the mutation of infectious viruses that do not recognise international borders regardless of precautions.

Nor are rising unemployment rates just a local problem. The International Labour Organisation (ILO) estimates that 200 million unemployed people remain outside the labour market, a phenomenon that could spur a surge in illegal immigration, not to mention risks of internal tensions and cross-border conflicts.

Third, fears of stagflation aggravate the global debt problem. The Covid-19 pandemic has been blamed for the worsening global debt, but this is misleading. Recall the talk of the “fourth wave” of debt that could reach a crisis point by the end of 2019. After the pandemic, there has been an increase in borrowing supported by generous monetary easing in the developed countries and with some domestic support in the developing countries. Yet, a high percentage of these government debts, at least 60 per cent of them in the developing countries, ended up in the portfolios of domestic banks, while the central banks assumed the role of the largest creditor to governments in the developed countries, accounting for no less than 20 per cent of their loans.

These figures will have implications for debt management and debt resolution and the prevention of liquidity and default crises. It should be borne in mind that the present higher inflation rates are a product of the rapid recovery of the demand side while the supply side is unable to keep up due to bottlenecks in supply chains and previous disruption in production. Policy-makers have thus found themselves in the dilemma of facing “stagflation” and the consequent fear of using monetary and fiscal tools to reduce inflation at the risk of exacerbating unemployment or vice versa.

In addition to having to be very astute in formulating public policy, they have to be good at identifying priorities and explaining them to the public.

Fourth, the private sector can be an important part of the solution. However, for this to happen, urgent measures are needed to enable it to become a larger employer in the economy. This starts by building confidence in the business and investment climate, abstaining from ad hoc decisions made without proper study or consultation with stakeholders, increasing opportunities for effective partnering between the private and government sectors in projects in infrastructural and technological development and in transformation to the green economy, and encouraging locally driven sustainable development with priority given to education and healthcare.

Fifth, the IsDB has a new role to play. It has been providing important financing and support activities for public and private projects through funding programmes, investment guarantees, risk mitigation, insurance for project activities, and payment for trade financing for small and medium-sized enterprises (SMEs). In the session mentioned above, the executives of the IsDB private-sector support branches discussed the Bank’s available financing programmes. Their presentation reflected an acute awareness of the role their institutions are expected to perform in the current high-risk environment. I was equally impressed by the opportunities available through participatory funding or equity finance as an alternative to excessive borrowing.

Among the strong points of the IsDB is its ability to integrate the economic and social dimensions of development and apply this expertise in areas and sectors that others refrain from by means of an excellent partnership network and careful mitigation of risk. Its work will augment its developmental impact as it increases the scope of its financing and accelerates the pace of project-funding decisions and the provision of consultation and technical assistance.

I was delighted when the new President of the Bank, Dr. Mohammed Al-Jasser, announced that the board of governors had approved an increase in the Bank’s capital, enabling it to further develop its capacities, martial necessary resources, and channel them into developmental priorities where needed. I predict that the IsDB, according to the seven priorities Al-Jasser outlined in his speech at the meetings, will support more comprehensive recovery processes in target areas through programmes that are more dependent on digitisation, with an eye on bringing them closer to the realisation of the UN Sustainable Development Goals (SDGs). 

Most of the IsDB’s member states had declined sharply in development indicators since the pandemic, but their performance in staying on target had not been great beforehand either.

I also believe that the bank will prioritise solutions consistent with the requirements of local development and that, through its influence as a prominent member of the Global Development Bank Group, it will promote reliance on precise data, detailed information, and thorough knowledge of the priorities of the peoples in its areas of developing finance operations.

In so doing, it will be building on the efficacious approach to cooperation initiated by former bank legendary president Ahmed Ali that was further nurtured until it bore fruit by his successor  Bandar al-Hajjar with the support of the Bank’s senior management and experts. 

In this spirit, the Bank can continue to elevate the value of knowledge as it follows through on developments, offers practical solutions, activates knowledge-management platforms, and benefits from the collaboration and cooperation mechanisms and networks that link member states and their organisations with international organisations and global consulting firms and think tanks.

Regardless of the disparities between the economic circumstances and income levels of IsDB member states, they share a critical common denominator: the need to create decent jobs for young men and women. This is a goal that can only be achieved through inclusive and sustainable growth in a diversified economy that produces added value in a rapidly changing world.

So, whether one is situated on this side of the river or that, one cannot bathe in it twice, as the ancient Greek philosopher Heraclitus once said, since the water is constantly changing. These days, the changes also tend to be increasingly harsh and demanding.


* An Arabic version of this article appeared on Wednesday in Asharq Al-Awsat.

*A version of this article appears in print in the 9 September, 2021 edition of Al-Ahram Weekly

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