Pakistan’s taxpayers are set to bear around Rs. 30 billion in interest costs on the legacy debt of Pakistan International Airlines during the current fiscal year, even after the airline’s majority stake was privatized.
The government has allocated Rs. 73 billion under a privatization contingency provision, including funding for interest payments on Rs. 268.5 billion of PIA debt that was transferred to the PIA Holding Company before the airline’s privatization.
The Rs. 30 billion annual interest cost is three times the Rs. 10 billion in cash received by the government against the sale of a 75 percent stake in PIA. The successful bidder offered Rs. 135 billion for the stake, but Rs. 125 billion of the amount is being reinvested in PIA, while the government received the remaining Rs. 10 billion in cash.
The PIA debt was restructured in 2024, with banks agreeing to extend the repayment period to 10 years at an interest rate of 12 percent. The debt was subsequently shifted into public debt, requiring the government to make annual budget allocations for the interest payments.
At the agreed rate, banks are expected to receive around Rs. 573 billion over the 10 year period, including more than Rs. 300 billion in interest payments. The total payout will therefore exceed the Rs. 268 billion principal amount being serviced.
The Finance Ministry said the Rs. 73 billion contingency provision is intended to meet liabilities arising from the privatization or winding down of public sector entities. It could also be used for legacy liabilities linked to other planned transactions, including the proposed winding down of the Pakistan Agriculture Storage and Services Corporation.
Meanwhile, the government has decided to extend sales tax exemptions to all locally operating airlines from fiscal year 2027 to 28, following concerns over preferential tax treatment granted to PIA’s new owners.
The government had granted PIA an 18 percent sales tax exemption on aircraft procurement and leasing from July 2026. Under the new decision, other airlines will receive the same exemption for 15 years starting July 2027, according to the Privatization Commission.
The National Assembly Standing Committee on Finance had previously questioned the preferential treatment given to PIA following its privatization. Officials said the government had taken the International Monetary Fund into confidence over the decision to extend the exemption to other airlines.
The committee also reviewed the planned privatization of three power distribution companies. FESCO, IESCO and GEPCO will be offered to private investors in the first phase, with investors allowed to acquire between 51 percent and 100 percent stakes. The government is targeting bids for the first three companies in December 2026. Officials said the DISCOs have accumulated losses above the targets set by the power sector regulator, while legacy losses and balance sheet issues will need to be reviewed before final asset valuations are determined.
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