PAKISTAN is facing enormous macroeconomic challenges, as evident in its fragile balance-of-payments, weakening growth, and soaring prices. The new government is expected to quickly set about dealing with these issues.

Its most pressing challenge is to formulate a longer-term financing plan to meet Pakistan’s growing external debt obligations, beginning with negotiations for a longer and larger IMF bailout as the present $3bn package ends in April.

Islamabad’s ability to secure loans and investments from other commercial, bilateral and multilateral lenders will be constrained without an IMF package. The Fund’s support is also required to avoid the prospect of default. Even with such support, the government’s willingness and ability to implement politically unpopular reforms will be tested.

Thursday’s elections should have reduced the instability in the country. However, the unanticipated results, with no party securing a clear majority in parliament due to the surprise win of a very large number of individuals associated with the PTI, has intensified the uncertainty, which could impact economic stability and efforts to execute structural reforms.

Allegations of rigging have also cast a shadow on the incoming set-up’s credibility. Many suspect that the political insecurity might last through the next election cycle, as the split mandate is pointing to the formation of a coalition — most likely between the PML-N and PPP, with smaller parties demanding a share — on the lines of the erstwhile PDM that ruled the country for 16 months after ousting Imran Khan in 2022.

The question is that, given the divergent political interests of its component parties, will the coalition be in a position to deal with the formidable economic challenges the country faces?

The last ruling coalition did not have an enviable track record when it came to taking difficult decisions. The way the PDM coalition government mismanaged the economy is known to all. The price for the mismanagement is now being paid by the people and has cost the PML-N heavily in Punjab in the polls. It is no wonder that many believe a ‘weak’ coalition government will dampen the prospects of the economic reforms Pakistan so desperately needs to be able to attain sustainable growth.

The presence of a strong and noisy opposition in parliament might also impede required legislation, as the PTI is unlikely to accept the legitimacy of a government by its rivals. Some are of the view that the military-backed SIFC will act as the main economic policymaking forum, reducing policy uncertainty despite potential political chaos, and providing some comfort to investors.

Yet, that may also lead to an uneven field for investors and frictions between the political and military leadership. So far, the future of the economy appears quite uncertain because of the split mandate following tainted elections.

Published in Dawn, February 13th, 2024