International Airlines Association (IATA) issued a warning on Monday that major airlines may think about shifting their operations out of Pakistan since they are having trouble bringing about $290 million back home.
The organisation referred to Pakistan as a “particularly tough environment” to work in and urged the nation to stop retaining foreign cash at a time when it is experiencing an economic crisis.
Pakistan has restricted the outflow of US dollars due to the Balance of Payments crisis, but airlines still sell tickets in local currency and must repatriate dollars to cover costs like fuel and maintenance fees, and any delay in the process will undoubtedly hurt their financial standing. Pakistan holds the second-largest amount of foreign currency from airlines globally, after Nigeria.
Albert Tjoeng, Head of Corporate Communications at IATA, emphasised that generally speaking, over time, if conditions remain that render the economics of operation to a country unsustainable, one would expect carriers to put their highly valued aircraft assets to greater use elsewhere.
IATA’s Regional Vice President for Asia Pacific, Philip Goh, commented on the situation and urged the government to better distribute foreign currency to airlines operating in Pakistan for efficient operation.
“A significant portion of an airline’s operational costs, such as maintenance, over-flights and fuel, are denominated in US dollars and settled through its head office,” Goh said as reported by Arab News.
“The currency repatriation challenges impact airlines’ timely access to its collection proceeds to meet payment obligations and increase the exposure to adverse foreign exchange movements.”
According to Goh, Pakistan is currently a very difficult climate for airlines. The government has implemented a Federal Excise Fee (FED) on flight tickets for premium travellers and is considering raising it, which would increase travel costs and ultimately lower them.
The IATA representative stated that some airlines had money stuck in Pakistan from sales as early as 2022 and that Pakistan’s holding of foreign exchange was impeding the capacity of foreign corporations to repatriate their funds out of Pakistan.
“Furthermore, the process for applying for currency repatriation is onerous. Airlines are required to provide an auditor’s certificate with each remittance showing the amount to be remitted,” Goh said and added that this process compels the airlines to undergo a monthly audit process instead of an annual audit thereby increasing their expenses.
Underlining the need for tapping the potential, Goh said Pakistan boasts a population of over 220 million but only 10.6 million people flew internationally in 2021-2022.
The official cited a 2018 IATA study in which it was stated that the number of air passengers in Pakistan had the potential to reach more than 35 million by 2038, contributing $9.3 billion in GDP and supporting almost 800,000 jobs.
Despite that the airlines were facing challenges, the IATA officials said decisions ragarding diversion or suspension of operations would be made by carriers on their own subject to circumstances.
Pakistan has been struggling to shore up its foreign exchange reserves which have fallen drastically to levels barely enough to cover the import bill for three weeks. The country is trying to negotiate with International Monetary Fund (IMF); however, the negotiations have not borne fruit yet.
