The government and commercial banks have agreed on a debt restructuring plan for Pakistan International Airlines (PIA) totaling Rs. 268 billion.
The Ministry of Finance has reversed its earlier stance of not including PIA debt in public debt and is now committed to funding principal and interest payments from the budget, reported Express Tribune.
According to the agreement, the government will use PIA sale earnings for principal payments, relying on the budget if funds are insufficient. Banks, in exchange, agree to a 10-year debt rollover at a 12 percent annual interest rate, totaling Rs. 32.2 billion in annual interest payments.
This arrangement means that banks would get Rs. 322 billion in interest payments over a decade, which exceeds their outstanding stocks of Rs. 268 billion. The entire payout to banks at a 12 percent interest rate will be Rs. 572 billion over ten years.
The Ministry of Finance will seek the endorsement of the International Monetary Fund, while the banks will seek approval from their boards of directors.
Per the agreement between the finance ministry, the privatization ministry, and nine commercial banks, the Rs. 268 billion debt, including the Rs. 250 billion principal amount, will be restructured for 10 years. The government will pay 12 percent interest charges which will be made every year. The principal payments will be made using funds from the privatization and the sale of other fixed assets. If no proceeds are available, payments will be made via the federal budget.
It bears mentioning that authorities hoped to privatize PIA before the caretaker government packed its bags and went home. With elections next week and the PIA sale nowhere near completion, that appears highly unlikely.
