Pakistan has increased the share of sukuk in its government debt portfolio to 14% in the first half of FY26, signaling a strategic shift toward Sharia-compliant financing, according to the latest debt bulletin. The data from the Debt Management Office (DMO) showed that total public debt rose by 1.1% to Rs81.4 trillion during the period, with domestic debt accounting for 68% and external debt making up 32%.
Domestic debt rose by 1.6% to Rs55.3 trillion between July and December FY26, compared to a 5.8% increase in the same period last year. The majority of domestic borrowing was concentrated in Pakistan Investment Bonds and Market Treasury Bills, while Government Ijarah Sukuk recorded the highest growth at 13%, reflecting the government’s ongoing emphasis on Islamic instruments. In contrast, the stock of Pakistan Investment Bonds and Treasury Bills declined slightly due to controlled borrowing and increased issuance of sukuk.
The government has set a target to raise the share of Islamic financing to 20% of its securities portfolio by FY28. As part of this initiative, a new 10-year zero-coupon sukuk has been introduced to attract institutional investors, aiming to expand the investor base for Sharia-compliant instruments. Analysts say that these sukuk structures are contributing to lower borrowing costs, with some instruments priced below the average domestic borrowing rates, which helps reduce interest expenses and improve fiscal efficiency.
Sukuk issuances, particularly in 5- and 10-year tenors, are also helping extend the maturity profile of public debt and mitigate refinancing risks. The increased reliance on domestic sukuk has limited external exposure, keeping external debt at 32% of the total debt stock. This strategy aligns with the broader goal of improving debt sustainability while fostering a diversified and resilient financial market.
Meezan Bank has played a lead advisory role in structuring government sukuk issuances, providing technical expertise and guidance in the design of Sharia-compliant instruments. Experts highlight that the growing use of Islamic financing not only supports fiscal management but also strengthens the financial system by promoting alternative investment options and encouraging broader participation in Islamic capital markets.
The move toward expanding Sharia-compliant debt aligns with Pakistan’s long-term economic strategy of integrating Islamic finance into its mainstream financial system. Analysts anticipate that continued growth in sukuk issuances will enhance market depth, reduce reliance on conventional borrowing, and support sustainable public debt management. By prioritizing sukuk and other Islamic instruments, Pakistan is reinforcing its commitment to Sharia-compliant financing as a key component of its fiscal and monetary policy framework.
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