Banks are seeking a fixed 16.6 percent yearly interest rate for postponing payments on their Rs. 281 billion loans to Pakistan International Airlines for five years.
Finance Minister Dr Shamshad Akhtar has refused this demand and instead offered approximately 10 percent on the full loan amount based on the banks’ actual borrowing costs, reported Express Tribune.
Due to this, banks are hesitant to issue no-objection certificates for transferring the PIA debt to a new holding company. Discussions appear to have hit a dead-end, halting progress on the privatization of the money-hungry national flag carrier. All parties are expected to give this another go with just 18 days remaining in the tenure of the caretaker setup.
Meanwhile, banks have asked the government to pay them a fixed interest rate of 16.6 percent in exchange for prolonging repayments by five years. The fixed cost is calculated using the current five-year PIB rates plus 2.5 percent.
The finance minister is willing to pay interest equal to the cost of the banks’ funds plus 2.5 percent (or overall: 10.2 percent). The finance ministry has also proposed that banks be offered a flexible interest rate based on the remaining maturity days and paid annually.
At a hefty 16.6 percent interest rate, the banks could bag around Rs. 233 billion extra over five years. Dr. Shamshad Akhtar’s proposal would cost them approximately Rs. 143 billion less.
The federal government was likewise hesitant to agree to some of the banks’ demands. The banks have also demanded that the PIA debt should be eligible for the Capital Requirement Regulations (CRR). However, the finance ministry refused to provide the banks with dual benefits. The government cannot offer any such relaxation, which is the domain of the central bank.
There was also discord over deferring tax payments on the banks’ gains. The banks demanded that they only pay taxes to the Federal Board of Revenue once they got the money, but the minister refused. The ministry has consented to cover the debt parked at the holding firm using sovereign guarantees.
It bears mentioning that financial advisor Ernst & Young was first scheduled to submit its report on PIA by the third week of January 2024. It is unclear whether they shared anything. Meanwhile, the Privatization Ministry has already missed the Special Investment Facilitation Council’s deadline of January 11th to get no-objection certificates.
Privatise it NOW….if this were done decades ago the nation would not have suffered the loss of billions.
Privatise it EVEN if the greedy element wants short term gain at the national experience because in the long term the country benefits…..and the greedy element can always be dealt with later.