IATA warns Pakistan to release airline revenues as economic crunch lingers on

MONTREAL - Pakistan's economic crisis is now impacting the aviation industry as airlines have been unable to repatriate dollars from the country.

A warning has been issued in this regard by the International Air Transport Association (IATA) to immediately release airline revenues that are being held in contravention of international agreements.

According to a press release issued by IATA on Wednesday, the situation has become severe with airlines unable to repatriate over $720 million ($399 million in Pakistan and $323 million in Bangladesh) of revenues earned in these markets.

“The timely repatriation of revenues to their home countries is critical for payment of dollar-denominated expenses such as lease agreements, spare parts, overflight fees, and fuel. Delaying repatriation contravenes international obligations written into bilateral agreements and increases exchange rate risks for airlines. Pakistan and Bangladesh must release the more than $720 million that they are blocking with immediate effect so that airlines can continue to efficiently provide the air connectivity on which both these economies rely,” said Philip Goh, IATA’s Regional Vice President for Asia-Pacific.

The airline industry body has called on Pakistan to simplify the 'onerous' process for repatriation as currently, the process requires providing audit certificates and a tax exemption certificate, both of which cause unnecessary delays.

IATA has cited the example of Bangladesh, saying the country has more standardized processes, adding that aviation needs a higher priority from the Central Bank to facilitate access to foreign exchange.

“We recognize that governments have a difficult challenge in how foreign currencies are used strategically. Airlines operate on razor-thin margins. They need to prioritize the markets they serve based on the confidence they have in being able to pay their expenses with revenues that are remitted in a timely and efficient fashion. Reduced air connectivity limits the potential for economic growth, foreign investment, and exports. With such large sums of money involved in both markets, urgent solutions are needed,” said Goh.

It bears mention that this is not the first time IATA has pressed Pakistan for repatriation of Dollars as in March last year, the volume of dollars withheld spiked to $290 million.

The severity of the issue can be gauged from the fact that air carriers sell tickets in local currency but then they need to repatriate dollars to pay for expenses such as fuel and maintenance charges and a delay in the process impacts their financial balance.

The reason for Pakistan to be holding the foreign currency is its balance of payments crisis. The foreign exchange reserves in the central bank of the country have nosedived sharply in recent months. 

Pakistan is also engaging the International Monetary Fund to receive some financial support to shore up its resources and it is expected that Pakistan will receive the support in the next few weeks.