Financial Outlook of the OIC Member Countries 2017

INTRODUCTION

The financial system of an economy comprises of banks, capital markets, pension and mutual

funds, insurers, central bank, as well as regulatory and supervisory authorities. These

institutions and markets provide a framework for undertaking economic transactions and

provide an efficient mechanism to channel savings into investment, which is expected to create

an environment for supporting economic growth. In this regard, issues in financial systems not

only disrupt the role of intermediation in the financial markets, but they can also destabilize

the effective working of other units in the economy; thereby causing economic crises and

downturns. Moreover, increasing inter connection among financial institutions and markets

can cause to spread crises rapidly across national borders.

Well-functioning financial systems are essential for both domestic and international economic

and financial stability. In this regard, it is an increasing trend that more studies and research

put efforts to focus on the importance of financial stability for an efficient mechanism of the

markets on the global scale as well as well-functioning of individual economies. Therefore,

finance and financial cooperation have become an important area for policymakers to consider

relations between financial stability and economic development. Due to increasing

connectivity among financial institutions, resilient financial systems that are well-regulated

and well-supervised are essential for both domestic and international financial stability.

The bulk of the empirical literature on finance and development suggests that well-developed

financial systems play an independent and causal role in promoting long run economic growth.

Financial systems help mobilize and pool savings, provide payments services that facilitate the

exchange of goods and services, produce and process information about investors and

investment projects to enable efficient allocation of funds, monitor investments and exert

corporate governance after these funds are allocated, and help diversify, transform and

manage risk.

In this sense, as the global markets have become more and more interdependent, the

importance of financial cooperation among relevant economic units has emerged as a crucial

cross cutting theme to reach well-functioning financial markets and to raise sufficient funds for

the economic development.

For example, closing the investment gap to achieve the Sustainable Development Goals (SDGs)

of the United Nations by 2030 requires the mobilization of significant financial resources. It is

estimated that the least developed countries need to increase annual average rate of

investment at least 11 percent through 2030. This significantly exceeds the rate of investment

growth between 2010 and 2015, which averaged 8.9 percent annually. At the same time, the

global environment, including the weak economy, low trade growth, soft commodity prices,

volatile international capital flows, and the increase of geopolitical risks make raising long-

term investment and increasing capital formation particularly challenging.

As a broad regional international organization, The COMCEC is one of the four standing

committees of the OIC which is responsible for enhancing economic and commercial

cooperation among the Member States. Since the commencement of its activities in 1984,

Financial Systems Soundness Indicators 2016, IMF

Demirgüç-Kunt, Aslı, ‘Finance and Economic Development: The Role of Government’, December 2008

UN World Economic Situation and Prospects 2017