Sukuk share rises to 14% of govt debt portfolio in FY26

The share of sukuk in Pakistan’s government debt portfolio increased to 14% in the first half of FY26, reflecting a shift towards Sharia-compliant financing, according to the latest debt bulletin.

Data from the Debt Management Office showed total public debt rose 1.1% to Rs81.4 trillion during the period, with 68% comprising domestic debt and 32% external debt.

Domestic debt increased 1.6% to Rs55.3 trillion in July–December FY26, compared to a 5.8% rise in the same period last year. The bulk of domestic borrowing remained in Pakistan Investment Bonds and Market Treasury Bills, while Government Ijarah Sukuk recorded the highest growth at 13%.

The stock of Pakistan Investment Bonds and Treasury Bills declined slightly due to controlled borrowing and increased issuance of Islamic instruments.

The government said it plans to raise the share of Islamic financing to 20% of its securities portfolio by FY28. As part of this effort, a new 10-year zero-coupon sukuk has been introduced to attract institutional investors.

Experts said Islamic instruments are contributing to lower borrowing costs, with some structures priced below average domestic borrowing rates, supporting a reduction in interest expenses.

They added that sukuk issuances, particularly in 5- and 10-year tenors, are helping extend the maturity profile of public debt and reduce refinancing risks. Increased reliance on domestic sukuk has also contributed to limiting external exposure, with external debt accounting for 32% of total debt.

Meezan Bank has been involved as a lead adviser in structuring government sukuk issuances.

Analysts said the growing use of Islamic financing aligns with the government’s broader objective of expanding Sharia-compliant instruments in the financial system.