Sukuk issue: Karachi airport offered as security

Published: February 12, 2013
Earlier, the government had offered the motorway land with all constructions and improvements on M-2 (Islamabad-Lahore) as a guarantee against Sukuk to generate funds for budget financing. PHOTO: PPI/ FILE

Earlier, the government had offered the motorway land with all constructions and improvements on M-2 (Islamabad-Lahore) as a guarantee against Sukuk to generate funds for budget financing. PHOTO: PPI/ FILE


As the budget deficit soared to a record high at Rs1.77 trillion in the last fiscal year, the government raised Rs182 billion through an Islamic bond, called Sukuk, against the security of Jinnah International Airport Karachi – another asset mortgaged after Pakistan Motorways (M2).

However, analysts question the use of Islamic bonds for budget financing and linking the return with treasury bills, saying it is forbidden and against Shariah laws.

The government borrowed the money during fiscal year 2011-12 ended June 30 last year, according to documents of the finance ministry.

Sukuk is a bond structured on Islamic principles as an alternative to traditional bonds. It gives creditors partial ownership in the debt asset until the borrower pays back all the obligations.

Sukuk operations were launched through the Pakistan Domestic Sukuk Company Limited incorporated in 2007.

Earlier, the government had offered the motorway land with all constructions and improvements on M-2 (Islamabad-Lahore) as a guarantee against Sukuk to generate funds for budget financing. In the last fiscal year, it borrowed a total Rs412 billion through Sukuk, enabling it to meet 23.2% of financing needs.

Compared to the original target of Rs826 billion or 4% of gross domestic product, the budget deficit in 2011-12 stood at Rs1.77 trillion or 8.6% of GDP – the highest in the country’s history. The government’s failure to implement much-needed fiscal and energy reforms led to this situation, according to the analysts.

According to the documents, “the (borrowed) amount was utilised to finance the budget deficit… and a major portion of the amount was raised on a par with the treasury bill rate for three years.”

There are differences of opinion over the use of money raised through Sukuk and linking the return with the treasury bills.

“Linking Sukuk with the fixed rate of return on any loan and security paper becomes Riba, which is forbidden under Islamic laws,” said Ahmad Mukhtar Naqshbandi, an expert in Islamic economics.

In the Sukuk model, he said, the money borrowed against the asset has to be used for the purpose described and profit on investment has also to be paid out of the return on the mortgaged asset.

Finance ministry spokesman Rana Assad Amin told The Express Tribune there was no restriction on the use of money raised through Sukuk and the government was using the Karachi airport’s income to pay profit on the investment in Sukuk.

According to another official of the ministry, the Shariah Board, which has approved the mechanism for floating Sukuk, has not objected to the nature of using the borrowed money.

According to the documents, the share of permanent debt in total domestic debt rose from 18.7% in 2010-11 to 22.2% at end-June 2012, mainly contributed by the Ijara Sukuk bond and Pakistan Investment Bonds.

The finance ministry said the government mopped up Rs159 billion through successful auctions of Ijara Sukuk and Rs356 billion through Pakistan Investment Bonds during 2011-12.

However, according to the Debt Policy Statement of 2012-13, in the last fiscal year, the government added roughly Rs2 trillion to the overall debt burden.

The economic slowdown also compelled the government to seek rollover of a significant chunk of foreign loans. Last year, roughly $1.2 billion in matured loans were rolled over. Furthermore, it got $500 million from friendly countries, which have been parked in the State Bank to shore up foreign currency reserves.

Last year, the government also obtained $256 million from International Islamic Trade Corporation under Murabaha Finance. This amount is expected to be utilised in the current fiscal year for import of crude oil and petroleum projects of Pak Arab Refinery Company (Parco).

Published in The Express Tribune, February 12th, 2013.

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Reader Comments (46)

  • Billoo Bhaya
    Feb 12, 2013 - 1:54AM

    The British bought Khedive Ismail’s shares in the Suez Canal Company for GBP.4Million in 1875, as the Khedive was about to default on his loans extended by European bankers. That put an end to Egyptian Independence. Pakistan is heading the same way, a Sukuk or no Sukuk. If you default, which Pakistan will do, bankers will take over the asset as they already have an ownership interest in it. Pakistan will Khappa after that.


  • Blithe
    Feb 12, 2013 - 2:47AM

    The budget deficit is 1.77 trillion!?!?!

