When skies become hostile, the consequences go far beyond delayed flights. For Pakistan, any imposition or expansion of airspace restrictions—whether self-initiated or due to geopolitical tensions—has a ripple effect on public revenues, aviation sector viability, and broader macroeconomic performance. In a region where air routes serve not just as commercial corridors but also as fiscal arteries, the cost of closed skies can be surprisingly high.
Revenue Losses from Overflight Charges
Pakistan lies in a geographically strategic location for global east-west and north-south air traffic. Each day, dozens of international flights use Pakistan’s airspace, and the country earns millions of dollars annually from overflight fees paid by foreign airlines. According to data from the Civil Aviation Authority (CAA), Pakistan earned PKR 6.2 billion in overflight and air navigation charges in FY2022–23. When airspace is restricted—as seen during the 2019 India-Pakistan standoff, or recent tensions around Iranian airspace—airlines reroute, and this revenue dries up.
| Fiscal Year | Overflight Revenues (PKR Billion) |
| 2020–21 | 3.9 |
| 2021–22 | 5.1 |
| 2022–23 | 6.2 |
Source: Civil Aviation Authority (CAA), Pakistan
If even 30% of regular traffic avoids Pakistani airspace for a sustained quarter due to airspace restrictions, the government could see a revenue loss exceeding PKR 1.5–2 billion, putting further pressure on non-tax revenue streams already struggling with shortfalls.
Ripple Effects on the National Carrier
Pakistan International Airlines (PIA), though currently undergoing restructuring, remains a significant burden on the federal exchequer. Airspace restrictions increase flying time, fuel consumption, and crew costs. The 2019 airspace closures reportedly added PKR 600 million in direct operating costs for PIA over a few weeks.
At a time when the government is attempting to privatize or restructure PIA to reduce fiscal bleeding—subsidies, debt rollovers, and bailout packages—an escalation in costs due to restricted routes can set back reform efforts and increase the public financial burden.
Tourism and Business Travel Disruptions
Another indirect impact lies in reduced connectivity. Foreign carriers may reduce flights to or over Pakistan due to unpredictable route closures. That not only reduces overflight revenues but also affects inbound tourism, business travel, and investment-linked visits. In FY2022–23, tourism contributed PKR 620 billion to GDP, and any significant disruption to air traffic access can reduce this number, ultimately impacting tax collection, especially sales tax and excise duties on services.
Macroeconomic Implications and Defence Spending Trade-offs
In some cases, airspace restrictions stem from heightened defence readiness. This can lead to higher emergency spending in defence or aviation sectors and reallocation of fiscal resources from development projects to security. Such shifts further skew Pakistan’s already strained development-to-current expenditure ratio.
At the same time, regional instability and frequent route volatility can reduce investor confidence, leading to lower foreign direct investment (FDI), which indirectly impacts the fiscal side through reduced tax revenues and potential depreciation pressures on the rupee—thus increasing external debt servicing costs.
Policy Recommendations: Managing Risk and Fiscal Fallout
To mitigate the fiscal fallout of airspace restrictions, Pakistan must:
- Diversify non-tax revenues to reduce reliance on aviation-dependent earnings.
- Build diplomatic resilience and engage in regional airspace coordination to minimize prolonged closures.
- Support PIA’s route optimization and fuel efficiency during restricted phases through temporary fiscal instruments or subsidies tied to performance.
While airspace restrictions may be driven by externalities, their internal fiscal impact is clear and measurable. As Pakistan navigates complex regional dynamics, ensuring that fiscal frameworks are flexible and responsive to such shocks is essential for long-term economic resilience.
This article was published on publicfinance.pk.
