Islamic Bonds Help Pakistan Govt Save Billions Amid Fiscal Challenges
The government of Pakistan is reducing borrowing costs using Islamic financial instruments like Ijara Sukuk. Experts claim these instruments are priced more competitively than conventional financial products.
Prime Minister Shehbaz Sharif’s administration is managing the fiscal deficit as per the IMF agreement. According to a report by Business Recorder, the government saved about Rs 17 billion last year by issuing Sukuk bonds worth Rs 1.77 trillion.
Sukuk bonds are Islamic financial certificates, similar to bonds in conventional finance. However, unlike traditional bonds, Sukuk represent ownership in tangible assets, services, or projects. They are structured to comply with Islamic law, which prohibits interest (riba). Instead of earning interest, Sukuk holders receive returns generated from the underlying asset or project.
“Our economic managers shifted from costly, interest-based treasury bills to Sukuk,” the executive reportedly said. “This transition has resulted in substantial savings for the government.” He added that Islamic banks are offering better rates than conventional banks.
The State Bank of Pakistan (SBP) has a five-year plan to shift to a Shariah-compliant system. This shift follows the Federal Shariat Court’s 2022 directive for adopting Islamic financing methods.
The goal is to create an “equitable, asset-based, risk-sharing, and interest-free economy” by 2027.
Recent media reports highlight Islamic banks offering competitive house and car financing rates. These profit rates average up to 21.25 percent, increasing the market share of Islamic banks.
Similarly, conventional banks are lending at an average KIBOR plus 4.5 percent. This rate is roughly 21.5 percent. The SBP, in its latest monetary policy meeting, reduced the interest rate to 19.5 percent. This reduction set a new benchmark for bank borrowing rates.
“The government’s focus on issuing Sukuk instead of interest-based bonds is positive,” the banker concluded. “It supports the growth of Islamic finance in Pakistan.”
Islamic finance is a financial system based on Shariah law, which prohibits interest and speculative activities. It emphasizes risk-sharing, ethical investing, and asset-backed transactions. Islamic finance seeks to promote economic justice and fairness by aligning financial activities with Islamic ethical principles.
