A global airline industry body has warned that serving Pakistan with flights has become “very challenging” as carriers struggle to repatriate dollars, adding to difficulties for foreign companies operating in the crisis-hit country.
Pakistan is suffering from a growing financial crisis, with dangerously low levels of foreign reserves leading to shortages and rising prices of essential commodities. Companies are facing delays in importing or converting currency, and analysts have warned that the country is at risk of default.
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. The International Air Transport Association said $290mn of funds were stuck in the country as of January, the most recent data available, about a third since December. Pakistan is the second largest foreign exchange earner from airlines globally after Nigeria.
“Airlines are facing long delays before they are able to repatriate their funds,” said Philip Goh, IATA’s Asia-Pacific chief. “Some airlines still have funds stuck in Pakistan from the sale in 2022.”
Virgin Atlantic announced last month that it was withdrawing from Pakistan, just two years after it launched services. The carrier faced problems in returning funds, but the decision to suspend flights was based on the economics of the route, according to a person familiar with the decision.
Goh said: “If conditions persist that make the country’s operating economics unsustainable, expect airlines to put their valuable aircraft assets to better use elsewhere.”
Pakistan’s foreign reserves are about $4bn, enough to cover only one month’s imports. While the authorities imposed strict import and currency controls, those measures were largely lifted this year in an effort to revive a $7bn IMF bailout.
Analysts and executives said there was a long backlog of outstanding dues to be cleared after the easing of limits, which led to the certificates being shelved with local banks for conversion into currency.
Pakistani officials said banks have been paying airlines since currency controls were lifted, but there were other pressing challenges, such as financing for food and medicine imports. “Payments are being made,” an official said. “But of course, there is more demand.”
Other industries are also feeling the pain. Honda’s local venture announced it was suspending production for the rest of March following similar shutdowns by local units of Toyota and Suzuki. Habib Yusuf, country director of British International Investment, the UK’s development finance arm, said some investment firms were struggling to pay foreign contractors such as consultants.
The State Bank of Pakistan, the central bank, did not respond to a request for comment.
The difficulty of repatriating the dollar has become a global problem for the aviation industry as high inflation puts pressure on foreign reserves. Emirates suspended flights to Nigeria last year, blocking more airline funds than any other country.
Association of Asia Pacific Airlines director-general Subhash Mann noted that airlines are also struggling to repatriate funds from Sri Lanka and Bangladesh.
Pakistan’s Senate committee this month asked the aviation ministry to request airlines to resume operations, according to local media.
But foreign airlines have been slow to return to Pakistan, with fewer total flights scheduled for March 2023 compared to the same month in 2019, according to aviation analytics company Sirius. Emirates’ flights were down 24 percent, while Saudi state carrier Saudia’s flights were down 17 percent.
Mark Martin, chief executive of aviation consultancy Martin Consulting, said: “If you can’t take money out of a country, there’s no point going there.”
Additional reporting by Farhan Bokhari in Islamabad