5. In the post-crisis period, the OIC member states (as a group) have recovered rapidly. The global financial and economic crisis adversely affected economic growth of OIC countries (as a group), which decelerated from 6.3 percent in 2007 to 1.9 percent in the 2009. However, due to strong stimulus packages and wide-ranging policy reforms, OIC states experienced impressive real GDP growth of 5.3 percent in 2010, achieving almost the pre-crisis growth rate (i.e., average growth rate during 2000–2007 was 5.6 percent). Similarly, oil-exporting member states5 also showed strong
recovery with the economic growth of 4.7 percent and non-oil exporting member states6 with the growth of 6.1
percent in 2010, mainly due to global economic recovery and positive trends in oil and non-oil commodities prices. It appears that non-oil exporting countries recovered much faster and stronger than oil-exporting countries, thereby achieving above the pre-crisis growth (5.2 percent), while oil-exporting countries’ growth in 2010 remained below the pre-crisis growth rate of 6 percent. The relatively slow economic growth in oil-exporting countries is attributable to the weakening impact of oil exports on output growth in the post-crisis period (Figure 1).
6. In the medium-term scenario (2011–2015), the economic recovery in OIC states is projected to be robust but is likely to remain below the pre-crisis growth rate. The average real growth rate in the medium-term is projected to be 5.1 percent in OIC states (as a group); 4.8 percent in oil- exporting countries; and 5.4 percent in non-oil exporting countries. Strong public policies have supported OIC member states’ economic recovery in 2010, but the short- term V-shaped recovery through economic painkillers (i.e., stimulus packages and money injections) faces a number of major risks associated with the medium-term recovery, which will depend upon developments in a number of underlying external and domestic factors.
7. Among various regions of OIC member states, MENA was hit hard by the economic crisis as its real GDP growth dropped from 5.7 percent in 2007 to 0.4 percent in 2009. The MENA region was adversely affected mainly due to collapse in oil and asset prices, significant decline in domestic demand, and sharp drop in FDI flows. However,
I. Introduction
1. In line with the global economic recovery, 57 member states of the Organization of Islamic Conference (OIC) (as a group) observed robust economic growth in 2010, achieving the pre-crisis level of growth. Similarly, the current account balances of OIC member states improved significantly in the post-crisis period. This recovery was due to wide- ranging policy actions undertaken during 2008 and 2009 at international, regional, and national levels. Recently, the main challenge facing the OIC states in the post-crisis era is to sustain robust economic recovery in the medium- to long-term. Looking ahead, the medium-term prospects for sustainable economic recovery in member states face some major downside risks. In particular, in the coming four to five years, the sustainability of economic recovery in OIC states will depend upon a number of external factors (i.e., fragile global economic recovery; slow recovery in world trade; highly volatile oil-and non-oil commodities prices; rising policy interest rates; and deteriorating debt situation in advanced economies) and domestic factors (i.e., rising youth unemployment, weak economic integration among OIC states, and some fundamental weaknesses in macroeconomic policies). Therefore, the shape of medium- term recovery of OIC member states (whether U-shape or W-shape) is uncertain yet (Iqbal, 2009a and Iqbal 2009b). 2. The analysis of this paper focuses on 57 OIC member states (as a group) as well as oil-exporting and non-oil exporting member countries. Since the post-crisis economic recovery remained uneven across the regions, the analysis also distinguishes four regions of OIC member states, namely Middle East and North Africa (MENA),1 Asia,2 Sub-
Saharan Africa (SSA),3 and Countries in Transition (CIT).4
3. The structure of the paper is as follows. Section II provides recent macroeconomic performance (i.e., real GDP growth, current account balance, and inflation rate) and medium- term outlook in OIC member states as a group as well as its four regions. Section III describes key external and domestic factors affecting sustainable economic recovery in OIC states. Section IV provides the role of the IsDB Group in economic recovery of OIC states. In the final Section V, the paper suggests a number of measures to be considered by OIC member states in order to achieve sustainable growth and inclusive economic development.
II. Recent economic performance and
medium-term outlook of OIC member states
4. Due to the global financial and economic crisis of 2008, economic performance of OIC member states was adversely affected in 2009 in terms of decelerating economic growth and deteriorating current account balances of both oil-Eds. Hatem A. El-Karanshawy et al. 147 Post-crisis economic recovery in OIC member states: Is it sustainable?
Figure 1. Rreal GDP Growth in OIC Member States, 2005–2015 (% per annum).
Source: Computed by IsDB based on data from the IMF World Economic Outlook database (April 2011). 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 2005 2006 2007 2008 2009 2010 2011p 2012p 2013p 2014p 2015p OIC Oil-Exporting Countries Non-Oil Exporting Countires
the region recovered with strong economic growth of 4.7 percent in 2010. In the medium-term scenario (2011–2015), the region’s real GDP is projected to grow by 4.4 percent and it will take a longer period to reach the pre-crisis level of growth (5.2 percent). The medium- to long-term economic performance of the MENA region will mainly depend upon the movements in oil prices.
