The Role of Islamic Modes of Financing in Addressing Budget Deficit in Oman: A Proposed Framework in the Light of Maqasid al-Shariah

Abstract

Budget deficits have emerged as a critical fiscal challenge, particularly for nations like Oman, which encountered severe financial instability between 2014 and 2021 due to oil price volatility. During this period, the Sultanate relied extensively on external financing to manage its deficit, exposing vulnerabilities such as increased debt dependence, fiscal rigidity, and susceptibility to external economic shocks. This study critically examines sustainable deficit management solutions that adhere to Islamic financial principles and proposes an alternative framework grounded in Maq??id Shari�ah to enhance fiscal resilience. The research contributes to deficit management theory by exploring Islamic financial instruments as viable alternatives to conventional debt-financing mechanisms. It investigates how sovereign sukuk, alongside legal maxims and Maq??id-based policies, can offer a structured approach to mitigating fiscal deficits while aligning with Islamic economic principles. Additionally, the study draws comparative insights from Malaysia�s budget deficit financing, evaluating its applicability to Oman�s fiscal strategy. Malaysia serves as a reference point due to its advanced Islamic financial ecosystem and its demonstrated success in leveraging Islamic financial instruments for sovereign debt management. By assessing Malaysia�s experience, this research provides empirical reasoning for the suitability of Islamic finance as a sustainable fiscal tool in Oman�s context. Methodologically, the study adopts a qualitative approach by incorporating critical literature review, comparative analysis, and semi-structured expert interviews. The triangulation of primary and secondary data ensures a comprehensive evaluation of the proposed fiscal framework, which is termed the "Three-Part Maq??id Framework for Managing Public Budget Deficits." This framework synthesizes Shari�ah guidelines, legal principles, and Maq??id-based policies to construct a holistic strategy for deficit financing. Findings suggest that Islamic financial instruments can play a pivotal role in alleviating fiscal pressures while fostering long-term economic sustainability. The study highlights the practical significance of integrating Maq??id-based frameworks into fiscal policy, advocating for economic diversification and financial independence. Practically, this framework offers policymakers a blueprint to reduce reliance on external debt, enhance transparency in public finance, and align fiscal policies with Oman Vision 2040�s diversification goals. Furthermore, it underscores how Malaysia�s experience offers valuable lessons for Oman in establishing a more resilient and Islamic-compliant deficit management system. The research ultimately positions Islamic finance as a credible alternative to conventional fiscal approaches, with implications extending beyond Oman to other Muslim-majority economies seeking to enhance fiscal discipline while remaining aligned with Islamic economic values. Future studies should explore the practical implementation challenges associated with this framework within diverse legislative contexts to further advance public finance practices.