The federal government has earmarked Rs30 billion in the current fiscal year to meet interest payments on Rs268.5 billion in legacy debt held by Pakistan International Airlines (PIA), according to a report by The Express Tribune. The allocation forms part of a broader Rs73 billion privatisation contingency provision included in the federal budget to address unforeseen financial requirements linked to the privatisation of public-sector entities, including liabilities associated with PIA and other planned transactions. The annual interest allocation places a continuing financial responsibility on the government after PIA’s legacy debt was transferred away from the airline as part of the restructuring carried out ahead of its privatisation.
The Rs268.5 billion debt was shifted to a new PIA Holding Company before the airline’s privatisation, leaving the government responsible for servicing the associated interest costs. The annual interest payment of Rs30 billion is three times the Rs10 billion in cash that the federal government received from the sale of a 75% stake in PIA. The successful bidder offered Rs135 billion for the 75% shareholding, but only Rs10 billion was received by the government in cash, while the remaining amount is being reinvested into PIA by the bidder. The government is also expected to sell its remaining 25% stake to the same bidder for Rs45 billion in cash.
According to a Finance Ministry official cited by The Express Tribune, the Rs73 billion contingency provision was designed to cover unforeseen expenses associated with the privatisation of three power distribution companies as well as interest payments on PIA’s legacy debt. The provision therefore extends beyond PIA and forms part of the government’s broader financial arrangements for its ongoing privatisation programme. The government has been pursuing the transfer, restructuring or winding down of selected public-sector entities, with legacy liabilities emerging as a key financial consideration in several transactions.
Another government official said the Finance Ministry was providing the interest payment to PIA Holding Company in the form of a loan. The holding company does not have an independent revenue stream from which it can comfortably meet the debt servicing requirement and is expected to repay the government through proceeds generated from the sale of its hotels. This arrangement places the interest obligation within the wider restructuring of PIA’s legacy assets and liabilities, with future asset disposals expected to provide a source of repayment for the financing being extended by the government.
The debt restructuring dates back to 2024, when the board of PIA Holding Company approved the restructuring of the airline’s Rs268 billion commercial debt and its transfer into public debt. Banks agreed to extend the debt for a period of 10 years at an interest rate of 12%. The restructuring effectively moved PIA’s commercial liabilities onto the public sector balance sheet and created the need for annual allocations in the federal budget to meet interest payments associated with the debt.
Under the 10-year arrangement, the total amount paid to banks is expected to reach around Rs573 billion, including more than Rs300 billion in interest, against the original principal debt of Rs268 billion. The scale of the projected interest cost highlights the long-term fiscal impact of transferring the airline’s commercial liabilities into public debt. While the restructuring enabled the privatisation process to proceed with the legacy debt separated from the airline, the financial obligation continues to remain with the public sector.
A spokesperson for the Privatisation Commission clarified that the Rs73 billion contingency allocation did not pertain to the commission or the Privatisation Division. Meanwhile, a Finance Ministry spokesperson said the provision was intended to meet financial requirements arising from the privatisation or winding up of public-sector entities. According to the spokesperson, the government is pursuing an extensive privatisation programme alongside measures to wind down non-essential public entities, and some of these transactions require government funding to address legacy liabilities.
The Finance Ministry also indicated that PIA Holding Company’s liabilities are not the only potential claims on the contingency allocation. Other privatisation and winding-down measures planned during the current fiscal year could require funding for their respective legacy liabilities. These include Pakistan Agriculture Storage and Services Corporation (PASSCO), among other public-sector entities. The government’s allocation therefore reflects the financial requirements associated with managing liabilities that remain after state-owned enterprises are privatised, restructured or wound down.
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