Under pressure to act from the International Monetary Fund (IMF), the newly elected Pakistani government has moved to speed up the partial privatisation of PIA - Pakistan International Airlines (PK, Islamabad International). Most recently, on March 25, it "restructured" PIA's board, with the new board then proceeding to approve the privatisation plan within hours.

Last week, during marathon meetings between the IMF and the new Shehbaz Sharif-led government, the fund asked for details on the privatisation plans for PIA and other state-owned entities. Pakistan is due to receive the final instalment of a USD3 billion IMF bailout package in April. However, funding is contingent on the reform and/or sale of loss-making state-owned enterprises.

Sharif had committed to continuing the privatisation plans initiated by previous administrations, including the recent interim government. Also last week, the Pakistani Cabinet approved establishing a holding company to transfer state-guaranteed legacy PIA debt and payables of more than USD2.23 billion held by a consortium of seven local banks. Removing the liabilities from PIA's balance sheet is designed to make the airline more attractive to potential purchasers.

Under the partial privatisation plan, the government will sell 51% of PIA and management rights to a foreign entity. However, the banks need to issue no-objection certificates for it to proceed. So far, they have declined to issue any certificates. A sticking point is the interest rate the government will pay to service the debts. Local outlets suggest an annual rate of around 12% is under discussion. This week, Finance Minister Muhammad Aurangzeb said he wanted to complete the privatisation of PIA by June.

Meanwhile, PIA advised the Pakistani bourse on March 25 that the government had overhauled its board, replacing five of its 11 members. After a four-hour meeting the following day, the freshly constituted board approved the privatisation plan. The airline's board had been inactive since October 2023.

After five days of meetings last week, the IMF has also reached a staff-level agreement with the government to disburse the remaining USD1.1 billion. The government is reportedly in the market for another bailout in the vicinity of USD6 billion, which will depend on its continuing progress with privatising PIA.