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Pakistani citizens to pay PIA’s debt

Pakistani citizens to pay PIA's debt

In a significant development, the government of Pakistan, in collaboration with commercial banks, has finalized a comprehensive debt restructuring plan for Pakistan International Airlines (PIA) amounting to a substantial Rs. 268 billion. The Ministry of Finance, in a reversal of its earlier stance, has decided to include PIA’s debt in the public debt, committing to funding both principal and interest payments from the national budget.

Under the arrangement, the proceeds from the sale of PIA will be primarily utilized for principal payments, with the budget serving as a fallback option in case funds prove insufficient. The banks have agreed to a 10-year debt rollover at a 12 percent annual interest rate, resulting in annual interest payments of Rs. 32.2 billion.

Remarkably, this implies that the banks will receive Rs. 322 billion in interest payments over the next decade, exceeding the outstanding debt stocks of Rs. 268 billion. The total payout to banks, at the agreed 12 percent interest rate, is projected to be Rs. 572 billion over the next ten years.

For the debt restructuring plan to proceed, the Ministry of Finance will now seek the endorsement of the International Monetary Fund (IMF), adding an international dimension to the resolution. Additionally, the participating banks will need approval from their respective boards of directors to finalize the agreement.

This collaborative effort involves the finance ministry, privatization ministry, and nine commercial banks. With the agreement in place, the government and banks aim to navigate and address the financial challenges faced by PIA over the next decade, especially considering the initial plan of privatization seems unlikely in the current political landscape.

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