Abstract:
This research project explores options the conversion of Pakistan’s external debt into
Shariah-compliant mode. With Pakistan facing significant external debt obligations, this study
investigates the potential benefits and challenges ofconverting such debt into Sharia-compliant
instruments in line with Islamic principles. Through an exploratory research approach,
interviews with Shariah-based specialists were conducted through which, various options were
examined. By understanding the key features ofShariah-compliant products, policymakers and
stakeholders can assess the potential for reshaping the external debt structure of Pakistan by
Islamic financial norms. The study analyzes different modes of Islamic finance, including
Sukuk (Islamic bonds), syndicate financing, and diminishing Musharakah (partnership), among
others, to evaluate their applicability to Pakistan’s external debt conversion. Furthermore, the
research identifies the challenges and potential risks associated with the conversion process,
such as political instability and mismanagement and most importantly the lack ofrisk appetite
ofIslamic banks. Findings suggest that it. can be done but it may take several years, and it is
offthe map for policymakers to navigate; the complexities associated with this process while
highlighting the potential advantages of embracing Islamic financial principles in
the country’s debt obligations.
