Pakistan shut its airspace for India after the government took strict diplomatic actions following the Pahalgam terror attack in Kashmir. Pakistan’s move was aimed at hurting India but seems to have hit its already debt-ridden economy further, losing out on crucial forex.
The country had only just started to see some signs of recovery after coming close to defaulting on its debt in 2022. A bailout by the International Monetary Fund (IMF), including a loan of $2 billion in March this year, gave Pakistan some breathing room. But the current situation could undo much of that progress.
Kranthi Bathini, Equity Strategist at WealthMills Securities Pvt Ltd, said, “Pakistan’s economy is not doing well. The economy is running on debt from various global agencies. Any rise in the ongoing geopolitical tensions will definitely put more pressure on the economy. Moody’s has also said that any further escalation by Pakistan will worsen its economic condition.”
FOREX TROUBLES GROW AS AIRSPACE EMPTIES
Pakistan’s decision to block Indian aircraft has not just affected Indian airlines but also impacted many global carriers. As tensions grow, several international airlines are also choosing to avoid Pakistani airspace. This means Pakistan is losing out on overflight fees, a key source of foreign exchange.
Rajeev Mantri, founder and managing director of Navam Capital, said on social media that Pakistan’s move will badly hit its fragile economy. “Loss of overflight fees will be a very meaningful forex loss for a forex-starved country like Pakistan, which has no export competitive industries at all,” he said.
His remarks were made in response to a journalist’s post showing live radar data with fewer flights using Pakistani airspace. With Indian carriers like Air India and IndiGo taking longer routes to avoid Pakistan, the cost for Pakistan is far greater in terms of lost revenue than the extra expense for the airlines.
Entrepreneur Arun Pudur also noted that global airlines were steering clear of Pakistan. In a tweet on May 5, he said only about 15 flights were now using Pakistan’s airspace. “Top airlines — Air France, BA, Emirates, Lufthansa — are avoiding it. Huge blow to Islamabad’s forex from overflight fees worth hundreds of millions,” he wrote.
India is the third-largest aviation market in the world and continues to grow quickly. This makes overflight fees from Indian carriers an important income source for Pakistan. With Indian airlines now avoiding Pakistan’s airspace, that income has dropped sharply.
A Pakistani user recently shared a video showing an Indian flight taking a longer path due to the airspace closure. While the user mocked the route, many pointed out that the real loss was for Pakistan.
Naren Menon, an Indian social media user, replied saying, “Pakistan loses ‘overflight fees’ from the 3rd largest (and fastest-growing) aviation market in the world. That’s easily hundreds of millions of USD every year.”
When someone asked if Pakistan could still earn from other airlines, Menon explained that many west-bound flights from India are operated by Indian carriers. That makes the revenue loss both large and immediate.
REPEATING 2019’S LOSSES?
This is not the first time Pakistan has closed its airspace to Indian aircraft. A similar move in 2019, after India’s response to the Pulwama terror attack, had led to nearly $100 million in losses.
At that time, about 400 flights were being diverted daily. Reports estimated daily losses of $232,000 from overflight charges, and a combined $760,000 per day when other costs such as terminal navigation and airline route disruptions were included.
Moody’s, the global credit rating agency, has also warned that any conflict with India could hurt Pakistan’s economic progress. In a recent report, it said, “Sustained escalation in tensions with India would likely weigh on Pakistan’s growth and hamper the government’s ongoing fiscal consolidation, setting back Pakistan’s progress in achieving macroeconomic stability.”
Moody’s further added that if the current standoff continues, it could affect Pakistan’s access to foreign loans and put more pressure on its foreign currency reserves. This could make it harder for the country to repay its international debts.
