Interest and Riba: The Religious Argument Over Pakistan's Debt
Whether the interest on Pakistan's national debt is riba is contested. Here are the sides.
By the ISN Media desk • June 2026 • Approx. 8-min read
Because Pakistan is a Muslim-majority state that pays a large share of its budget in interest while also promoting Islamic banking, the question of whether that interest is riba is debated by scholars, economists and citizens alike. This explainer sets out the arguments on each side without taking one, so the reader can judge. It accompanies the figures in the 43 percent, how debt interest consumes Pakistan's budget, and the opinion piece by the writer Asad Baig, the riba factory, which argues one side of it forcefully.
Is the interest on Pakistan's national debt riba?
Whether the interest on Pakistan's national debt is riba is a contested religious question, not a settled fact. Some Islamic scholars hold that interest on borrowed money is riba and therefore 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 the same state promotes Islamic banking, which is why the question is raised so sharply.
The arguments fall into a few clear positions, set out below.
The case that it is riba
The first position holds that interest, sood, is prohibited in Islam in clear terms, and that this prohibition does not depend on whether the borrower is an individual or a government. On this reading, the Quranic verses and the prohibition declaring war on those who deal in riba apply to the practice itself, not only to a particular kind of lender. A state that funds itself by paying interest is, on this view, engaged in riba on a national scale, and the contradiction is sharpened when that same 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 contends that an economy paying 43 percent of its budget in interest is at odds with the prohibition. His full argument is in the riba factory. It is also broadly the position taken by the Federal Shariat Court, which has ruled that riba in all its forms is repugnant to Islam and directed the government to move toward an interest-free system.
The case that it is more complicated
A second position does not dispute that riba is forbidden, but argues that the application to a modern sovereign state is more complicated. Several lines of argument appear here.
One distinguishes the exploitative lending of a moneylender squeezing a poor borrower, which the prohibition most directly addresses, from the borrowing of a state in a global financial system built on interest. Another invokes necessity, the principle that genuine necessity can permit what is otherwise prohibited, on the grounds that a state cannot presently function without participating in interest-based finance. A third points out that part of Pakistan's domestic debt is already raised through Islamic instruments, sukuk, structured to be Shariah-compliant, and argues that the transition is under way rather than absent.
How economists, as economists, treat the question
A third group sets the religious question aside entirely. Economists analysing the budget as a fiscal matter focus not on whether interest is permissible but on its cost and its use: how large the interest bill is, whether the borrowing financed productive investment, and whether the economy grows faster than the rate of interest. From this vantage the relevant questions are about debt sustainability, not theology, and the religious debate runs on a separate track.
This does not resolve the religious question; it simply notes that the budget can be, and is, analysed both as an economic document and as a moral one, and that the two analyses reach different kinds of conclusion.
Where the debate stands
The practical position is unsettled. The Federal Shariat Court has ruled against riba and set directions toward an interest-free system, but implementation has been slow and repeatedly contested, and the state continues to borrow on interest while expanding Islamic banking alongside it. The result is that Pakistan operates two systems at once, a conventional interest-based public-finance system and a growing Islamic-finance sector, and the relationship between them remains a live question in courts, in scholarship and in public debate.
For the reader, the honest summary is that sincere, qualified people reach different conclusions. The figures are not in dispute: Pakistan pays about 43 percent of its budget in interest. What that means, in religious terms, is exactly what is contested.
Why the question keeps returning
The debate is not academic, and it does not fade, for three reasons. The first is scale: at about 43 percent of the budget, interest is the single largest claim on public money, so the question of its permissibility is also a question about the largest line in national spending. The second is the apparent contradiction: the same state that pays this interest also actively promotes Islamic banking to its citizens and has built a substantial Islamic-finance sector, which invites the charge of inconsistency. The third is constitutional: Pakistan's own courts, through the Federal Shariat Court, have ruled against riba, so the matter is not only one of private conscience but of unimplemented legal direction.
These three features mean the question resurfaces at every budget, in every election cycle, and in periodic litigation. It is unlikely to be settled by argument alone, because it turns on premises, about what the prohibition covers and what necessity permits, on which sincere scholars differ.
What an interest-free transition would involve
Those who argue the interest is impermissible generally accept that ending it cannot happen overnight, because the entire public-finance system is currently built on interest-bearing debt. A transition would involve expanding Shariah-compliant instruments such as sukuk to cover a far larger share of borrowing, restructuring existing debt, and building the institutional capacity to manage public finances without conventional interest. Supporters of the gradualist view point to the growth of Islamic banking and the existing use of sukuk as the early stages of exactly such a transition; critics argue the pace is far too slow relative to the scale of interest-based borrowing. The gap between the stated goal and the present reality is what keeps the debate alive.
Frequently asked questions
Is the interest on Pakistan's national debt riba? It is a contested religious question, not a settled fact. Some scholars hold that interest on borrowed money 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 said? It has ruled that riba in all its forms is repugnant to Islam and has directed the government to move toward an interest-free financial system. Implementation has been slow and contested.
Does Pakistan use any Islamic financing for its debt? Yes. Part of the domestic debt is raised through Islamic instruments known as sukuk, structured to be Shariah-compliant. Supporters of the gradualist view cite this as evidence of a transition under way.
Why do some scholars say state borrowing is different? They distinguish the exploitative lending the prohibition most directly addresses from a state borrowing within a global interest-based system, and some invoke the principle that genuine necessity can permit what is otherwise prohibited.
How do economists treat the question? Many set the religious question aside and analyse the interest bill as a fiscal matter, focusing on its size, its use, and whether the economy grows faster than the rate of interest. This runs on a separate track from the religious debate.
What does Asad Baig argue? He argues the interest is riba and calls the arrangement a "riba factory," contending that a state paying 43 percent of its budget in interest while promoting Islamic banking is in contradiction. His opinion is set out in the riba factory.
Has Pakistan tried to move to an interest-free system? The Federal Shariat Court has directed the government toward an interest-free system, and the use of Islamic instruments such as sukuk has grown. But the transition has been slow and contested, and the state continues to borrow heavily on conventional interest, which is the gap that keeps the debate alive.
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 has issued rulings against riba and directions toward an interest-free system; these are matters of public record.
- This article reports the competing religious and economic positions without endorsing any. The opinion that the interest is riba is attributed to Asad Baig and to scholars who hold that view; the contrary positions are also represented.
ISN MEDIA