    This PPP government has made sure to exact revenge on Pakistan


  • careful reader
    Feb 12, 2013 - 2:49AM

    The country has been ruined by wreckless borrowing. The borrowed money has ended up looted in the hands of the 40-50 ruling families who have held a strangle-hold over the country since 1947. This debt is an unbelievable catastrophe. Once again Pakistan has reached the debt calamity and strong risk of being a failed state, just like in 1999 when Nawaz Sharif’s government misruled and ruined the country. For 8 years Musharaf strengthened the country and then over the last 5 years Zardari, Nawaz and the aristocrats/loot-o-crats have ruined the country. So much in new debt and not a single asset to show for it!


  • Karachiwala
    Feb 12, 2013 - 3:30AM

    Good bye Pak watan. I feel sorry for the creditors in the end they get nothing. Start of an end hopefully a peaceful one !!


  • Roni
    Feb 12, 2013 - 3:53AM

    The only valuable asset in Pakistan is army and DHA. They should mortgage those.


  • kala_bacha
    Feb 12, 2013 - 4:02AM

    These thugs do not care where the money come from. This is the curse, and you people of Pakistan keep selecting and then give them Galia. Alhamdulilah I am not longer part of this electoral system.


  • Ahsan Shahzad
    Feb 12, 2013 - 4:08AM

    @Billoo Bhaya As if you are brother in law of Khedive Ismail :D
    Never heard such news!


  • Annonymous Canon
    Feb 12, 2013 - 4:18AM

    Wapda, Railways, PIA, PSO and now CAA! All our premiere, income generating departments are toppling like Dominoes. Bus kardo Mr. Khappay and co. There is nothing more left to loot.


  • numbersnumbers
    Feb 12, 2013 - 4:23AM

    What a hard choice the government has made (had to make) because of the spiraling Pakistani debt crisis!

    Choice number 1. Leverage Pakistani public assets to get loans for meeting the budget!

    Choice number 2. Actually impose taxes on the rich and influential Pakistani ELITES who now pay NO TAXES AT ALL because of the exemptions they carve out for themselves and their rich influential friends in agriculture, business, and the government!

    AND THE CHOICE IS ?????? What a surprise!!!


  • Khan
    Feb 12, 2013 - 4:25AM

    How can the govt pledge strategic national assets like this? Seems they are not interested in being re-elected and have had their ‘lions share’ quite literally. God help us


  • Nasir Abbas
    Feb 12, 2013 - 4:45AM

    Zardari cult have an option and I second the move. Mortgage Pakistan with its people to the highest bidder. This will eliminate expenses made on President, PM , Ministers and Parliamentarians.The contractor will his own men to run this country as a parchhoon shop. Ha Ha not medical or Joly trips abroad and medical check ups. I think Talibans may be one of the bidders if EU countries take no interest


  • Pakistani
    Feb 12, 2013 - 6:01AM

    @ Billoo.

    Suez Canal Company controlled the Suez Canal. The Suez Canal allows transportation by water between Europe and Asia without navigation around Africa.

    Karachi Airport is nowhere near as significant as the suez canal. The world doesnt care.


  • Ahmad
    Feb 12, 2013 - 6:41AM

    May God save Pakistan from the hands of looters and so-called “leaders”…


  • Billoo Bhaya
    Feb 12, 2013 - 6:48AM

    @Ahsan Shahzad:
    Its called education. Something you obviously did not get.


  • naeem khan Manhattan,Ks
    Feb 12, 2013 - 6:56AM

    How could the government mortgage people’s assets with out going through the NA, is it constitutional, some one should look into it.When would the nation of Pakistan ever wake up and see what this so called democratically elected government is doing to the country and to them. Majority of the NA and PAs members don’t pay any income taxes but they surely getting all the perks and privileges and looting the treasury one way or the other. Go ahead elect them again and see what happens to you people in the next 5 years.


  • Khalil Sultan
    Feb 12, 2013 - 8:23AM

    @ Ahsan Shahzad:
    Khedive Ismail’s not a news, it is history and history is bound to repeat itself if we don’t learn from it! Just check Isma’il Pasha of Egypt (a vassal of Ottoman Empire), and you will know what you have missed.


  • Zaida P
    Feb 12, 2013 - 8:38AM

    Has anybody wondered why China – Pakistan’s All-Weather Friend is not offering to help Pakistan out of its financial crunch??
    It is obvious that when it comes to friendship, China will only go so far. They prefer trade to sloganeering.


