ISLAMABAD: The government on Friday showed its reluctance to bail out Pakistan International Airlines (PIA) due to its hands being tied by the International Monetary Fund (IMF) loan agreement as the PIA management sought another injection of nearly Rs10 billion to remain afloat.
The PIA management demanded the bailout package in a meeting with Adviser to Prime Minister on Finance Dr Abdul Hafeez Shaikh. After coming to power, the Pakistan Tehreek-e-Insaf (PTI) government has already given two bailout packages costing the exchequer nearly Rs38 billion.
The fresh assistance was sought to back foreign loans and for the repair of aircraft.
However, the IMF agreement did not permit the Ministry of Finance to extend further sovereign guarantees to help the PIA management borrow money from commercial banks, sources in the Ministry of Finance told The Express Tribune.
The IMF has placed a performance criterion to keep sovereign guarantees at Rs1.611 trillion during the current fiscal year. Of this, PIA’s sovereign guarantees stood at Rs212 billion, although the federal cabinet in February this year approved an extension in the sovereign guarantee limit to around Rs222 billion.
Owing to the same IMF restriction, the government has not been able to borrow Rs200 billion through Sukuk to retire the circular debt. The IMF has imposed these restrictions in order to bring fiscal and administrative discipline in the loss-making enterprises.
At the end of first year of the Pakistan Tehreek-e-Insaf (PTI) government, the public sector enterprises’ (PSEs) debt surged to Rs2.1 trillion – an addition of 47% in just one year.
Sources said the PIA management requested the finance ministry to extend a support letter in order to fully exhaust the guarantees.
“The adviser instructed the Ministry of Finance to work closely with the PIA management and provide them all possible financial help, keeping in view the availability of fiscal space,” according to a statement issued by the Ministry of Finance.
A ministry official said the exact quantum of financial support could only be determined after holistically reviewing claims of the PIA management that it had enhanced revenues and cut costs.
PIA Chief Executive Officer Air Marshal Arshad Malik claimed that due to optimal utilisation of PIA assets, there had been a significant reduction in operational cost of the airline.
Malik said the PIA management had been able to lay off nearly 1,000 redundant staff to save costs, stated the finance ministry.
The CEO termed the ongoing Hajj operation a success with almost 90% efficiency achieved in pre-Hajj flights and expected similar results in the post-Hajj operation for which all-out efforts were made to bring back pilgrims as per schedule.
Prime Minister Imran Khan has appointed Malik as the CEO amid apprehensions among his cabinet ministers over Malik’s experience of handling a commercial airline.
The federal government is also picking the interest on over Rs200 billion worth of PIA’s loans. It has allocated Rs24 billion in the current fiscal year’s budget to service PIA’s debts.
Through a letter in September 2008, the federal government, being the majority shareholder, had assured to keep PIA as a ‘going concern’ and had been injecting money, directly or indirectly.
In addition to the already provided Rs212 billion worth of sovereign guarantees, the finance ministry has also injected Rs50 billion in cash into the airline.
After coming to power, the PTI government struck PIA off the privatisation list without first framing a plan to revive the ailing airline.
PIA owed $125.84 million to foreign creditors, which were backed by sovereign guarantees. Due to rupee depreciation, the value of these guarantees has gone down by Rs7 billion, which the management is now seeking from the finance ministry.
Shaikh told the PIA management that the government wanted the national flag carrier to effectively utilise its assets, improve revenue streams and ensure efficiency and financial discipline, stated the finance ministry.
Sources said the finance ministry asked PIA to vacate some of its sovereign guarantees and create fiscal space within its existing pipeline of Rs212 billion.
Shaikh stressed the importance of a viable and independently designed corporate plan to help PIA overcome its difficulties and achieve sustainability in its business processes and flight operations.
His statement suggests that the government now wants PIA to stand on its feet instead of running towards the Q Block repeatedly to get bailout packages.