In the current more uncertain environment, in the aftermath of the recent global financial crisis, the role of the Islamic Development Bank will continue to be important, given that the goal of sustainable growth and development in the world economy has now become even more challenging. As the conventional financial system currently confronts what is perhaps its most defining period, several important lessons can be drawn for our collective efforts to build more resilient financial systems. Important considerations need to be accorded to the issues that have emerged, and on the policy directions affecting growth and stability. My address today will discuss several of these issues, and discuss how Islamic finance, given its nature and inherent features, can contribute to the process of enhancing the discipline that contributes to ensuring growth and financial stability. At the core, the financial system needs to serve the real economy. The purpose of the financial system is intermediation – that is, to match savings and investments for the purpose of generating economic growth. Yet, in recent decades, a number of factors have contributed to the weakening of the link between financial intermediation and productive economic activity. Deregulation opened up new opportunities for financial institutions to enhance performance and expand the scope of their activities. Greater competition, reinforced by significant advances in technology, intensified the pace of innovation. And, the extended period of low inflation and low interest rates incentivised greater risk-taking. Cumulatively, these developments contributed to a dangerous build-up of financial imbalances.
According to new figures, GDP growth amounted to 5.5 per cent in 2010 (see Slide 2). 3 This is the strongest growth seen since 1970. There have thus been very wide fluctuations in the economy in recent years. After developments in 2009, which entailed the sharpest fall in GDP since the Second World War, we have instead experienced, in 2010, the greatest increase of GDP in 40 years. Sweden is now among those economies with the highest GDP growth rates in the world. At the same time, the indicators are very strong, suggesting continued high levels of growth throughout early 2011. Exports, which decreased so drastically during the crisis, are showing very high growth figures (see Slide 4). One natural explanation is that world trade is now growing and Sweden has a high percentage of exports. This is the case even though the recovery in the United States and euro area is proceeding relatively sluggishly. From what I have just said, it is easy to conclude that the “emerging economies” have a high demand for Swedish exports and have heavily increased their proportion of these. This explanation is only partially correct. If we look at which countries Swedish exports go to, the United States and Europe remain completely dominant (see Slide 7). 4 However, over a longer period, the United States has decreased its share in favour of the BRIC countries (Brazil, Russia, India and China).