Government Approves Supplementary Grant for PIA’s Interest Payments

By | June 27, 2023

The Finance Ministry recently announced that the Economic Coordination Committee (ECC) of the Cabinet has given its approval for a supplementary grant of Rs4 billion to Pakistan International Airlines (PIA). This grant is intended to cover the interest payments on loans, which amounted to nearly Rs23 billion. The meeting was chaired by Finance Minister Ishaq Dar.

ECC’s Approval and Budgeting Errors

The ECC has now approved a total of Rs22 billion in supplementary grants, primarily due to budgeting errors made by the finance ministry in June of the previous year.

Second Bailout Package and PIA’s Increasing Losses

This is the second bailout package approved by the ECC in the past two months. In April, the government granted Rs15.6 billion to the struggling airline. However, despite these efforts, PIA’s losses have continued to rise, reaching Rs633 billion by September 2022.

Government’s Responsibility and Financial Viability

In December 2017, the previous government took responsibility for PIA’s interest costs for a five-year period, with the condition that the airline would work towards achieving financial viability. Despite receiving over Rs100 billion from taxpayers, PIA is still far from recovering its financial position.

Challenges in Financial Restructuring

The management of PIA has repeatedly requested an extension of the interest payment facility until the financial restructuring process is complete. However, given the airline’s poor performance, it seems unlikely that this goal will be achieved.

Funding Gap and Allocation

For the current fiscal year, the government initially allocated Rs15 billion in the budget for interest payments. However, PIA has now requested an additional Rs23 billion. The ECC approved Rs4 billion and directed the airline to arrange the remaining Rs19 billion from commercial banks.

Rising Debt Servicing Costs and Operational Challenges

PIA management has highlighted that due to rising interest rates, the total debt servicing cost for this fiscal year is expected to reach Rs38 billion. Insufficient provisions by the federal government to cover interest costs have led to operational funds being diverted to service the debt, resulting in a shortage of funds.

Operational Challenges and Legal Issues

The airline’s operational challenges have also been compounded by legal issues. Recently, one of PIA’s lessors, AerCap, seized an aircraft in Malaysia. Out of the 31 aircraft operated by PIA, 13 are on lease. Furthermore, Willis Leasing has filed a lawsuit against PIA in the United States, and the airline had to return two A-320 engines to prevent further embarrassment. Allianz Insurance has also issued a termination notice due to non-payment.

Limit Increase in Sovereign Guarantees and Continued Struggles

In April, the ECC approved an increase in the sovereign guarantees limit to Rs263.2 billion for PIA. However, despite these measures, the airline continues to face challenges in meeting its day-to-day expenses. Successive governments and PIA managements have failed to revive the entity, leaving selling it as the only viable option.

Meeting on Airport Outsourcing

Meanwhile, Finance Minister Ishaq Dar chaired a meeting of the Steering Committee overseeing the outsourcing of operations at three airports. The meeting concluded without a final decision, as the initial plan was to outsource only Islamabad International Airport. However, the International Finance Corporation (IFC), the consultant, proposed outsourcing all three main airports.

Proposal for Improved Service Delivery

During the meeting, the IFC presented a proposal outlining the future roadmap for outsourcing the first airport. The aim is to enhance service delivery and align with international best practices, as per the Finance Ministry’s statement.

Supplementary Grants for Various Departments

The ECC also approved Rs6 billion to cover the cost of the 7th Population & Housing Census. The total estimated cost of the census was Rs34 billion, and after this approval, Rs6 billion still remains outstanding.

Furthermore, the Ministry of Parliamentary Affairs received a sum of Rs63.6 million to meet its liabilities, primarily related to payments to parliamentary secretaries. The Aviation Division was granted a supplementary grant of Rs222 million for salary payments. The President’s Secretariat also received Rs60 million to cover employee-related expenses.

In addition, the Frontier Corps received a supplementary grant of Rs1.4 billion to settle pending liabilities for ration bills. The Ministry of Interior was allocated an additional budget of Rs8 billion for the payment of civil armed forces’ salaries. Lastly, the Ministry of National Health Services & Coordination was granted Rs1.3 billion to address its liabilities.

By addressing these funding gaps and providing supplementary grants, the government aims to support the operations and financial stability of various departments and entities, including PIA.

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