KARACHI: The share of sukuk (Islamic bonds) in Pakistan’s overall government debt portfolio rose to 14 per cent in the first six months of fiscal year 2026, reflecting the country’s efforts to accelerate its transition to low-cost, Sharia-compliant financing, according to a government report.
The latest Debt Bulletin published by the debt management office for the first half of this fiscal year said that the total public debt stock increased 1.1 per cent, reaching 81.4 trillion. Of this total, 68 per cent consists of domestic debt and 32 per cent is external debt.
Domestic debt rose 1.6 per cent to Rs55.3 trillion in July-December FY26, compared to a 5.8 per cent increase during the same period last year. The report indicates that the majority of domestic debt is sourced from medium- to long-term Pakistan Investment Bonds (PIBs), followed by Market Treasury Bills (MTBs) and Shariah-compliant Government Ijarah Sukuks (GIS). Notably, GIS saw the highest growth, increasing by 13 per cent. Meanwhile, the stock of PIBs and MTBs witnessed slight declines of 0.2 per cent and 0.1 per cent, respectively, due to controlled net borrowing and a rise in the issuance of Sharia-compliant instruments.
“The government is committed to increasing this share as part of the broader efforts towards expanding the scope of Islamic financing in the country,” the report said.“These efforts included the introduction of a new long zero-coupon, 10-year GIS also to attract more institutional investors, especially from the insurance industry,” it added.
The government aims to increase the share of Islamic instruments in its securities portfolio to 20 per cent by FY28. Experts said that Islamic financing instruments are playing a key role in cost optimisation, with structures such as Bai Muajjal, distinct from sukuk, priced at around 9.84 per cent, significantly below the overall domestic borrowing cost of 11.07 per cent, contributing to a 30 per cent year-on-year (YoY) reduction in interest expenses.
Islamic bonds, particularly Ijarah sukuk, are also strengthening the government’s debt profile, with around 52 percent of issuances concentrated in 5- and 10-year tenors, helping extend the average maturity to 3.99 years and reduce refinancing risks. The increased reliance on domestic Sukuk has also helped reduce external vulnerabilities, with external debt declining to 32 percent of total public debt.
Meezan Bank, acting as lead joint financial adviser for the government’s sukuk programme, has supported the structuring and execution of these Sharia-compliant instruments. Experts note that the growing proportion of Islamic bonds in the debt portfolio is not only reducing the government’s borrowing costs but also facilitating a structural shift toward long-term, stable, and ethical financing. This aligns with Pakistan’s constitutional objective of eliminating interest from the economy by January 2028.
