Chapter 27: Budget deficit and instruments of public borrowing in the Islamic system
The simple answer to this question is a plain yes. Most (or all) Muslim countries have resorted to public borrowing. In the past, too, the government of the Prophet (pbuh) borrowed. Borrowing also happened on occasion during the Abbasites’ era. However, the contemporary phenomenon of public borrowing in the Muslim countries is not always caused by conditions of necessity similar to those for which the Prophet (pbuh) borrowed. Chapra (1992: 290–94) cites four major areas of excessive public spending that were behind resorting to borrowing in most contemporary Muslim countries: corruption and wasteful spending; price subsidies; an inefficient and large public sector; and high defense expenditures. However, one may still argue that, even if these malaises are cured, there may be justification for public borrowing in an Islamic economy.
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