Pakistan’s taxpayers are expected to bear around Rs. 30 billion in annual interest costs on the legacy debt of Pakistan International Airlines (PIA) during the current fiscal year, despite the airline’s majority stake having been privatized.
The government has allocated Rs. 73 billion under a privatization contingency provision, part of which will be used to meet interest payments on PIA’s legacy debt.
PIA debt shifted to holding company
Around Rs. 268.5 billion in PIA debt was transferred to the PIA Holding Company before the airline’s privatization.
The debt was restructured in 2024, with banks agreeing to extend its repayment period to 10 years at an interest rate of 12 percent.
The debt was subsequently shifted into public debt, meaning the government must allocate funds from the national budget to meet the annual interest obligations.
At the agreed interest rate, banks are expected to receive approximately Rs. 573 billion over the 10-year repayment period, including more than Rs. 300 billion in interest payments.
This means the total amount paid to service the debt will significantly exceed the original principal of around Rs. 268 billion.
Interest cost exceeds cash received from PIA sale
The annual interest burden is particularly notable when compared with the amount of cash received by the government from PIA’s privatization.
The successful bidder offered Rs. 135 billion for a 75 percent stake in the national airline.
However, Rs. 125 billion of the amount is being reinvested into PIA, leaving the government with only Rs. 10 billion in cash.
The annual interest cost of approximately Rs. 30 billion is therefore around three times the cash proceeds received by the government from the transaction.
Government explains Rs. 73 billion provision
The Finance Ministry said the Rs. 73 billion contingency allocation is intended to cover liabilities arising from the privatization or winding down of public sector entities.
The provision could also be used for legacy liabilities associated with other planned transactions, including the proposed winding down of the Pakistan Agriculture Storage and Services Corporation.
Sales tax relief extended to other airlines
Meanwhile, the government has decided to extend sales tax exemptions to other locally operating airlines from fiscal year 2027-28.
The move follows concerns over preferential tax treatment granted to PIA’s new owners.
The government had previously 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 earlier questioned the preferential treatment provided to PIA following its privatization.
Officials said the government had taken the International Monetary Fund (IMF) into confidence over the decision to extend the exemption to other airlines.
Government moves ahead with DISCO privatization
The finance committee also reviewed plans to privatize three power distribution companies — FESCO, IESCO and GEPCO.
Under the first phase, private investors will be allowed to acquire stakes ranging from 51 percent to 100 percent in the companies.
The government is targeting bids for the three DISCOs in December 2026.
Officials said the companies have accumulated losses above targets set by the power sector regulator. Legacy losses and balance-sheet issues will need to be assessed before final valuations of the assets are determined.
The developments highlight the financial challenges associated with Pakistan’s ongoing privatization drive, particularly where legacy liabilities remain with the government even after public-sector entities are transferred to private ownership.
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