Fiscal Dominance and Exchange Rate Distortions and Their Impact on Economic Stability in Libya: An Econometric Study Using the ARDL Model for the Period (2000–2025)

Abstract

This study aims to analyze the impact of fiscal dominance and exchange rate distortions on economic stability in Libya during the period (2000–2025), using the Autoregressive Distributed Lag (ARDL) model. The study relies on annual data covering inflation, the parallel exchange rate, fiscal dominance, and real gross domestic product (GDP).

The results indicate the existence of a long-run cointegration relationship among the variables. The findings further reveal that fiscal deficits contribute to higher inflation and exchange rate distortions, reflecting clear manifestations of fiscal dominance within the Libyan economy.

Based on these results, the study recommends strengthening coordination between fiscal and monetary policies and activating macroeconomic stabilization tools to achieve sustainable economic balance and long-term stability in Libya.