Comparative Analysis of The Effects of Financing Government Budget Deficits Through General Murabaha Bills Versus Borrowing From The Banking System on Economic Growth And Inflation Variables

Document Type : Research Paper

Authors

1 Assistant Professor, Department of Economics, shahid Ashrafi Isfahani University, Isfahan, Iran

2 Associate Professor, Department of Economics, University of Isfahan, Isfahan, Iran

3 Director of the Planning and Budget Organization of Isfahan Province, Isfahan, Iran

Abstract

Various instruments have been designed and issued to compensate for the government budget deficit and to finance both public and private sector companies. Addressing the budget deficit issue and adopting appropriate solutions for its financing, along with creating debt based on sound economic principles, is of great importance. Accordingly, this study compares the effects of two financing methods, issuance of general Murabaha bonds and borrowing from the banking system, on economic growth and inflation. The research model for analyzing growth derives from the Solow-Swan growth theory. Given the interrelationships between variables and the limited issuance period of Murabaha bonds, the Bayesian Vector Autoregression (BVAR) method has been employed. The data used are monthly and cover the period from 2019 to 2022. The results show that the issuance of Murabaha bonds initially leads to a decrease in the economic growth rate, but it increases in the subsequent periods. In contrast, increasing government debt to the banking system results in declining economic growth. The effect of Murabaha bonds on the inflation rate is initially positive but decreases after a few periods. However, the inflationary impact of Murabaha bond issuance is greater than that of government debt to the banking system

