Islamabad (Lord Media): Despite a constitutional mandate to eliminate interest by January 1, 2028, the government will continue to pay billions in interest obligations. Currently, half of the federal budget is allocated to interest payments.
According to official sources, new loans will be sourced from Sharia-compliant financial channels after December 2027. However, conventional loans taken before this date will be serviced according to their interest agreements.
Sources indicate that the government has no control over external debts, while local banks will continue to charge interest on existing loans despite a shift to Islamic banking. The government has allocated over 8 trillion rupees for interest payments in the 2026-27 budget.
Interestingly, 70% of total interest payments are directed to local banks. The official strategy aims to convert all existing conventional loans to Sharia-compliant financial sources by December 31, 2027.
Under the 26th Constitutional Amendment passed in October 2024, Article 38(f) of the Constitution was amended to mandate the complete elimination of interest from the financial system by January 1, 2028.
The government maintains it will adhere to contractual commitments, but sources suggest the issue of interest payments may be brought before courts for judicial interpretation following the constitutional amendment.
According to the official strategy, local banks must transition to Islamic banking by December 2027, but the Ministry of Finance’s policy protects their interest dealings before 2028.
