CONVERSION OF PAKISTAN'S EXTERNAL DEBT INTO SHARIAH COMPLIANT MODE: AN OPPORTUNITY TO EXPLORE

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.