The global airline industry body has warned that Pakistan has become “very challenging” to serve with flights as carriers struggle to repatriate dollars, adding to difficulties for foreign companies operating in the crisis-hit country.
Pakistan is suffering from an escalating financial crisis, with perilously low levels of foreign reserves leading to shortages and rising prices of essential goods. Companies are contending with 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, up nearly a third since December. Pakistan is holding the second-largest amount of foreign currency from airlines globally, after Nigeria.
“Airlines are facing long delays before they are able to repatriate their funds,” said Philip Goh, the IATA’s Asia-Pacific head. “Some airlines still have funds stuck in Pakistan from sales in 2022.”
Virgin Atlantic announced last month it was pulling out of Pakistan, just over two years since it launched services. The carrier had encountered problems repatriating 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 economics of operation to a country unsustainable, one would expect airlines to put their valued aircraft assets to better use elsewhere.”
Pakistan’s foreign reserves amount to about $4bn, enough to cover only one month’s worth of imports. While authorities had imposed strict import and currency controls, those measures were mostly lifted this year in an effort to revive a $7bn IMF bailout.
Analysts and executives said there was a long backlog of dues to be cleared after the limits were eased, leading to hold-ups securing certificates to convert currency with local banks.
Pakistani officials said banks had been paying airlines since currency restrictions were lifted, but there were also other pressing challenges such as financing food and medicine imports. “Payments are being made,” one official said. “But of course, there’s more demand.”
Other industries are also feeling the pain. Honda’s local venture announced it was suspending manufacturing for the rest of March, following similar shutdowns by Toyota and Suzuki’s local units. Habib Yousuf, country director of the UK’s development finance arm British International Investment, said some investee companies 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 dollars has become a global problem for the aviation industry as high inflation puts pressure on foreign reserves. Emirates last year suspended flights to Nigeria, which has blocked more airline funds than any other country.
Subhas Menon, director-general of the Association of Asia Pacific Airlines, noted that airlines were also struggling to repatriate funds from Sri Lanka and Bangladesh.
A Pakistan senate committee this month asked the aviation ministry to urge 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 than the same month in 2019, before the pandemic, according to aviation analytics company Cirium. Emirates flights were down 24 per cent, while those of Saudi state carrier Saudia declined 17 per cent.
Mark Martin, chief executive of aviation consultancy Martin Consulting, said: “If you can’t take money out of a country, then there’s no point in you even going there.”
Additional reporting by Farhan Bokhari in Islamabad
This post was originally published on Financial Times