8. The second region of OIC states affected badly by the economic crisis was CIT, whose output decelerated sharply from an average pre-crisis level of 10.1 percent to 4.7 percent in 2009. The fallout of the economic crisis on CIT member states has been immense mainly due to a sharp drop in demand, currency devaluations, decline in foreign capital inflows, workers’ remittances, and lower energy prices. However, in line with the global economic recovery, the region’s output accelerated by 6.6 percent in 2010. The medium-term growth is anticipated to be 5.5 percent during 2011–2015, indicating slow and unsustainable economic recovery compared to other regions of OIC states.
9. Among OIC regions, the Sub-Saharan Africa (SSA) region remained more resilient as its real GDP growth dropped marginally from the normal growth rate of 6.8 percent achieved during 2000–2007 to 5.3 percent in 2009, mainly due to collapse of global trade, decline in capital flows (FDI, ODA, and remittances), and sharp decline in oil- and non-oil commodities prices. However, the region showed impressive recovery with a growth rate of 6.4 percent in 2010. In the medium-term, the region is projected to
recover with strong and sustainable economic growth of 5.8 percent. The further recovery in the SSA region will depend on the extent of global economic recovery and movement in oil- and non-oil commodities prices in the coming years.
10. Economies of OIC member states in Asia were relatively less affected as their growth decelerated from the pre-crisis level of 5.3 percent to 3.4 percent in 2009. In particular, drop in global domestic demand for durable goods, and a decline in investment in the export-oriented emerging economies in the Asia region hurt the manufacturing exports. However, the expansionary fiscal and monetary policies and rebound in the financial markets and capital inflows helped the region’s fast recovery with the growth rate of 6 percent in 2010. In the medium-term scenario, only the Asia region is projected to achieve above the pre-crisis growth of 6 by 2015 as the region appears to be more resilient and shock absorbant due to sound macroeconomic reforms adopted during the Asian crisis of late 1990s.
11. With regard to individual OIC member countries, it appears that 31 out of 57 states are projected to achieve their pre-crisis growth during the medium-term period (2011–2015), while the remaining 26 states will take longer take this period to achieve their pre-crisis growth (Table 1). The main challenge for those countries that have already achieved their pre-crisis growth rates is to sustain them in the post-crisis period. Those countries that will not be
Figure 2. Rreal GDP Growth Regions of IOC States, 2005–2015 (% per annum).
Source: Computed by IsDB based on data from the IMF World Economic Outlook database (April 2011).
0 2 4 6 8 10 12 14 16 2005 2006 2007 2008 2009 2010 2011p 2012p 2013p 2014p 2015p
Iqbal
148 Islamic economic: Theory, policy and social justice
Table 1. Real GDP Growth of OIC Member States (% per annum)
OIC Member States Pre-Crisis Period (2000–2007) First Post-Crisis Year (2010) Medium-Term Scenario (2011–2015)
Pre-crisis growth rate in medium-term period
will achieve (A)/will not achieve (NA)
Afghanistan 8.0 8.2 8.1 A Albania 6.0 3.5 4.1 NA Algeria 4.0 3.3 3.3 NA Azerbaijan 15.9 5.0 2.6 NA Bahrain 6.4 4.1 4.9 NA Bangladesh 5.8 6.0 6.8 A Benin 4.2 2.5 4.5 A Brunei 2.2 4.1 2.8 A Burkina Faso 5.5 5.8 6.1 A Cameroon 3.7 3.0 4.4 A Chad 9.5 5.1 4.0 NA Comoros 2.1 2.1 3.6 A Côte D’Ivoire -0.3 2.6 3.3 A Djibouti 3.1 4.5 5.6 A Egypt 4.7 5.1 4.4 NA Gabon 1.7 5.7 3.1 A Gambia 4.0 5.7 5.5 A Guinea 2.7 1.9 4.7 A Guinea-Bissau 2.6 3.5 4.6 A Guyana 1.7 3.6 4.6 A Indonesia 5.1 6.1 6.7 A Iran 5.9 1.0 3.0 NA Iraq 2.3 0.8 10.1 A Jordan 6.6 3.1 4.6 NA Kazakhstan 10.2 7.0 6.0 NA Kuwait 6.6 2.0 5.0 NA Kyrgyz Republic 4.5 -1.4 5.6 A Lebanon 3.6 7.5 3.9 A Libya 5.0 4.2 .. .. Malaysia 5.6 7.2 5.2 NA Maldives 8.5 8.0 4.5 NA Mali 4.8 4.5 5.2 A Mauritania 4.3 4.7 5.7 A Morocco 4.6 3.2 4.8 A Mozambique 7.7 7.0 7.8 A Niger 4.3 7.5 7.3 A Nigeria 9.3 8.4 6.4 NA Oman 4.0 4.2 4.5 A Pakistan 5.1 4.8 4.7 NA Palestine .. .. .. .. Qatar 12.2 16.3 7.9 NA Saudi Arabia 3.7 3.7 4.6 A Senegal 4.3 4.2 5.0 A Sierra Leone 10.9 5.0 5.7 NA Somalia .. .. .. .. (Continued)
Eds. Hatem A. El-Karanshawy et al. 149 Post-crisis economic recovery in OIC member states: Is it sustainable?
able to achieve the pre-crisis level of growth will need to undertake crucial macroeconomic adjustments in their fiscal and monetary policies with an objective to fix the most binding constraints to their economic growth in the coming years.