Govt’s Latest Decision Imposes PIA’s Debts on Taxpayers

The government and commercial banks have reached an agreement on a debt restructuring plan for Pakistan International Airlines (PIA), amounting to Rs. 268 billion.

A shift in the Ministry of Finance’s position now entails the inclusion of PIA debt in public debt, committing to fund both principal and interest payments from the budget, as reported by Express Tribune. According to the terms, earnings from PIA’s sale will be utilized for principal payments, with the budget serving as a backup if funds fall short. In return, banks have agreed to a 10-year debt rollover at a 12 percent annual interest rate, resulting in annual interest payments of Rs. 32.2 billion.

Under this arrangement, banks stand to receive Rs. 322 billion in interest payments over a decade, exceeding the outstanding debt of Rs. 268 billion. The total payout to banks, at a 12 percent interest rate, will amount to Rs. 572 billion over the ten-year period.

To finalize the agreement, the Ministry of Finance will seek approval from the International Monetary Fund, while banks will pursue consent from their respective boards of directors.

As per the terms established between the finance ministry, privatization ministry, and nine commercial banks, the Rs. 268 billion debt, inclusive of the Rs. 250 billion principal amount, will undergo a 10-year restructuring. The government commits to paying 12 percent interest charges annually, with principal payments sourced from privatization proceeds and the sale of fixed assets. In the absence of available proceeds, the federal budget will be utilized for payments.

It is noteworthy that the initial plan to privatize PIA before the caretaker government’s departure seems improbable with elections approaching next week and the PIA sale still pending completion.

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