Sovereign Sukuk for Inclusive Debt Reform: A Comparison with IMF and World Bank Financing

Abstract

The sovereign debt architecture built around the International Monetary Fund (IMF), the World Bank and interest-bearing market debt offers developing countries few inclusive alternatives. This article asks whether sovereign sukuk can function as a sovereign debt reform mechanism, rather than only as an Islamic finance instrument, and under what conditions. The study uses a qualitative comparative design. It combines systematic document analysis of official, market and peer-reviewed sources (2002–2025), a structured, focused comparison of sovereign sukuk with IMF and World Bank instruments across six theoretically derived dimensions scored with an explicit rubric, and a diverse-case analysis of eight sovereign sukuk transactions issued between 2014 and 2023. Sovereign sukuk outperform multilateral lending on policy autonomy and creditor-base diversification, and they can be priced competitively even by sub-investment-grade issuers. They do not, however, reduce debt vulnerability in their dominant form: asset-based ijarah and wakalah sukuk with par purchase undertakings replicate the payoff of conventional bonds, are pro-cyclical in market access and lack a tested sovereign restructuring regime. The reform potential of sukuk is therefore conditional rather than intrinsic. It rises along a risk-sharing continuum, from asset-based to asset-backed, project-linked and state-contingent structures, and depends on enabling legal infrastructure, Shariah-standard convergence and multilateral credit enhancement. The article formalises these results as four reform channels and five testable propositions. The article reconceptualises sovereign sukuk as a debt-architecture instrument whose risk-sharing features connect them to the state-contingent debt agenda. It offers a replicable evaluation framework and specifies when sukuk complement, and when they cannot replace, official crisis finance. The findings are analytical and document-based; the propositions are designed for subsequent econometric and comparative testing.