Former cricket star Imran Khan and his Pakistan Tehreek-e-Insaf party (PTI) won Wednesday’s general elections in Pakistan with a surprising margin. When Khan becomes prime minister, he will inherit a looming financial crisis that may hinder his agenda.
The most recent published figures show that as of July 13, Pakistan’s state bank had just $9.1 billion worth of reserves. Such funds are reportedly insufficient to cover even two months’ worth of spending. The Pakistani currency, rupee, has also devalued three times since December.
Mariam Mufti, Assistant Professor of Political Science at the University of Waterloo who specializes in Pakistani politics, said Tuesday at an event at the Wilson Center that the new government will have little choice but to pursue a loan from the International Monetary Fund.
“Pakistan’s coffers are empty right now and so yes, they are going to turn to the IMF, absolutely,” Mufti said.
Less than two years ago, Pakistan accepted a $6.6 billion emergency cash infusion from the fund. While another IMF loan could be a quick fix for Khan as he takes the reigns of the government, such a move could be politically costly.
“Turning to the IMF would mean agreeing to some very, very unsavory conditions,” Mufti said.
When the IMF issues loans, the fund imposes corresponding conditions that often include austerity policies such as reductions in spending on discretionary social programs.
For Khan, who rose into power partially by appealing to populists seeking to alleviate poverty in Pakistan, accepting IMF’s loan conditions could be problematic.
Tamanna Salikuddin, Senior Expert at the U.S. Institute of Peace and the Former Pakistan and Afghanistan Director at the U.S. National Security Council, said Tuesday that former Pakistani President Asif Ali Zardari faced a similar situation in 2008 and had to accept an IMF loan to his political detriment.
“In the end, [Zardani] had to go to the IMF … and I think [PTI] is going to be forced to do that. But it hurt them politically in a huge way. The populist support for PTI will suffer if you accept the conditions the IMF are going to emplace,” Salikuddin said.
Khan has few alternatives to managing the country’s impending financial crisis. In his victory speech Wednesday, Khan said China has “given a chance” to Pakistan through “economic corridor” investments and identified continued cooperation as a top foreign policy priority. While some have suggested that Beijing may be willing to bail out Pakistan, Salikuddin expressed skepticism.
“[Zardani] thought he could go to China too …The Chinese were happy to give rhetorical support, but they’re not going to bail you out for nothing. And I think that’s still the case,” Salikuddin said.
Raising government revenue internally could also be a daunting proposition for Khan. only about one percent of Pakistan’s more than 200 million people pay national income taxes. An amnesty program launched in April that seeks to encourage tax payments has not been able to significantly enhance revenues so far.