In last year’s IFN Annual Guide, I wrote about how 2020 was shaping up to be one of the most challenging years. The COVID-19 pandemic had begun to strike countries around the world and economists were predicting a significant economic downturn.
Reflecting a year on, the scale of the outbreak has demonstrated that we were not prepared for large-scale pandemics. The crisis has already shattered capital markets and the picture for economic growth even as we approach the new year which looks bleak. Global supply chains have been disrupted, resulting in poor trading conditions. SMEs have been hardest-hit, especially in certain IsDB member countries and other developing nations — and will continue to deteriorate further.
But, looking beyond the headlines of rising cases and deaths, the COVID-19 crisis could actually provide us with a chance to develop our economies with more resilience. I believe this is an opportunity to shift toward actively shaping and creating markets that deliver sustainable and inclusive growth, rather than continue limiting our role at the government and international community level to reacting to market failures. We can proactively invest in creating and strengthening institutions that prevent crises. We can coordinate scientific and technological responses, as well as research and development activities, steering them toward public good. We can forge public–private–philanthropic–people–partnerships to ensure both citizens and economies are going to benefit.
We must learn from the lessons of the 2008 Ebola crisis by resisting to simply hand out unconditional bailouts rather than structuring them to restart into a new economy — one that is focused on a 4.0 framework of growth. That means building capacity around the fourth generation of industrialization that uses science and technology to prevent global value chain disruption under such pandemics, while maintaining zero environmental footprints.
At the IsDB, our immediate response and call for joint action in order to support our member countries at different stages of the recovery trajectory resulted in a comprehensive integrated response package with a total envelop of up to US$2.3 billion. We call this package ‘The 3 Rs’ (Respond, Restore and Restart).
As we now approach the ‘Restart’ phase, we want to focus on building resilient economies on solid foundations. We will catalyze private investment by supporting economic recovery and countercyclical spending with a targeted US$10 billion guarantee line that aims to unlock US$1 trillion-worth of investments. We must look to the future with optimism for future growth.
We must also look to innovative Islamic financing tools to aid the ‘Restart’ phase. In June 2020, the IsDB launched the first sustainability bonds to raise US$1.5 billion from a wide range of investors to finance social projects in affected countries. These were the first Sukuk of their kind related to the pandemic in the global capital market. The proceeds of these sustainability Sukuk will be used in social projects that improve healthcare facilities, equipment and critical staffing in member countries to mitigate the effects of COVID-19, as well as to support small- and medium-sized businesses and promote employment as countries recover from the effects of the pandemic.
The investor diversification we achieved for the sustainability Sukuk shows that the IsDB sustainable finance story is gaining stronger traction in new markets and we hope to maintain this momentum for future issuances. We have already seen global financial centers such as the UK and Luxembourg issue their own Sukuk and undertake significant regulatory measures in order to become an Islamic finance hub. It is a promising step toward demonstrating the opportunities for Islamic financing tools to play a key role in social and sustainable development.
The past year has certainly challenged our global economies on an unprecedented level. But as we move to recovery, let us not waste this opportunity to reflect, innovate and shape our economies effectively for future growth and resilience.
Dr Bandar Hajjar is the president of the IsDB Group.