  • H. Khan
    Feb 12, 2013 - 8:46AM

    Blame the UK government and Swiss government who has allowed assets of Pakistani polititians in their country with inquiring about the legit source of income. But this is the way the world moves and goes round and round.We have borrowed to death as they say


  • MHK
    Feb 12, 2013 - 10:05AM

    Never ever the government will bother to reduce the non development expenses


  • uet
    Feb 12, 2013 - 10:42AM

    Punjab Govt added an asset yesterday and federal Govt is selling other one. What a contradiction!


  • mute_
    Feb 12, 2013 - 11:06AM

    “analysts question the use of Islamic bonds for budget financing and linking the return with treasury bills, saying it is forbidden and against Shariah laws”

    The pricing of every Sharia-Compliant instrument in Pakistan is linked to either T-Bill or KIBOR. Why questioning only Sukuks then??


  • Analyzer
    Feb 12, 2013 - 11:15AM

    @Zaida P: Have u wondered why China would offer any financial aid to Zardari & co? Everyone knows they are not to be trusted. As long as they are in power no one will offer any help, which is the wise thing to do actually.

    @H. Khan: Well said, but you can’t blame the foreign governments for accepting our politicians ill-gotten wealth. I have often wondered why SC has been selectively active in prosecuting Zardari’s US$ 30 million in Swiss accounts, totally ignoring the massive wealth he and all leading politicians have accumulated in Swiss and UK banks?
    These days our ministers are receiving their kickbacks during their frequent visits to UK, and i’m sure the vigilant SC would have some idea of it, but it still does nothing to bring back our looted money.


  • Manju
    Feb 12, 2013 - 11:24AM

    Jinnah International Airport Karachi – another asset mortgaged after Pakistan Motorways (M2).
    Rest in peace!!


  • Ali
    Feb 12, 2013 - 11:36AM

    Its a big amount to pay off but instead of charging assets..why dont we start by selling huge government mentions ( PM houses, CM houses, Governer houses, Army houses etc) to private companies like hotels and make some money to payoff loans. In the past we have converted some of these to schools but I think thats a waste of opportunities ( Punjab CM house was converted or they planned to convert it). We could have made 100 schools in smaller towns with that money..


  • Motasim Ahmed
    Feb 12, 2013 - 11:40AM

    Democracy is the best revenge …. half pakistan sold out and we expecting half very soon. jiyey bhutto


  • Watan(Indian)
    Feb 12, 2013 - 11:46AM

    Countries on Auction

    Dear guests,Pakistan on sale for 1.77 trillion base price any one interested to buy can quote.

    America’s quote – 1.77 trillion

    1.77 1 time
    1.77 2 time
    1.77 3 time
    Pakistan has been sold to America for 1.77 trillion
    Dear guest thank you for participating in the auction.
    Congrats America you have won Pakistan have a nice day :).


  • Ali Wahab
    Feb 12, 2013 - 11:47AM

    It is absolutely wrong angling of news by Mr. Shahbaz Rana. Even though the Jinnah airport must be part of secured assets against which the sukuk has been raised, the obligation remains of the borrower which is the government of. Pakistan.
    In Islamic finance, real estate or any fixed asset is used to create liquidity otherwise there is no Islamic finance. Which bank will take over the airport or for that matter the motorway?
    It is appalling to read comments of people on the matter without understanding the context!


  • gp65
    Feb 12, 2013 - 11:47AM

    Karachi airport, gwadar port, m2 motorway…one after another Pakistan is letting key transport infrastructure slip out of its ownership even as other elements of transport infrastructure I.e. PR and PIA rapidly head to oblivion.

    Yet the politicians and media are more concerned in talking about an Indian terrorist who was executed in India after due process of law. How about loving Pakistan instead of hating India?


  • Jack(Indian)
    Feb 12, 2013 - 11:51AM

    Is Pakistan a failing state or a failed state?
    Yes or No


  • indian
    Feb 12, 2013 - 11:53AM



  • Yusuf
    Feb 12, 2013 - 11:56AM

    How about mortgaging Kalapul Bridge in Karachi, at least we will get few rupee crossing bridge each time. Bureaucrat can start to think along these line. The Pakistan Government can get to impose Sales Tax on collection, Witholding Tax, Income Tax, its all new creative economy. We know who will be Exempted.


  • Peak(Indian)
    Feb 12, 2013 - 11:57AM

    Why is Pakistan economy tanking?


