Navigating Pakistan's debt quagmire through Islamic finance
Yet, within this crucible of challenge lies an opportunity for Pakistan to forge a new path forward, one that is guided by visionary leadership, innovative economic strategies, and a steadfast commitment to the well-being of its people.
Pakistan's economic landscape is characterized by a substantial debt portfolio; with the country's total public debt obligations reaching a staggering USD 271.29 (PKR 76.01 trillion), as per the Economic Survey of Pakistan 2024-25. This monumental figure comprises USD 183.88 (PKR 51.52 trillion) in domestic debt, underscoring the government's significant reliance on internal borrowing, and USD 79.13 (PKR 24.49 trillion) in external debt (32.2% of the total), highlighting the country's exposure to global financial markets. However, the debt from IMF stands at USD 8.28 (PKR 2.319 trillion).
The aggregate debt and liabilities have skyrocketed to a staggering USD 320.65 billion (PKR 89.834 trillion), underscoring the imperative for prudent fiscal management and strategic debt restructuring.
Beyond the government's narrative of economic resurgence, anchored by a projected GDP growth rate of 2.7% in the forthcoming fiscal year, lies a far more pressing concern for the average citizen struggling to make ends meet.
The quintessential question on everyone's mind is: how can Pakistan escape the grip of high inflation, unemployment (8.0), and an ever-increasing debt burden, which threatens to undermine the very fabric of the nation's economic stability and prosperity?
The answer to this million-dollar question holds the key to unlocking a brighter future for 44.7 % of Pakistan's population (approx.107 millions) living below the poverty line, and it is imperative that policymakers and stakeholders work in tandem to devise effective solutions to alleviate these pressing economic challenges.
The adoption of cash and asset-based Waqf, a time-tested Islamic financial instrument, presents a viable solution to Pakistan's economic conundrums. Waqf, as a socio-financial approach in Islam, refers to the dedication of property or wealth for religious or charitable purpose. With its roots in the prophetic era, Waqf has evolved over centuries, demonstrating remarkable resilience and efficacy.
During the Caliphate period, Umayyad and Mamluk eras, and notably, the Ottoman Empire, Waqf played a pivotal role in fostering economic growth, social welfare, and infrastructure development. By leveraging Waqf's potential, Pakistan can unlock new avenues for sustainable development, poverty alleviation, and economic stability, thereby harnessing the power of Islamic finance to drive inclusive growth and prosperity.
Waqf stands as a shining cornerstone of Islamic finance, with its landscape in numerous countries. From the oil-rich nations of Qatar and Saudi Arabia to the vibrant economies of Malaysia and Indonesia, Waqf has been successfully integrated into diverse financial ecosystems.
Singapore, Turkey, and the United Arab Emirates have also harnessed its potential, showcasing Waqf's versatility and impact. As a testament to its enduring value, Waqf continues to inspire innovative financial solutions, fostering economic growth, social welfare, and sustainable development worldwide.
By combining the redistributive power of cash and asset-based financing of Waqf with Zakat, visionary nations have synergized the potent forces. By harmonizing these two pillars of Islamic finance, countries have created a powerful framework for poverty alleviation, economic empowerment, and sustainable development. This strategic fusion has yielded remarkable outcomes, demonstrating the immense potential of integrated Zakat and Waqf models.
In a compelling critique of conventional financial frameworks, the book 'Beyond the IMF (2024)' masterfully articulated the limitations of traditional financial paradigms, paving the way for a revolutionary concept: the Muslim Common Waqf. This visionary idea, coupled with Pakistan's pioneering National Waqf Common Pool, offers a beacon of hope for Muslim countries seeking greater financial autonomy and self-sufficiency.
By harnessing the collective potential of Waqf, nations can break free from the shackles of sovereign and domestic financial dependency; unlock new avenues for economic growth and prosperous future.
As Pakistan's debt trajectory hurtles towards a precarious PKR 87 trillion by FY 2026, the imperative for innovative debt management strategies has never been more pressing. To avert this financial precipice, it is crucial to devise visionary plans that can effectively mitigate the debt burden, unlock new revenue streams, and catalyze sustainable economic growth.
As the Government of Pakistan contemplates the privatization of 24 State-Owned Enterprises (SOEs), a critical question arises: can the nation's economic sovereignty be compromised for the sake of fiscal expediency? Allowing foreign entities and potentially hostile interests to assume control of strategic assets would be a perilous gamble, undermining the country's economic autonomy. The resounding answer is a thunderous 'NO!' to the wholesale privatization of vital SOEs.
The establishment of the Special Investment Facilitation Council (SIFC) marks a significant milestone in Pakistan's economic reform agenda. By providing a platform for streamlined facilitation and coordination, SIFC aims to foster a conducive investment environment, attracting both B2B and G2G investments. This initiative is expected to yield substantial benefits, including enhanced economic activity, job creation, and accelerated growth, ultimately contributing to the nation's long-term economic prosperity.
We harbor boundless optimism and soaring aspirations for the SIFC, envisioning it as a transformative catalyst that will unlock Pakistan's vast economic potential.
In tandem with its economic reform initiatives, Pakistan can shatter the shackles of crippling domestic debt, amounting to PKR 51.52 trillion, a staggering 67.8% of the total debt burden by unlocking the potential of Waqf. By harnessing the transformative power of the Waqf Fund (WF), the nation can envision a debt-free future, liberated from the weight of internal borrowing. Well beyond a financial mechanism, strategic mobilization of Waqf assets is a farsighted way to fiscal sustainability, inclusive growth, and intergenerational equity.
Leveraging this Islamic economic instrument could not only alleviate the short-term budget pressure but also restore public confidence, advance socio-economic justice, and propel long-term national strength.
With proper policy commitment and institutional setup, Waqf is poised to emerge as a game-changer and revolutionary pillar of Pakistan's economic rejuvenation which turns tradition into transformation, and religion into a bedrock of sustainable prosperity.
(The writer is PhD (Management) from PBS-UPM, Malaysia. Policy Researcher / Policy Analyst and a writer of Political Economy of Bureaucracy in Pakistan-2020)Email:[email protected]
Copyright Business Recorder, 2025
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