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Islamabad, Pakistan – It is often tempting to declare every election as the most important in the country’s history. But when Pakistan goes to the polls on Thursday — what some critics say may be the most unfree election ever — it’s no exaggeration to say the stakes are extremely high.

Former prime minister Imran Khan languishes in jail as authorities crack down on his Pakistan Tehreek-e-Insaf (PTI) party, while previously jailed and exiled former prime minister Nawaz Sharif has returned to contest the election alongside a host of other left-wing candidates. right.

However, these elections are not only focused on addressing nearly two years of political instability but, crucially, on establishing a new, strong government that can stabilize an economy in crisis for Pakistan’s 241 million people.

About 40 percent of the population lives below the poverty line, inflation has soared to more than 30 percent, and about 70 percent of Pakistanis believe the economic situation is worsening, according to a poll released this week.

In June last year, Pakistan faced the imminent threat of default, with foreign reserves plunging to $4.4 billion – barely covering the month’s imports – while the currency lost more than 50 percent of its value against the US dollar.

With the country in a precarious position, then-Prime Minister Shehbaz Sharif managed to secure a crucial bailout package from the International Monetary Fund (IMF) – his 23rd fund program since 1958 – just weeks before the end of the government’s term.

The interim government, which took power in August 2023, faced the primary challenge of ensuring the continuity of the IMF’s estimated $3 billion program.

This IMF stand-by arrangement (SBA), which lasted nine months, called for tough measures, including the removal of subsidies on basic commodities and allowing the value of the rupee to be determined by the open market.

With the current IMF program set to expire in March, just as the new government will take office, analysts say the first order of business for the winning party must be to restart negotiations with the global lender to maintain stability.

At the same time, Pakistan faces a looming debt servicing crisis, with the central bank reporting $24 billion in external liabilities by June 2024.

‘Anti-populist’ steps

The incoming government must negotiate with the International Monetary Fund for a new program while taking steps to reduce costs and balance the budget deficit, Karachi-based economist Asad Sayeed points out.

“The government must continue with steps that are anti-populist in nature, gas and oil subsidies cannot be continued, the exchange rate cannot be manipulated, and the focus must be on cutting costs and balancing the budget deficit,” said Sayeed, who is director of research of the Collective for Social Science Research (CSSR), he told Al Jazeera.

Sajid Amin Javed, a senior economist associated with the Sustainable Development Policy Institute (SDPI) in Islamabad, urges the incoming government – ​​regardless of its political affiliation – to prioritize economic decisions over political considerations and engage with the IMF immediately.

“The new government must separate politics from the economy. They must avoid decisions based on populism that some of her predecessors took,” Javed told Al Jazeera.

The urgency expressed by economists underscores the critical state of Pakistan’s $340 billion economy amid an unstable political landscape.

A recent history of economic challenges includes Pakistan entering a $6 billion, 39-month IMF bailout program in 2019.

In early 2022, then-Prime Minister Khan’s decision to lower fuel prices amid global spikes from the Ukraine-Russia war violated IMF requirements, creating challenges for the next government.

Khan’s government was ousted in April 2022 and replaced by a coalition government formed under the banner of the Pakistan Democratic Movement (PDM), an alliance that also includes Sharif’s party, the Pakistan Muslim League-Nawaz (PMLN).

In August 2022, the PDM government restored the IMF program, but soon replaced Finance Minister Miftah Ismail with two-time former Finance Minister Ishaq Dar.

However, economists argued that Dar’s attempts to control the exchange rate had negative effects on the economy, similar to the PTI government’s decision to reduce petrol prices.

Economist Sayeed said one of his concerns about the PMLN government – the leading candidates in the election – is if it will bring back the same economic policies promoted by Dar, who is a senior member of the party.

“If the PMLN gets a simple majority and you enter [to] powers, may end up taking measures that can derail an already fragile economy. You will again teeter on the edge of crisis and possible default,” he said.

Interactive_Pakistan_elections_2024_Pakistan at a GlanceInteractive_Pakistan_elections_2024_Pakistan at a Glance
[Al Jazeera]

The fight against inflation

In addition, the impact of inflation in the last year and a half is another pressing issue that has led economists to stress that the incoming government needs to recalibrate its priorities.

Islamabad-based economist Javed warned that the wrong policies could threaten the delicately balanced economy, potentially leading to crisis and default.

“Controlling inflation and protecting people from the side effects of stabilization policies must be top priorities,” he said.

“People, especially the poor, suffered a lot. Prolonged higher inflation and unemployment pushed many below the poverty line. They need to be supported.”

Ali Hasanain, an associate professor of economics at the University of Management Sciences Lahore, highlighted the persistent challenge of balance of payments crises in Pakistan’s history.

“There is no decade in which we have not stumbled into a balance of payments crisis and suffered ‘sudden stops’ in our economic governance accompanied by rapid, unplanned devaluations of the rupee and a painful spike in the cost of living,” he told Al Jazeera.

Highlighting the country’s plight, Hasanain said Pakistan has to pay nearly $90 billion in foreign debt obligations in the next three years.

Because of these liabilities, the country has to repay more every year than it has received in China-Pakistan Economic Corridor (CPEC) investments in a decade.

“The government urgently needs a plan to deal with this fact. But since that seems almost certainly unfeasible, we need to negotiate with our lenders, either by restructuring our debt or by offering equity in Pakistani assets,” he added.

Plan ahead

Fahd Ali, an assistant professor of economics at Lahore University of Management Sciences, expected the incoming government to struggle to reconcile campaign promises with the reality of a sluggish economy.

“The party manifestos of the leading parties promise lavish spending. This would be a difficult promise to keep, given that the new government will probably have to sign another three-year agreement with the IMF,” he told Al Jazeera.

SDPI’s Javed stressed the need for every government to come up with a plan for the first 100 days, focusing on expanding the tax net. The tax-to-GDP ratio, currently at 10.4 percent, is among the lowest in the Asian region.

Economist Sayeed stressed the importance of policymakers helping the country move away from its long-standing “consumption-driven growth model”.

The latest Pakistan Economic Survey of June 2023 (PDF) revealed that consumption expenditure accounted for nearly 94 percent of the country’s GDP, while the share of investment remained at more than 13 percent.

However, Sayeed argued that the most immediate threats facing Pakistan are the challenges and effects of climate change and climate-induced disasters.

Recalling floods of “biblical proportions” just two years ago, he stressed the need for significant investment in climate change mitigation and adaptation strategies.

“Climate-related disasters happen every year and we need significant investment in climate change mitigation and adaptation strategies and policies,” he said.

We need to look for investments in this sector, but for this we must first recognize and acknowledge the problem itself.”

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