The sale of Pakistan International Airlines has only brought in Rs 10 billion for the Pakistan government, a mere fraction of the publicly stated Rs 135 billion sale value, as per a report in The News International. The discrepancy lies in the fact that only 7.5% of the winning bid is paid in cash to the state, with the remaining 92.5% reinvested in PIA as equity.
This transaction, which was celebrated at Rs 135 billion, actually results in an approximate Rs 10.1 billion fiscal inflow to the government. This amount, significantly lower than the claimed value, does not substantially impact Pakistan’s financial situation. The article highlights that the sale did not alter the country’s borrowing trajectory or improve its credit outlook.
The article points out that the sale of PIA was necessitated by its deep insolvency, with total liabilities far exceeding its assets. The government had to absorb or restructure a substantial portion of this debt before finding a buyer. This restructuring essentially socialized losses before privatizing control, emphasizing that the sale price should not be equated with profit once the state has already covered the debts.
Defenders of the deal argue that the primary goal was to recapitalize PIA, not to generate cash for the government. However, the article questions the portrayal of the transaction as a sale that bolstered the government’s finances, suggesting it should be honestly described as a private recapitalization with a change of control.
