Evaluating the Proposals to Eliminate Interest from Government Transactions: Pakistan

Some of the major inferences which can be drawn from our analysis are as follows:

  • The main cause of increase in interest-based government transactions is the budget deficit. Our taxation system and other sources of revenue are not sufficient to meet our current and development needs. 
  • One of the major factors which has contributed to the enhancement of our budget deficit is the interest payment by the government on domestic and foreign loans. Therefore, if somehow these payments are eliminated our budgetary position can dramatically improve and the process of borrowing can be reversed.
  • The government on the one hand pays interest on funds which it borrows and on the other receives interest from those to whom it lends (the borrowed) funds. Similarly, it gives grants to provinces from whom it also receives interest.
  • It is not clear from the sources of government borrowing how exactly those resources are used in a given period. Apparently most of the funds are made part of the general consolidating fund in the budget and allocated to development and non-development needs from that account. In this way no account of the return generated by a particular fund upon its use is available.
  • The government generates huge amount of funds by selling treasury bills of different types to the State Bank and pays interest on the same. Being the major shareholder in the assets of the State Bank it also gets profit from the earning of this institution.

Keeping the above points in view, we may now examine the proposals which are made to finance government transactions on interest-free basis.

Dr Faiz Muhammad


Source: Elimination of Riba, Khurshid Ahmad, Khalid Rahman and Zahed A. Valie. Republished with permission. 

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