KARACHI: The International Air Transport Association (IATA) on Monday called Pakistan a “very challenging environment” to operate in and said airlines could consider diverting their operations as they struggled to repatriate upwards of $290 million dollars from the crisis-hit South Asian nation.
Pakistan has restricted the outflow of USD amid depleting foreign exchange reserves with the State Bank, which currently stand at $4.2 billion, barely enough to cover the import bill for three weeks against the average $5 billion required per month.
Air carriers, which sell tickets in local currency but need to repatriate dollars to pay for expenses such as fuel, have been hit particularly hard in Pakistan, which is holding the second-largest amount of foreign currency from airlines globally, after Nigeria.
“In general, over time, if conditions persist that make the economics of operation to a country unsustainable, one would expect airlines to put their valued aircraft assets to better use elsewhere,” Albert Tjoeng, Head of Corporate Communications at IATA, said in an email to Arab News query on Monday.
Philip Goh, IATA's Regional Vice President for Asia Pacific, urged the government to increase the allocation of foreign exchange to airlines operating in Pakistan.
“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.
“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 … We are urging the government to increase the allocation of foreign exchange to airlines operating in Pakistan.”
“Pakistan is currently a very challenging environment for airlines to operate in,” Goh added. “The government has a Federal Excise Duty (FED) on air tickets for premium travelers, and is proposing to increase it which will make it more expensive to travel, and will dampen the demand for air travel.”
The IATA official said Pakistan’s foreign exchange controls were affecting the ability of foreign companies to repatriate their funds out of Pakistan and some airlines had funds stuck in Pakistan from sales even in 2022.
“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.
“This forces them to undergo a monthly audit process (instead of an annual audit). And it adds to the operating costs in Pakistan and prolongs the process."
Goh said with a population of over 220 million people, Pakistan was a huge aviation market but only 10.6 million people flew internationally in 2021-2022: “You can imagine the potential yet to be realized.”
In an IATA study in 2018, 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, IATA’s regional vice president said.
However, both IATA officials said the decision to suspend operations was a commercial one, which would be made by each individual airline based on their circumstances.
Pakistan has been in economic turmoil for months with an acute balance of payments crisis while talks with the IMF to secure $1.1 billion funding as part of $6.5 billion bailout agreed in 2019 have not yet yielded fruit.
