Impact of Global Financial Crisis on IDB Member Countries: The Case of Gulf Cooperation Council and Sub-Saharan Africa

2008 was a challenging year for the Islamic Development Bank (IDB) Group as well as its member countries because of unprecedented crises (food, energy, financial and economic crises). In particular, the ongoing global financial and economic crisis is source of concern for the IDB Group because of the magnitude of its impact on member countries. The banking sector faced unexpected challenges in terms of business growth, profitability, assets quality and liquidity, especially in the Gulf Cooperation Council (GCC) region. The year also witnessed steep fall in the stock markets in GCC and Sub-Saharan Africa (SSA) regions. 2009 is also expected to be another challenging year as the global financial meltdown is causing rising unemployment and pushing more people into the poverty trap. IDB member countries may face a sizable decline in foreign capital inflows both from public and private sources. Due to weakening global economy, economic growth is to decelerate in both GCC and SSA regions. The current account surplus in GCC region is to squeeze, while in SSA region it is likely to turn into deficit. These trends portend a setback for member countries, especially in SSA region in achieving the millennium development goals (MDGs). However, the GCC region is relatively well placed to weather the ongoing financial crisis due to huge oil surpluses accumulated during the last few years, lower public debt levels, and more than one trillion sovereign wealth funds, which have cushioned the adverse impacts on investment plans in the region. In response to these crises, IDB Group has continued to enhance its development assistance and taken a number of special initiatives to help member countries mitigate the adverse impacts of these crises on their socio-economic development. However, economic recovery in member countries in the coming years will critically depend upon the deepness of the economic recession and their policy actions to revive their economies through effective socio-economic reforms. The instruments of Islamic finance can be considered a possible cure for the ailing global financial markets.