Pakistan will continue paying trillions of rupees in interest on existing debt even after January 1, 2028, despite a constitutional requirement to eliminate interest from the country’s financial system by that date.

Under the government’s strategy for transitioning to an interest-free financial system, only new borrowing after December 31, 2027 will gradually shift to Shariah-compliant financing. Existing conventional loans will remain in place under their original terms until maturity.

The plan follows the 26th Constitutional Amendment, passed in October 2024, which amended Article 38(f) of the Constitution and requires Pakistan to eliminate interest from its financial system by January 1, 2028.

A report in a national daily said the federal government remains bound by existing debt agreements, particularly external loans, which cannot be changed unilaterally. Domestic banks, even after converting to Islamic banking, will continue receiving interest on government loans issued before the 2028 deadline until those loans mature.

The federal budget for FY2026-27 allocates more than Rs8 trillion for interest payments, with more than 70 percent of that amount going to domestic banks.

Under the government’s roadmap, all conventional public debt outstanding on December 31, 2027, will be replaced with Shariah-compliant financing only as each loan reaches maturity. Until then, interest payments will continue according to the original contracts.

Officials also acknowledged that the policy could face legal scrutiny after the constitutional deadline, particularly over interest payments on domestic debt. Courts may ultimately be asked to decide whether continuing to honor existing interest-bearing contracts conflicts with the amended Constitution.

The Finance Ministry’s strategy also requires domestic banks to complete their transition to Islamic banking after December 2027 while protecting the contractual rights and returns linked to loans issued before the constitutional deadline.