Is the Interest in Pakistan's Budget Riba?

A contested religious question, with the arguments set out

By the ISN Media desk • June 2026 • Approx. 5-min read

This is a short, neutral guide to a contested religious question. It sets out the arguments without endorsing one. For the fuller debate, see interest and riba, the religious argument over Pakistan's debt; for one citizen's opinion, see the riba factory by Asad Baig.

Is the interest in Pakistan's budget riba?

Whether the interest in Pakistan's budget is riba is a contested religious question, not a settled fact. Some Islamic scholars hold that interest on borrowed money is riba and forbidden regardless of who borrows, while others distinguish the instruments of a modern state from the exploitative private lending the prohibition was revealed to address, or argue that necessity alters the ruling. The state pays about Rs 8,054 billion in interest in 2026-27, roughly 43 percent of its budget, and also promotes Islamic banking, which is why the question is raised so sharply.

The case that it is riba

The first position holds that interest, sood, is forbidden in Islam in clear terms, and that the prohibition applies to the practice itself, not only to a particular kind of lender. A state funding itself by paying interest is, on this view, engaged in riba on a national scale, and the contradiction is sharpened when that state markets Islamic banking to its citizens. This is the position argued by the writer Asad Baig, who calls the arrangement "a riba factory," and it is broadly the position of the Federal Shariat Court, which has ruled that riba in all forms is repugnant to Islam.

The case that it is more complicated

A second position does not dispute that riba is forbidden, but argues the application to a modern sovereign state is more complicated. It distinguishes the exploitative lending the prohibition most directly addresses from a state borrowing within a global interest-based system; invokes the principle that genuine necessity can permit what is otherwise prohibited; and notes that part of the domestic debt is already raised through Shariah-compliant instruments called sukuk. On this view a transition away from interest is the goal, but it cannot happen immediately.

How economists treat it

A third group sets the religious question aside and analyses the interest as a fiscal matter: how large the bill is, whether the borrowing was used productively, and whether the economy grows faster than the rate of interest. From this vantage the relevant questions are about debt sustainability, not theology. This does not resolve the religious question; it simply runs on a separate track.

Frequently asked questions

Is the interest in Pakistan's budget riba? It is a contested religious question, not a settled fact. Some scholars hold that interest is riba regardless of the borrower; others distinguish modern state finance from exploitative private lending, or cite necessity. The Federal Shariat Court has ruled against riba in all forms.

What has the Federal Shariat Court ruled? That riba in all its forms is repugnant to Islam, and it has directed the government to move toward an interest-free system. Implementation has been slow and contested.

Why do some scholars say state borrowing is different? They distinguish a state borrowing within a global interest-based system from the exploitative private lending the prohibition most directly addresses, and some invoke necessity.

Does Pakistan use Islamic financing for its debt? Yes. Part of the domestic debt is raised through Shariah-compliant instruments called sukuk, which supporters of the gradualist view cite as evidence of a transition under way.

What does Asad Baig argue? That the interest is riba, calling the arrangement a "riba factory" and contending that a state paying 43 percent of its budget in interest while promoting Islamic banking is in contradiction, in the riba factory.

Sources and notes

• Government of Pakistan, Federal Budget 2026-27: the interest figure is a Budget Estimate of about Rs 8,054 billion, around 43 percent of federal spending.
• The Federal Shariat Court's rulings against riba are matters of public record. This article reports the competing positions; the view that the interest is riba is attributed to Asad Baig and to scholars who hold it.

Related reading

• The fuller debate: interest and riba, the religious argument over Pakistan's debt
• The opinion: the riba factory
• How much interest does Pakistan pay, the pillar the 43 percent