The Board of Governors of the Islamic Development Bank (IDB), consisting mainly of the Ministers of Finance and Economy from 56 member countries, approved the Bank’s Annual Report, which covers the period from 1st Muharram 1428H (20 January 2007) to 30 Dhul Hijjah 1428H (9 January 2008). The Annual Report presents an overview of the recent economic performance of IDB member countries as well as the major achievements and operational activities of the Bank during the year.
Socio-Economic Progress of IDB Member Countries
According to the IDB Annual Report, the gross national income of 56 member countries of the Bank reached US$3.4 trillion by end-2007. This is equivalent to a share of 23 percent of the developing countries’ gross national income. In line with global trends, IDB member countries, as a group, recorded a GDP growth of 6.1 percent in 2007 which is expected to slightly edge up to 6.3 percent during 2008. The growth in twenty-eight least developed member countries of the IDB (LDMCs) at 8 percent in 2007 has been even more promising and it is projected to grow at the same rate during 2008. The per capita income of IDB member countries, as a group, grew at an annualized rate of over 18 percent from US$1,358 in 2003 to US$2,355 in 2007.
On the trade front, total exports of IDB member countries, as a group, increased by 22.6 percent to US$1.2 trillion in 2006. Share of total exports of IDB member countries in global exports increased from 7.9 percent in 2002 to 10.2 percent in 2006. The total value of intra-exports among IDB member countries increased by 23 percent to US$166 billion in 2006. The intra-exports ratio increased from 12.5 percent in 2002 to 13.6 percent in 2007.
As a percentage of GDP, national savings of member countries (as a group) increased marginally from 29.9 percent in 2006 to 30.1 percent in 2007. Similarly, the investment rate rose from 22.3 percent to 24.1 percent of GDP during the same period, leaving the resource surplus at 6 percentage points. Investment by the private sector rose by 18.3 percent of GDP in 2007. Member countries’ share in global FDI increased from 9.8 percent in 2006 to 10.7 percent in 2007. The significant resource surplus of non-LDMCs suggests a considerable potential to further enhance intra-investment flows among member countries.
With regard to social performance, out of 56 IDB member countries, 10 are categorized as high, 30 are classified as medium while the remaining countries are placed in low human development. Unemployment is one of the major socio-economic challenges facing IDB member countries. The employment-to-youth population ratio was 41.5 percent in 2006, which indicates that more than half of the youth population are not directly involved in market-related activities.
Development Assistance by the IDB Group
The financing entities within the IDB Group comprise of the Bank, the Islamic Corporation for the Development of Private Sector (ICD), and the Islamic Corporation for the Insurance of Investment and Export Credit (ICIEC). More recently, all trade operations within the IDB Group have been taken over by the International Islamic Trade Finance Corporation (ITFC), which commenced operations from 1st Muharram 1429H. As of end-1428H, cumulative net approvals extended by the IDB Group for different types of development assistance reached US$51.1 billion. During 1428H, IDB Group approved 183 development projects amounting to about US$2.7 billion and trade financing totalling US$2.8 billion for 82 operations. Projects and technical assistance from Ordinary Capital Resources (OCR) increased by 26 percent to US$2.1 billion in 1428H.
In 1428H, twenty-eight LDMCs received US$303.6 million or about 88 percent of IDB’s total concessional financing from the OCR. In cumulative terms, they received US$3 billion or about 71 percent of IDB’s concessional financing between 1396H and 1428H. Project and technical assistance financing approved for LDMCs totalled US$619.8 million in 1428H, showing an impressive increase of 42 percent over the last year. Another important development worth mentioning here relates to the approval of 21 trade financing operations in LDMCs amounting to US$1,074.3 million, which constitute a share of about 41 percent of total trade financing approvals in 1428H. In cumulative terms and up to end-1428H, the total development assistance extended to the LDMCs reached US$10.8 billion. The main focus of IDB’s concessional financing to LDMCs is to alleviate poverty and address its root causes.
The Declaration on IDB Group Cooperation with Africa, commonly known as the "Ouagadougou Declaration" was adopted by the Board of Governors in 2002. As the implementation of the Ouagadougou Declaration has come to an end this year, IDB commitment exceeded the target of US$2 billion over the period from 1424H to 1428H. The cumulative total approvals by the Group during the five-year period reached US$2.4 billion, which exceeded the target by 19 percent. Of the cumulative approvals, concessional financing reached US$890 million (37.3 percent), ordinary financing totalled US$605.3 million (25.4 percent), while trade financing amounted to US$580.2 million (24.3 percent).

