The International Air Transport Association (IATA) warned Pakistan on Wednesday that foreign airlines could stop operations in the economically struggling country because of the sustained blockage of cash payments.
The trade association of global airlines said in a statement that Pakistan owed foreign airlines some $290 million in “repatriable funds” as of January, the second-highest total after Nigeria.
“If conditions persist that make the economics of operation to a country unsustainable, one would expect airlines to put their valued aircraft assets to better use elsewhere,” said Philip Goh, IATA’s Asia-Pacific regional vice president. He was quoted as saying that Virgin Atlantic Airways recently suspended flights to Pakistan.
Pakistan’s foreign exchange reserves have lately sunk to around $4.6 billion, barely enough to cover four weeks of imports, prompting the central bank to make it difficult to send dollars out of the country.
IATA said that Pakistan’s foreign exchange controls are affecting the ability of foreign companies to retrieve their money and meet payment obligations. It noted that some airlines still have funds stuck in Pakistan from sales in 2022.
“Trying to get that money is a difficult and long-winded process. Essentially, airlines must undergo a costly monthly audit to produce an auditor’s certificate with each remittance showing the amount to be remitted,” the statement said.
Pakistani Prime Minister Shehbaz Sharif’s government has been in talks with the International Monetary Fund to persuade the lender to resume disbursements from a $6.5 billion bailout program agreed to in 2019. The IMF was due to release another $1.1 billion in November but has not done so, citing a lack of progress on fiscal reforms Pakistan agreed to implement.
The IMF fund is vital to unlocking other external financing avenues to help Islamabad avert a default on its foreign debt obligations.
China, Saudi Arabia and the United Arab Emirates are among several countries that pledged to help Pakistan fund its balance of payments.
Goh described Pakistan, a country of about 220 million, as a “very challenging environment” for airlines. Currently, about 28 foreign airlines fly into Pakistan.
“The government already has a federal excise duty (FED) on air tickets for premium travelers and wants to increase it further. This will just make it more expensive to travel and dampen demand for air travel,” he cautioned.
An IATA study five years ago concluded that Pakistan could increase air travelers to 35 million a year by 2038, up from the current 11 million, contributing $9.3 billion to the country’s GDP and supporting almost 800,000 jobs.
But critics say successive governments have long neglected the country’s aviation industry.
Pakistan’s foreign currency shortage and declining local currency value are also hurting other vital sectors. Several car manufacturers have paused production due to the economic conditions.
The impoverished country relies heavily on imports, such as raw materials needed to manufacture medicine and complex surgical equipment, but the medical supply chain is under growing pressure.
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