Keywords

Main Subjects

References

  1. Ahmed, H., & Elsayed, A. H. (2019). Are Islamic and conventional capital markets decoupled? Evidence from stock and bonds/sukuk markets in Malaysia. The Quarterly Review of Economics and Finance, 74, 56-66.‏
  2. Alavi Bajgani, S. A. R., Peikarjoo, K., Hazhbarkiani, K., & Torabi, T. (2019). Investigating the Asymmetric Effects of Fiscal Policy on Economic Growth in Iran: A Quantile Regression Approach. Economics and Modeling, 10(4), 158-139 (In Persian).
  3. Anisa, D., & Santoso, R. (2020). The role of Islamic bonds (sukuk) toward Indonesia economy. Journal of Islamic Business and Economic Review, 3(1), 43-48.‏
  4. Bayat, S., & Gholich, V. (2019). Studying the effects of different methods of financing the government budget deficit on Iranian macroeconomic variables. Ravand Journal, 27(87), 17-46 (In Persian)
  5. Begg, D., Vernasca, G., Fischer, S., & Dornbusch, R. (2014). EBOOK: Economics. McGraw Hill.‏
  6. Bidabad, B., & Elhayarifard, M. (2010). Non-interest-bearing bonds (rial-denominated) and interest-free central banking monetary instruments. research report (In Persian).
  7. Gharavi, S. F., Naghilou, A., Rahimzadeh, A. (2019). The Effects of Islamic Bonds (Sukuk) on Economic Growth Based on a Dynamic Stochastic General Equilibrium Model DSGE. Quarterly Journal of Financial Economics, 17(63), 312-273 (In Persian).
  8. Habibullah, M. S., Cheah, C. K., & Baharom, A. H. (2011). Budget deficits and inflation in thirteen Asian developing countries. International Journal of Business and Social Science, 2(9).‏
  9. Haj Amini, M., Fallahi, M. A., Ahmadi Shadmehri, M. T., Naji Meydani, A. A. (2016). The relationship between the government budget structure, monetary sector interactions and inflation in the Iranian economy. Economic Research, 51(1), 70-41 (In Persian).
  10. Hassan, M. K., Aliyu, S., & Hussain, M. (2022). A contemporary review of Islamic finance and accounting literature. The Singapore Economic Review, 67(01), 7-44.‏
  11. Hosseinipour, S. M. R. (2018). A study of the cause and effect relationships between budget deficit, money supply and inflation rate in Iran. Strategic and Macro Policies, 6(21), 80-100 (In Persian).
  12. Issavi, M., & Gholich, V. (2015). The Ability of Islamic Securities to Compensate for Government Budget Deficits as a Policy Instrument. Quarterly Journal of Economic Research, 15(56), 134-105 (In Persian).
  13. Islam, M. A., Nabi, M. G., Hoque, M. N., & Hassan, M. S. Financing Infrastructure Projects with Application of Sukuk.‏
  14. Jafari Samimi, A., Zaroki, Sh., & Sadati Amiri, Se. (2018). Analysis of economic welfare with emphasis on the dimensions of globalization. Economic Modeling, 12(44), 1-23 (In Persian).
  15. Javed, A., & Fida, B. A. (2015). Islamic project financing in Pakistan: Current challenges and opportunities ahead.‏
  16. Kadiyala, K. R., & Karlsson, S. (1997). Numerical Methods for Estimation and Inference in Bayesian VAR-Models. Journal of Applied Econometrics, 12(2), 99–132
  17. Kadiyala, K. R., & Karlsson, S. (1989). Forecasting with bayesian vector autoregressions. Purdue University, Department of Economics
  18. Karlsson, L. S. (1989). Bayesian analysis of vector autoregressions. Purdue University.‏
  19. Kim, C. J., & Nelson, C. R. (2017). State-space models with regime switching: classical and Gibbs-sampling approaches with applications. MIT press.‏
  20. Komijani, A., & Varahrami, V. (2012). An Estimation of the Role of Factors Affecting the Budget Deficit in Iran. Strategy, 21(64), 27-42 (In Persian).
  21. Levine, R. & S. Zervos (1998). Stock Markets, Banks and Economic Growth. American Economic Review, 88(3), PP 537-758.
  22. Litterman, R. B. (1980). Bayesian procedure for forecasting with vector autoregressions. Massachusetts Institute of Technology.‏
  23. Mankiw, N. G. (2013). Macroeconomics fifth edition.‏
  24. Moghaddisi, M. R. (1994). Monetary Policies: Choosing an Instrument as an Alternative. Tehran: Deputy of Economic Affairs, Ministry of Economic Affairs and Finance (In Persian).
  25. Montazeri Shorkchali, J., Zahedgharavi, M., & Ehsani, M. (1999). Inflation and Budget Deficit in the Iranian Economy: A Granger-Markov Switching Causality Approach. Applied Economics, 11(38), 53-69 (In Persian).
  26. Musa, M. L., & Joseph, M. (2014). Macroeconomic effects of budget deficits in Uganda: A VAR-VECM Approach.‏
  27. Nofaresti, M. (1992). Single Root and Cointegration in Econometrics. Rasa Publications (In Persian).
  28. Renelt, D. (1991). Economic growth: A review of the theoretical and empirical literature.‏
  29. Rashidi, D., Vaez Barzani, M. & Bakhshi Dastjerdi, R. (2018). A comparative analysis of the effects of borrowing from the central bank, Islamic bonds and treasury bills to finance the government budget deficit on selected macroeconomic variables. Economic Research with an Islamic Approach, 19(38), 237-203 (In Persian).
  30. Rehman, W., Khan, R. A., & Kousar, S. (2020). Government revenue and economic growth of Pakistan (1979–2017). Studies of Applied Economics, 38(3).‏
  31. Sill, K. (2005). Do budget deficits cause inflation. Business Review, 31(3), 26-33.‏
  32. Sole, J. (2017). The role of Islamic finance in the global economy. Springer.
  33. Tayeibi, S. K., Kamalian, A. R., Sarkhosh Sara, A., & Mobini Dehkordi, M. (2019). Analysis of the effects of globalization on government budget deficits: an assimilation approach. Economics and Modeling, 10(1), 65-96 (In Persian).
  34. Yuliani, I., Qizam, I., Nugroho, A., & Mu'arrif, Z. I. (2022). The impact of Sukuk on the country’s economic growth with country governance as a moderating variable. al-Uqud: Journal of Islamic Economics, 6(1), 112-123.‏
  35. Zulkhibri, M. (2015). A synthesis of theoretical and empirical research on sukuk. Borsa Istanbul Review, 15(4), 237-248.‏
Quarterly Journal of Applied Theories of Economics
Volume 12, Issue 44
June 2025
Pages 97-118

Files

Share

How to cite

Statistics