Waqf Financing Expenditure and its Impact on Government Debt
AbstractThe Malaysian debt has been under scrutiny since the 1Malaysia Development Berhad (1MDB) scandal; placing pressure on the research for sustainable debt. The purpose of this article is to forecast the impact of waqf (Islamic pious foundation) financing expenditure on federal government debt in Malaysia. It is to ascertain whether waqf can be an alternative solution to government debt reduction. To perform this, the Neoclassical Dynamic Stochastic General Equilibrium (DSGE) model is adopted. The theoretical framework is developed by considering the history, tradition, culture, and political influence of waqf primarily in Muslim majority countries. It was also inspired by the European third sector framework. The result shows that federal government debt can be reduced when waqf finances federal government expenditure. This has several implications. For one, this study revives the cohesive government-waqf role in providing pure and mixed public goods without depending solely on government expenditure. It highlights the fact that these shared role has an impact of reducing government debt. The result also inadvertently provides evidence of a significant third sector role on public finance dynamics. As a matter of fact, this study is one of very few quantitative attempts in illustrating how waqf interacts with the economy and its impact on government debt.
Marattin, L., Marzo, M. and Zagaglia, P. 2011, "A welfare perspective on the fiscal-monetary policy mix: The role of alternative fiscal instruments", Journal of Policy Modeling Vol.33 No.6, pp. 920-952.
Mabugu, R., Robichaud, V., Maisonnave, H. and Chitiga, M. 2013, "Impact of fiscal policy in an intertemporal CGE model for South Africa", Economic Modelling, Vol. 31 No.2, pp. 775-782.
Qin, D., Cagas, M. A., Ducanes, G., Magtibay-Ramos, N. and Quising, P. 2006, "Empirical assessment of sustainability and feasibility of government debt: the Philipines case", Journal of Asian Economics, Vol.17 No.1, pp. 63-84.
Sakuragawa, M. and Hosono, K. 2011, "Fiscal sustainability in Japan", Journal of the Japanese and International Economies, Vol.25 No.4, pp. 434 - 446.
Hansen, G. D. and İmrohoroğlu, S. 2016, "Fiscal reform and government debt in Japan: A neoclassical perspective", Review of Economic Dynamics, Vol.21 No.3, pp. 201-224.
Cogan, J. F., Taylor, J. B., Wieland, V. and Wolters, M. H. 2013. "Fiscal consolidation strategy", Journal of Economic Dynamics & Control, Vol.37 No.2, pp. 404-421.
Rieth, M. 2014, "Myopic governments and welfare-enhancing debt limits", Journal of Economic Dynamics and Control,Vol.38 No.1, pp. 250-265.
Faridi, F. R. 1983, "A theory of fiscal policy in an Islamic state", in Ahmed, Z., Iqbal, M. and Khan, M. F. (Eds), Fiscal Policy and Resource Allocation in Islam, Institute of Policy Studies and International Centre for Research in Islamic Economics, Islamabad, Leicester, pp. 27-58.
Kahf, M. 2014, Notes on Islamic Economics: The Charitable Sector, Ad Dawhah, Qatar.
Arshad, M. N. M. and Haneef, M. A. M. 2016, "Third sector socio-economic models: how waqf fits in?", Institutions and Economies, Vol.8 No.2, pp. 75-93.
Siddiqi, M. N., 1995. An overview of public borrowing in early Islamic history. Journal of Islamic Economic Studies, Vol.2 No.2, pp. 61-78.
Gil, M. 1998, "The earliest waqf foundations", Journal of Near Eastern Studies, Vol.57 No.2, pp. 125-140.
Babacan, M. 2011, "Economics of philanthropic institutions, regulation and governance in Turkey", Journal of Economic and Social Research, Vol.13 No.2, pp. 61-89.
Biancone, P. P. and Radwan, M. 2019, “Social finance and financing social enterprises: an Islamic Finance prospective, European Journal of Islamic Finance, Special Issue Islamic and Social Finance, pp. 1 – 6.
Frenkel, Y. 1999, "Political and social aspects of Islamic religious endowments ("awqaf"): Saladin in Cairo (1169-73) and Jerusalem (1187-93)", Bulletin of the School of Oriental and African Studies, University of London, Vol.62 No.1, pp. 1-20.
Ambrose, A. H. A. A., Aslam, M. and Hanafi, H. 2018a, "The possibility of using waqf to finance the Malaysian federal government's public expenditure", Journal of Southeast Asian Studies, Vol.23 No.2, pp. 89-106.
Ambrose, A. H. A. A., Aslam, M. & Hanafi, H. 2018b, "A proposed model for waqf financing public goods and mixed public goods in Malaysia", International Journal of Islamic and Middle Eastern Finance and Management, Vol.11 No. 3, pp. 395-415.
Çizakça, M. 1998, "Awqaf in history and its implications for modern Islamic economies", Islamic Economic Studies, Vol.6 No.1, pp. 43-70.
Marzuki, M. U. M., Shahimi, S., Ismail, A. G. and Embong, Z. (2012), "Tackling poverty: a look at cash waqf", in Prosiding Perkem VII, Ipoh, Malaysia, Vol. 2, pp. 1611-1623.
Kuran, T. 2001, "The provision of public goods under Islamic law: Origins, impact, and limitations of the waqf system", Law & Society Review, Vol.35 No.4, pp. 841-898.