  • indian
    Feb 12, 2013 - 11:59AM



  • Sun(Indian)
    Feb 12, 2013 - 12:14PM

    The answer to saving Pakistan economy is to mortgage Pakistan to America(no1. economy in the world).


  • Kiran(Indian)
    Feb 12, 2013 - 12:19PM

    Don’t worry Pakistan,America,India,China and rest of the world will save you.Like Greece Pakistan will also be saved by the world.Don’t worry be Happy.


  • Bharat Verma
    Feb 12, 2013 - 12:23PM

    I think Pakistan shall merge again with India. Atleast your country will be a part of its erstwhile dominion, instead of new rulers like US, UK or China. In India too, we are sick of our political leaders, who are involved in corruption, but, they will never sell their country.


  • Jamal Hasnain
    Feb 12, 2013 - 12:46PM

    i love how indians like to be distracted by our misfortunes when they have their own problems they should focus on :) … we the people of the sub-continent are being played left, right and center…


  • Riaz
    Feb 12, 2013 - 12:51PM

    Dont waste our time with such news. Tell us what is happening on the Kashmir issue ?


  • Zameer
    Feb 12, 2013 - 1:25PM

    Pakistan will never be a failed state. what ever is happening its our fault by electing such leaders we have chosen death for our selves. we need to think with a clear head while stamping that ballot paper and if we don’t then Banks and other Investment companies who are happily giving us so much loan while knowing that Pakistan is in no state to pay these back will definitely take over the sovereignty of this nation I mean what ever sovereignty is left. The assets that our leaders so happily mortgaged to get their pockets filled were build over 65 years and looking at this situation make me really angry but “what can I do” unless every one is on the same page. People who still openly support PPP’s governments are traitors and have no moral and ethical sense. They have robbed our nation and did it right in front of our eyes and we just stood by. Time will come when our future generation will look back at this and blame us that so much injustice was happening and people were deep asleep. And for all the people from India who have commented on this article I would say just mind your own God damn Business. India might be the booming economy or what ever but when it comes to problems you guys have bigger then we have and sooner or later those will be highlighted.


  • polpot
    Feb 12, 2013 - 2:38PM

    @Jamal Hasnain: ” i love how indians like to be distracted by our misfortunes when they have their own problems they should focus on :) ”
    Well said. Indians have problems while Pakistanis have misfortunes!


  • Vijay(Indian)
    Feb 12, 2013 - 2:40PM

    Like Russia sold Alaska to America may be Pakistan unable to pay its debts would sell itself to America in future.


  • maxwood
    Feb 12, 2013 - 2:41PM

    PPP Always think ahead of every PakistaniRecommend

  • Raza
    Feb 12, 2013 - 9:25PM

    We’re now putting vital assets such as our prime airport on the line as collateral to finance this inept and corrupt government’s out-of-line spending/looting. I guess that whatever independence we had is sliding out of the window. And guess what; Pakistanis only have themselves to blame for it. Recommend

  • Arijit Sharma
    Feb 12, 2013 - 10:19PM

    @Jamal Hasnain: ” … i love how indians like to be distracted by our misfortunes when they have their own problems they should focus on :) … we the people of the sub-continent are being played left, right and center…… “

    I just love the way Pakistanis change their “us-vs-them” into a “we” outlook. The game started when Pakistani rulers so shamelessly decided to make Pakistan an outpost for Western Powers (SEATO, CENTO, etc).

    And yes, your internal dynamics affect our external dynamics, hence the interest in your “misfortunes”. The view in India is – there is peace as long as Pakistan is busy with existential issues.


  • Sehrish
    Feb 18, 2013 - 1:28AM

    “However, analysts question the use of Islamic bonds for budget financing and linking the return with treasury bills, saying it is forbidden and against Shariah laws.”

    Is this issue worth discussion whether the bond is Islamic or non-Islamic when our country’s future, economy, people and assets are being sold out gradually? when our East neighbour is working out on the strategy of encirclement and disintegration of Pakistan and pushing it towards a broken, failed state through political, cultural and sectarian fronts? Dont we need to broaden our vision and think in terms of acting as a nation, unite against the odds and bring a revolution? Even ants if united can make an elephant fall to ground. But our problem is that instead of focusing on key issues we keep on dragging useless controversies where they are not needed at all.



  • Sabahat
    Feb 28, 2013 - 2:09AM

    I remember last words of mushy
    Pakistan ka Allah HI Hafiz


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