Economy presents key challenge for new Pakistani government

Imran Khan, leader of the Movement for Justice Party (PTI), has declared victory in Pakistan’s elections, amid widespread accusations of rigging by the military. PTI is close to winning an outright majority, however it is unclear whether it will achieve this or be forced to form a coalition government. Incumbent leader Shahbaz Sharif has already disputed the outcome, questioning the likelihood of a smooth transition. 

As the Straits Times reports, a growing economic and currency crisis will need to be a priority for the new Prime Minister. It is likely the new government will pursue an International Monetary Fund (IMF) bailout, after Pakistan has devalued its currency four times since last December. It has a significant current account deficit, related to imports of construction materials for Chinese infrastructure projects, and its weakening currency is pushing inflation up. Pakistan has an estimated US$75 billion in external debt, which is mostly in US dollars and therefore being made more expensive as the US dollar rises – an issue for most emerging market economies, as outlined by Market Watch.

Any changes in Pakistan’s foreign policy will also be under scrutiny, as the China-Pakistan Economic Corridor forms a crucial component of China’s Belt and Road Initiative. Khan is unlikely to challenge the military, who has traditionally been influential in the foreign policy sphere, and has previously expressed his support for the China led US$60 billion infrastructure programme.   

Khan winning an absolute majority in Parliament would be the best outcome for the economy, as investors look for stability and stronger economic governance. Khan’s party campaigned on an anti-graft populist ticket, claiming to end decades of corruption and misrule under the former two-party system. This was popular with young and middle-class voters, according to CNN, however if he does not win an absolute majority the coalition negotiations will be difficult. With very strong allegations of military interference and Khan’s leading rival Shahbaz Sharif already rejecting the vote, the negotiations are likely to be protracted and difficult, pushing back crucial economic action.