Akhtar, M. R. 1995, "Provision of public goods in an Islamic economy", The Pakistan Development Review, Vol.34 No.4, pp. 879-885.
Peri, O. 1992. "Waqf and Ottoman welfare policy: The poor kitchen of Hasseki Sultan in eighteenth-century Jerusalem", Journal of the Economic and Social History of the Orient, Vol.35 No.2, pp. 167-186.
Bonine, M. E. 1987, "Islam and commerce: waqf and the Bazaar of Yazd, Iran", Erdkunde, Vol.41 No.3, pp. 182-196.
Pestoff, V. A. 1992, "Third sector and co-operative services - An alternative to privatization", Journal of Consumer Policy, Vol.15 No.1, pp. 21- 45.
Evers, A. and Laville, J.-L. 2004, "Defining the third sector in Europe", in Evers, A. and Laville, J-L. (Eds), The Third Sector in Europe, Edward Elgar, Cheltenham, Northampton, pp. 11- 42.
Defourny, J. and Pestoff, V. 2008, "Images and concepts of the third sector in Europe", available at: http://emes.net/content/uploads/publications/WP_08_02_TS_FINAL_WEB.pdf (accessed 7 March 2016)
Waqaf An-Nur Corporation Berhad, 2015, Laporan Tahunan Waqaf An-Nur Corporation Berhad, Johor Bahru: Waqaf An-Nur Corporation Berhad.
Biancone, P. P. and Radwan, M. 2018, “Social finance and unconventional financing alternatives: an overview”, European Journal of Islamic Finance, No.10, pp. 1-5.
Setia, A., 2014, "Waqf and the civic economy", Islamic Sciences, Vol 12 No.2, pp. 174-182.
Mohsin, M. I. A. 2014, Corporate Waqf from Principle to Practice: A New Innovation for Islamic Finance, Pearson Malaysia Sdn Bhd, Kuala Lumpur.
Majlis Ugama Islam Singapura. 2016, “MUIS: WAQF Administration”available at: http://eresources.nlb.gov.sg/webarchives/details/www.muis.gov.sg.cms.services.
Ministry of Minority Affairs India. n.d., “Waqf Records Computerization Project” available at: http://www.wakf.gov.in/homepage/homepage.php
Kuwait Awqaf Public Foundation. n.d., “International Coordination” available at: https://ww2.awqaf.org.kw/English/AboutMunicipality/InternationalCoordination/Pages/default.aspx
Kuwait News Agency (1999), "Kuwait entrusted by OIC to coordinate waqf action among Muslim states", available at: http://www.kuna.net.kw/ArticlePrintPage.aspx?id=1040745&language=en (accessed 12 May 2015)
Busharah, K. M. A. (2012), "Kuwait Awqaf Public Foundation, (KAPF), developmental social experience and prospects", working paper, United Nations Economic and Social Commission for Western Asia, Beirut, 19-20 December.
Mohsin, M. I. A. 2013, "Financing through cash waqf: a revitalization to finance different needs", International Journal of Islamic and Middle Eastern Finance Management, Vol. 6 No.4, pp. 304 - 321.
Torres, J. L. 2013, Introduction to Dynamic Macroeconomic General Equilibrium Models, Vernon Press, Malaga.
Starr, R. M. 2011, General Equilibrium Theory: An Introduction, Cambridge University Press, New York.
Debreu, G., 1983, "Economic theory in the Mathematical mode", available at: http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/1983/debreu-lecture.html (accessed 5 September 2016).
Cardenete, M. A., Guerra, A.-I. and Sancho, F., 2012, Applied General Equilibrium: An Introduction, Springer-Verlag Berlin Heidelberg, Dordrecht, London, New York.
Galí, J., Vallés , J. and López-Salido, J. D. 2007. "Understanding the effects of government spending on consumption", Journal of the European Economic Association, Vol.5 No.1, pp. 227-270.
Department of Statistics Malaysia, 2017, "Report on household expenditure survey 2016", available at: https://www.dosm.gov.my/v1/index.php?r=column/cthemeByCat&cat=323&bul_id=WnZvZWNVeDYxKzJjZ3RlUVVYU2s2Zz09&menu_id=amVoWU54UTl0a21NWmdhMjFMMWcyZz09 (accessed 10 January 2019)
Iwata, S., Khan, M. S. and Murao, H. 2003, "Sources of economic growth in East Asia: A nonparametric assessment", IMF Staff Papers, Vol.50 No.2, pp. 157-177.
Nagaraj, S. 2005, "Derivation of a total net capital stock series for Malaysia, 1955-2004", working paper, Faculty of Economics and Administration, University of Malaya, Kuala Lumpur, 2005.
Bank Negara Malaysia (2000 – 2018), “Monthly Statistical Bulletin”, available at: http://www.bnm.gov.my/index.php?ch=en_publication〈=en
Public Mutual Berhad, 2016, Quarterly fund review, Kuala Lumpur: Public Mutual Berhad.
Public Mutual Berhad, 1999-2018, "Rate of Return of Public Ittikal Fund", Unpublished raw data.
Copyright (c) 2019 Azniza Hartini Azrai Azaimi Ambrose, Mohamed Aslam, Hanira Hanafi
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.
EJIF content is licensed under a Creative Commons Attribution 4.0 International License.
Authors keep the copyrights for their work and give the journal the work's first publication copyright, which is at the same time licensed under a Creative Commons License – Attribution, which in turn allows other parties to share the work with an acknowledgement of the work's authorship and initial publication in this journal.