In Islamic finance, the prohibition of interest (riba) limits the government's ability to issue interest-bearing bonds as a means of financing deficits. This restriction necessitates alternative financing methods, such as profit-sharing or equity-based instruments. Consequently, fiscal policy may be more constrained in its ability to stimulate the economy or manage public debt, requiring innovative approaches that align with Islamic principles. As a result, governments may need to rely more heavily on taxation or non-interest-based financing mechanisms.
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