Financial Performance of the IDB
As a reflection of the sustained growth achieved in the previous year, net income from OCR increased to US$258 million in 1428H, showing an increase of 43 percent over the previous year. During 1428H, the total administrative cost of IDB increased by US$15.2 million or 11.4 percent over the previous year. The increase is consistent with the planned rise in the annual administrative budget of OCR and includes certain IT development expenditures during the year.
As a demonstration of its excellent financing soundness during 1428H, the FitchRatings upgraded IDB ratings assigned from “AA+” to the highest ratings “AAA” for the long-term, “F1” for the short-term and a “stable” outlook. Furthermore, Standard & Poor’s confirmed for the sixth consecutive year its highest ratings for IDB; “AAA” for long-term and “A-1+” for short-term with “stable” outlook. IDB has also maintained for the second year the highest ratings of “Aaa” for long-term and “P-1” for short-term assigned by Moody’s. With the ratings upgrade assigned by FitchRatings, IDB has become an “AAA” rated institution by the three leading international rating agencies. These ratings reflect, inter alia, the financial soundness of IDB and its very low risk profile.

New Initiatives Undertaken During 1428H

• Commencement of Activities by International Islamic Trade Finance Corporation
With the commencement of activities by 1st Muharram 1429H, the International Islamic Trade Finance Corporation (ITFC) will contribute greatly to IDB objective of promoting greater economic cooperation among member countries by fostering wider intra-trade. In addition, IDB continues to take new initiatives in order to promote trade in member countries. IDB has decided to make available US$1 billion to be managed by the ITFC as Mudarib. This amount will be utilized by the ITFC to finance trade operations in OIC member countries. It will also be taking over as Mudarib for the BADEA fund for financing trade operations in Africa, which was previously managed by IDB. The ITFC is targeting to finance trade operations to the tune of US$2.7 billion in 1429H, using its capital resources and the amount made available to it by IDB. It will also try to meet the shortfall in funds by mobilizing additional resources from the financial institutions by way of syndication.

• Operationalizing the Islamic Solidarity Fund for Development
The Islamic Solidarity Fund for Development (ISFD) with a target of US$10 billion, formally started operation on 1st Muharram 1429H (10 January, 2008). The resources of the ISFD will be supplemented by additional resources from other sources, including co-financing. So far, 30 member countries have announced contributions amounting to about US$1.6 billion. IDB itself will contribute to the ISFD, an amount of US$1 billion over 10 years. Specifically, the main priority areas of the Fund include: education with special emphasis on primary and girls’ education; health sector projects, in particular combating diseases such as malaria, tuberculosis and AIDS, increasing accessibility to health services, and the development and production of vaccines and medicines; rural infrastructure projects such as roads, bridges, rural marketing centres, storage facilities for agricultural products, electricity, potable water, irrigation schemes; agriculture and rural development, especially provision of agricultural inputs and farming equipment, and integrated rural development projects; and emergency relief, post-conflict reconstruction, and capacity-building.
• Launching of Special Programme for the Development of Africa
In recognition of the socio-economic challenges facing the Sub-Saharan African member countries, the Bank, as called upon by the Third Extraordinary Session of the OIC Summit, has initiated a Special Programme for the Development of Africa (SPDA). Under the SPDA, IDB Group aims to approve an amount of US$600 million for the first year of the Programme to be increased by 15 percent each year, making a total amount of US$4.1 billion over a five-year period. The SPDA has identified five critical sectors for its operational activities: productivity growth in agriculture to achieve food security; education projects to generate skilled workforce; health projects focusing on the fight against major communicable diseases; water and sanitation projects to improve quality of life; and supporting power generation and distribution projects.
• Enhancing Institutional Effectiveness Through IDB Reform Programme
The first of the nine key strategic thrusts of the IDB 1440H Vision deals with the Bank’s reform so that it can be better equipped to meet the challenges facing its member countries. Accordingly, a consultancy service agreement was concluded with an external consultant to provide expert advice on reforming the Bank. Started towards the end of 1428H, the Reform’s first phase lasted for five months and included assessment stage, concept design, and recommendations. The main objective of IDB Reform Programme is to help the Bank to streamline its business processes through realignment of its organizational structures, corporate governance, mission and functions of different entities. This is aimed at eliminating redundancies in functions, empowerment and responsibilities, transparency and disclosure, and accountability. At the same time, the roles of the Board of Executive Directors (BED), management, and stakeholders will be enhanced to increase efficiency. Through this exercise, IDB will redesign its business processes in order to be closer to its customers, improve project cycle time, and increase overall impact. Success of such major initiative depends largely on the way the change is managed. Hence, change management, both internally and externally, constitutes a major cornerstone of the Reform Programme.

• IDB Statistical Capacity Building (IDB-STATCAP) Initiative
The IDB launched a Statistical Capacity Building (IDB-STATCAP) Initiative in Ramadan 1428H (September 2007) with the key element of providing technical assistance facility to support the four components of statistical capacity building: (i) physical infrastructure and equipment, (ii) statistical infrastructure, (iii) statistical operations, and (iv) institutional framework for national statistics. A Forum called Statistical Working Group, established in collaboration with relevant Organization of the Islamic Conference (OIC) institutions will aim to coordinate and develop a common framework for collecting data from member countries and producing aggregate statistics for OIC countries.