The Islamic Development Bank has moved rapidly to put together a $2.3bn package of support for its member countries in response to the economic and health attrition caused by Covid-19. Twenty-one African countries will benefit from the support.
Of all the multilateral development banks (MDBs), including the World Bank, the Islamic Development Bank’s (IsDB’s) rapid response to the global coronavirus (Covid-19) pandemic has been the most proactive and urgent.
In a space of four weeks, from April 2020 into early May, IsDB President Dr Bandar Hajjar probably set a record for the number of online meetings held with governors of the IsDB’s Board of Directors (usually finance ministers) representing its member countries. He spoke to many African government officials.
The meetings aimed at assessing the immediate needs and challenges posed by Covid-19, especially in the health and economic sectors, and the level of emergency financing packages disbursed.
The IsDB board approved an initial $2.3bn Group Strategic Preparedness & Response Programme (SPRP) in March 2020 to help combat the health and socio-economic impact of Covid-19 in member countries.
It comprised a combination of soft loans, ordinary (market) resources, private sector finance, trade finance and export/import credit and investment insurance. This is the single largest round of aid financing from the organisation.
“Our Response Package of $2.3bn adopts a holistic approach focusing on short, medium, and long-term needs. Of this package, we have already committed $1.86bn to 27 member countries (at 21 May 2020),” said Dr Hajjar. He went on to add: “IsDB fully recognises the limited ability and capacity of its member countries to cope with these adverse impacts of Covid-19. Our IsDB Group teams are working tirelessly to provide fast-tracked assistance under our SPRP, which is designed to help member countries to recover from this pandemic.”
The programme, he explained, adopts a holistic view guided by ‘the 3Rs’ – Respond, Restore, and Restart – approach that covers the short, medium and long-term, and aims to accommodate priorities beyond the immediate emergency response to the health sector.
The aim is to ultimately put the countries back on the economic recovery track through restoring livelihoods, building resilience and kick-starting growth.
“We are focusing on the core of the problem – the health aspect,” Dr Hajjar said. “The economic repercussions, albeit crucial, are only symptoms or consequences of the disease. In contrast, the critical challenge that must be addressed is to create a vaccine for the virus and to support health systems towards safeguarding lives.”
This opens up the possibilities for local and international companies to provide medical supplies, equipment and services, and IT innovations in healthcare management through contact tracing apps, etc.
In terms of the source of contributions to the programme, the IsDB contributed $1.52bn; the International Islamic Trade Finance Corporation (ITFC) $300m; the Islamic Corporation for the Development of the Private Sector (ICD) $250m; and the Islamic Corporation for the Insurance of Investment and Export Credit (ICIEC) $150m. All of these have extensive operations in Africa.
Additional $10bn support
Dr Hajjar also had a virtual meeting with the heads of Arab Coordination Group institutions including the Arab Bank for Economic Development in Africa and the Arab Fund for Economic and Social Development. This meeting resulted in the allocation of an additional $10bn to developing countries to support their efforts to recover from the recession caused by the Covid-19 outbreak and its repercussions.
The funds will be allocated through grants, soft loans, technical support, general budget support, financing lines, trade finance, investment insurance and private sector support.
Valuable experience put to use
The IsDB’s prompt response to Covid-19 is the result of the valuable experience it gained while helping its African member countries in their fight against HIV/AIDS, which decimated the social and economic fabric of several parts of the continent. It has also run polio and malaria vaccination programmes, and provided assistance with the Ebola epidemic in West Africa.
“We must learn from the lessons of the Ebola crisis,” says Dr Hajjar, “by resisting handing out unconditional bailouts, rather than structuring them to restart a new economy – one that is focused on a 4.0 framework of growth.
“That means building capacity around the 4th generation of industrialisation that uses science and technology to prevent global value chains’ disruption under such pandemics, while maintaining zero environmental footprints.”
Another reason for its rapid response could be that the overwhelming majority of member countries of the IsDB are classified as Least Developed, especially in Sub-Saharan Africa and Asia. The IsDB, since its establishment in 1975, has also gained much experience since of the priorities and sensitivities in aiding such economies – including targeting primary healthcare, education, transport infrastructure, sanitation, trade and promoting the private sector, especially SMEs.
The IsDB has in addition proven to be less encumbered by the politics of its membership, unlike the World Bank/IMF, instead concentrating on achieving the Sustainable Development Goals of the UN’s Agenda 2030 in its own operations.
The bank is well-resourced, with the second-largest subscribed capital of any MDB at $70bn and operating assets of more than $16bn, with access to further callable capital. The IsDB raised $2bn through a sukuk issuance in March 2020 at the onset of Covid-19, its single largest offering to date.
Of the IsDB’s top five equity subscribers, Libya is the second-largest after Saudi Arabia, with $4.2bn, and Nigeria the fourth-largest with $3.9bn.
In four rounds of virtual meetings, the IsDB allocated an initial total of $970m to 16 African member countries of which the largest recipients are Tunisia, Senegal and Egypt. The total allocations agreed are $279m to Tunisia, $162m to Senegal, $126m to Egypt, $28.3m to Mozambique, $62.5m to Libya, $11m to Burkina Faso, $20m to Benin, $15m to Guinea-Bissau, $20.2m to Uganda, $22.5m to Mali, $46.2m to Côte d’Ivoire, $25m to Sierra Leone, $20m to Chad, $35m to Sudan, $5m to Djibouti and $33m to Mauritania.
Dr Hajjar also had virtual meetings with representatives of Nigeria, Algeria, Morocco, Cameroon and the Republic of Guinea to finalise similar emergency financing packages.
The IsDB estimates that global GDP growth would fall by 0.5%-1.5% as a result of the crisis, and according to the UN Conference on Trade and Development (UNCTAD) estimates there will be a loss to the global economy of $1-2trn in 2020. The International Labour Organisation (ILO) also estimates a loss of 25m jobs.