The Implications of Consumer Subsidies on Public Budget Balance in Libya: A Reform Vision from the Perspective of Islamic Banking

Abstract

This study aims to examine the role of Islamic financing instruments in rationalizing the consumer subsidy policy and assessing its impact on the Libyan state's public budget. It analyzes the evolution of government expenditure allocated to consumer subsidies over the study period and evaluates the fiscal burden imposed on the public budget. Furthermore, the study seeks to demonstrate the potential of Islamic financing instruments as economic mechanisms capable of redirecting public expenditure toward more productive and sustainable sectors, thereby reducing the consumption-oriented nature of government spending and enhancing economic efficiency.

The significance of the study stems from the continuous growth of consumer subsidy expenditure in Libya and the substantial burden it places on the public budget, which limits the efficient allocation of public resources and weakens the contribution of government spending to generating added value for the national economy.

The study adopts a descriptive-analytical approach to examine and analyze consumer subsidy policy and its impact on Libya's public budget. In addition, it employs quantitative econometric analysis using time-series models, including unit root tests, cointegration tests, and the Vector Error Correction Model (VECM), to investigate the nature of the relationship between consumer subsidy policy and the public budget.

The study concludes by recommending a comprehensive review of conventional consumer subsidy policies and advocates the adoption of Islamic financing instruments as a more efficient alternative for rationalizing public expenditure and promoting greater fiscal and economic stability.