ISLAMABAD - Pakistan has raised $1 billion with a 7-year sukuk, offering an interest rate of 7.95%, the highest return the South Asian nation has ever paid on an Islamic bond, a finance ministry official said on Tuesday.

The issuance comes at a time when Pakistan's gross foreign reserves have fallen to nearly $17 billion from $19 billion in the past two weeks due to debt repayments.

Ministry spokesman Muzammil Aslam said international debt markets worldwide had suffered shocks since December due to expected increases in interest rates in the United States and Europe.

"So given the situation, we have got the good deal in this uncertain time," he told Reuters.

Pakistan sees foreign funds inflows as critical given that its external account deficit has widened on back of soaring global commodity prices - in particular oil, which makes up about a third of the country's payments.

Foreign exchange reserves are also a key buffer to stabilise the rupee. Pakistan only last year adopted a market-based exchange rate, resulting in a sharp depreciation of the rupee.

An IMF review board is meeting on Jan. 29 to approve a $1 billion tranche of a $6 billion loan signed with Pakistan in 2019.

The last sukuk Pakistan issued was a five-year sukuk in 2017 at a rate of 5.6%.


(Reporting by Asif Shahzad; Editing by Edwina Gibbs) ((; +923018463683;))