PIA debt burden shifted to taxpayers

The government and commercial banks have agreed on a Rs268 billion debt restructuring plan for Pakistan International Airlines (PIA). This move, while shifting the burden of PIA’s inefficiency onto taxpayers, removes an irritant in its privatisation. The Ministry of Finance, abandoning its previous stance of not incorporating PIA debt into public debt, now commits to making principal and interest payments from the budget. Under the agreement, the government will use PIA sale proceeds for principal payments, resorting to the budget if insufficient funds are available. Banks, in return, accept a 10-year debt rollover with a 12% annual interest rate, amounting to Rs32.2 billion in annual interest payments. This arrangement means banks will receive Rs322 billion in interest payments over a decade, exceeding their outstanding stocks of Rs268 billion. The total payout to banks at a 12% interest rate will be Rs572 billion in 10 years, said the sources.