Govt reluctant to swiftly move towards interest-free system

It will be an obstacle to govt’s plan to float bonds in international market

ISLAMABAD: The government is reluctant to back a bill that calls for doing away with the interest-based economic system, as it will have implications for the public debt of over Rs19 trillion and create obstacles in the way of floating bonds in the global market.

The Ministry of Finance on Thursday tried to stop proceedings of the National Assembly Standing Committee on Finance and Revenue on the “Eradication of Riba Bill” of 2015.



Secretary Finance Dr Waqar Masood told the panel that the matter was sub judice in the Supreme Court and the Federal Shariat Court (FSC) and parliament could not enter into the legislation process.

However, the committee members argued that parliament was supreme and had the constitutional authority to discuss any matter.

The move to end the interest-based system started 25 years ago in an effort to apply the country’s Constitution in its true spirit that guarantees elimination of interest from the economy.

The Eradication of Riba Bill, moved by Sher Akbar Khan, National Assembly member of Jamaat-e-Islami, suggests amendments to 28 laws by omitting the word “interest” wherever it appears in the meaning of Riba and reorganisation and substitution of paragraphs.

However, the Ministry of Finance is of the view that by just repealing a law and eliminating the word interest in different laws will not result in the eradication of Riba.



In its written response to the parliamentary committee, the ministry insisted that the elimination of interest required a re-orientation of economic policies, adjustment in laws and introduction of new laws wherever needed.

The secretary finance suggested that the committee should not legislate on the matter, as steps taken by the ministry were sufficient to move towards a Shariah-based economy. A steering committee was also looking into the matter, he said.

However, NA Committee Chairman MNA Qaiser Sheikh said the government had not shared findings of the steering committee with the parliamentary panel.

The mover of the bill termed the secretary’s argument a “delaying tactic” aimed at blocking the journey towards an interest-free economy. He described the finance ministry’s position as unIslamic and unconstitutional.

Consequences

If parliament approves a law to block the interest-based system, it may create serious problems for the finance ministry that has a debt of over Rs19 trillion and is paying around Rs1.35 trillion in interest annually.



Such a move will also jeopardise its plans to float international bonds for borrowing money. The PML-N government has so far borrowed $3.5 billion by issuing bonds in the international market.

A 2014 draft report, prepared by international bankers hired by the Ministry of Finance before issuing Eurobonds, had warned prospective bidders that a petition was pending in the Supreme Court of Pakistan, seeking an order to stop the federal government from making interest payments on loans.

History

The secretary finance said the matter of elimination of interest was also pending before the FSC.

In 1992, the FSC had declared Riba repugnant to the injunctions of Islam. In 1999, while hearing an appeal, the Supreme Court’s Shariat Appellate Bench upheld the FSC’s decision and gave the then government two years to amend all banking laws and other statutes to prohibit Riba.

In 2002, the case was referred to the FSC by the Supreme Court to reconsider its ruling after the government and some banks instituted a review petition. So far, the FSC has held four hearings in the case.

In October last year, Salman Akram Raja, counsel for the State Bank of Pakistan, contended before the Shariat Court that the Constitution specifically mentioned the elimination of interest, but did not define ‘interest or Riba’.

He explained that the economy thrived on instruments including taxes and loans and that the country, in its economic interest, should stay in touch with the global financial system.

Published in The Express Tribune, August 12^th, 2016.

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