Economic uncertainty

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.