The share of sukuk in Pakistan’s government debt portfolio has risen to 14% during the first half of FY26, reflecting a growing shift toward Sharia-compliant financing. The government aims to increase this share further to 20% by FY28 as part of its strategy to reduce borrowing costs and diversify funding sources.
According to the latest data from the Debt Management Office, total public debt increased by 1.1% to Rs81.4 trillion during the period. Of this, 68% comprised domestic debt, while 32% was external debt, indicating a continued reliance on local borrowing.
Domestic debt rose by 1.6% to Rs55.3 trillion between July and December FY26, compared to a 5.8% increase during the same period last year. While Pakistan Investment Bonds and Market Treasury Bills remained the primary instruments for domestic borrowing, Government Ijarah Sukuk recorded the highest growth, expanding by 13%.
Meanwhile, the stock of Pakistan Investment Bonds and Treasury Bills declined slightly due to controlled borrowing and increased reliance on Islamic financing instruments. To further support this shift, the government has introduced a new 10-year zero-coupon sukuk aimed at attracting institutional investors.
Experts say Islamic instruments are helping to lower borrowing costs, with some sukuk structures priced below average domestic rates. This has contributed to reducing interest expenses and improving overall debt management efficiency.
They also noted that sukuk issuances, particularly in five- and ten-year tenors, are helping extend the maturity profile of public debt and reduce refinancing risks. Increased reliance on domestic sukuk has also helped limit external exposure, with external debt accounting for 32% of the total.
Meezan Bank has played a key role as a lead adviser in structuring government sukuk issuances. Analysts believe the growing use of Islamic financing aligns with the government’s broader objective of expanding Sharia-compliant instruments across the financial system.