Hybrid and short-dated structures widen the market, but the finance minister concedes foreign buyers are still staying away.
ISLAMABAD/LAHORE: Pakistan’s government Islamic bonds have crossed Rs10 trillion in both outstanding stock and cumulative issuance, a milestone reached on the back of a record year for issuance.
The government issued Rs4.179 trillion of sukuk between January and Oct. 31, more than twice the previous annual record of Rs2.052 trillion set in 2025, according to figures released at a ceremony hosted by Meezan Bank in Islamabad on Thursday.
Finance Minister Muhammad Aurangzeb put full-year issuance at about Rs4.4 trillion, a 113% rise, and said the market had compounded at roughly 22% a year.
The constraint that was removed
For most of the 18 years since the first government sukuk in 2008, issuance has relied on the Ijarah structure, which must be backed by physical state assets such as roads, airports and buildings. That tied the market’s size to the stock of unencumbered property the government could pledge.
The answer was a hybrid. Pakistan’s first government hybrid sukuk, sold on April 16, paired an Ijarah sale-and-leaseback with Commodity Murabaha, allocating 55% and 45% of proceeds respectively, so the same asset base could support far larger volumes. The one-year paper cleared at 11.80% in that debut auction.
Tradable three- and six-month sukuk followed, filling a long-standing gap at the short end of the Islamic yield curve and giving banks a benchmark to price other Shariah-compliant products.
Dr Muhammad Imran Ashraf Usmani, a member of Meezan Bank’s Shariah board, said the short-term paper would become a viable alternative to conventional treasury bills.
Foreign money still missing
Aurangzeb was candid about the gap. He described foreign investment in sukuk as underwhelming, even as overseas buyers have returned to conventional treasury bills and Pakistan Investment Bonds, and called for active marketing of the instruments to international investors.
The domestic base is deep. Meezan Bank, Dubai Islamic Bank Pakistan, BankIslami and Bank Alfalah act as joint financial advisers on the programme, and Islamic banks are flush with funds: Meezan has reported a Rs632 billion jump in deposits, money that needs Shariah-compliant places to go.
Sovereign Sukuk Milestone
The expansion serves a constitutional target. Pakistan has committed to eliminating riba, or interest, from the economy by January 2028, and scholars have warned the deadline is approaching fast. Converting government borrowing is the largest single piece of that task.
Governor of the State Bank of Pakistan Jameel Ahmad and Khurram Schehzad, adviser to the finance minister, attended the event, and Justice (retd) Mufti Muhammad Taqi Usmani, chairman of Meezan Bank’s Shariah board, delivered the keynote. Meezan president and chief executive Dr Syed Amir Ali credited the finance ministry and the central bank with building the market.
The next test is depth rather than size: whether secondary trading in the new short-dated paper becomes active enough to set reliable prices, and whether Islamabad can turn its domestic success into demand from overseas investors.
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