Shafaqna Pakistan: Pakistan’s interest payment obligations are expected to continue beyond the constitutional deadline of January 1, 2028, as the government’s transition strategy towards a riba-free financial system allows existing conventional debt to be serviced under its original contractual terms until maturity, The News reported.
According to the report, interest payments—which account for nearly half of the federal budget—will continue on outstanding domestic debt despite the planned transition to Islamic finance.
Government sources said that while new public borrowing after December 2027 is expected to increasingly rely on Shariah-compliant financing instruments, conventional loans obtained before the cut-off date will continue to be honoured in accordance with their existing interest-based agreements.
The report added that although the government has limited control over its external debt obligations, domestic banks transitioning to Islamic banking will continue to receive interest payments on outstanding government debt issued under conventional financing arrangements until those liabilities mature.
Just in the budget 2026-27, the government has allocated over Rs 8 trillion (Rs 8000 billion) for interest payments.
Interesting the vast majority of the interest payments, more than even 70 percent, goes to the local banks.
All conventional public debt outstanding as of December 31, 2027, will be replaced with Shariah-compliant financing only on its respective maturities. Until then, the government will continue servicing the debt in accordance with the original terms of the contracts.
The 26th Constitutional Amendment, passed in October 2024, mandates the complete elimination of riba (usury and interest) from the country’s financial system by January 1, 2028. It updates Article 38(f) of the Constitution, paving the way for a fully Shariah-compliant economy.
Although the government has committed that it would honour its contractual obligations on the subject, in the wake of the 26th constitutional amendment the issue particularly pertaining to interest payments on local debt may be referred to the judiciary for adjudication for being directly in conflict with the constitution.
Domestically owned banks are bound to transform into Islamic institutions after December 2027, the finance ministry’s post December 2027 strategy protects their pre-2028 riba-related interests.
There is a roadmap for eliminating interest-based financing from future government borrowing, the transition will not affect existing debt obligations, which will continue to be serviced until they mature before being replaced with Shariah-compliant financing.
source: Geo News
