SOVEREIGN DEBT IN ISLAMIC ECONOMICS:SUKUK AS A SHARI'AH-COMPLIANT ALTERNATIVE TO CONVENTIONAL BONDS —THEORY, GROWTH, AND FISCAL IMPLICATIONS
DOI:
https://doi.org/10.55640/Keywords:
Sovereign sukuk, Islamic public debt, riba prohibition, OIC fiscal policy, Shari'ah-compliant finance, Islamic Development BankAbstract
Contemporary Islamic states confront a fundamental tension between developmental financing requirements and the Shari'ah prohibition on riba (interest-based debt). This paper examines how sovereign sukuk—Shari'ah-compliant capital market instruments backed by tangible assets or usufruct rights—have emerged as the primary mechanism for resolving this tension. Using data from the International Islamic Financial Market (IIFM), the Islamic Development Bank (IsDB), and official fiscal statistics for seven OIC member states (2017–2022), we document the rapid growth of the sovereign sukuk market from USD 210.3 billion in annual issuance (2017) to USD 418.8 billion (2022). Our comparative analysis reveals that countries with sukuk-to-total-debt ratios exceeding 30% demonstrate lower borrowing costs and broader investor bases. However, we identify a critical governance risk: the growing use of synthetic sukuk structures that replicate conventional bond economics without genuine asset transfer. We conclude with recommendations for strengthening sukuk governance to ensure Shari'ah integrity while supporting Islamic states' fiscal sustainability.
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