Rising costs, industry grievances, inflation-hit voters, and a stagnant economy will challenge the new PM’s ability to fulfill campaign promises. Managing expectations early and emphasizing the necessity for healing, even if painful, could be prudent in his inaugural address. Conversely, the new PM faces a tightrope walk. Limited time and resources for buying back lost voters mean a focus on repairing the state’s financial health.

This task takes precedence over the broader economic requirements for growth and citizen prosperity, given the state’s growing dysfunctions. The fiscal question looms large. The historical practice of monetizing deficits has led to a precarious situation since 2017, with the dollar tripling against the rupee and persistent inflation. The new PM cannot resort to this traditional approach due to heightened scrutiny under the Fund program, leaving limited fiscal space for formulating the FY25 budget. The constrained fiscal and foreign exchange space poses a significant challenge in regaining lost votes, especially along the GT Road, the party’s b core constituency. Without resources to fulfill campaign promises, the new premier risks navigating with a compromised mandate and a fractured economy. Strategies must be devised to avoid such a predicament. Unless matters take a drastic turn for the worse, Pakistan is poised to witness the ascent of a new prime minister shortly after the proceedings of the National Assembly today. The incoming premier must brace himself for the challenges awaiting him upon assuming office. A concise overview follows.

The economic situation has stabilized since Shehbaz Sharif’s tenure as the last prime minister. In his final days, he secured a short-term Stand-by Arrangement (SBA) with the IMF, coupled with inflows from Saudi Arabia and the UAE, averting a catastrophic default. The caretaker finance team has diligently adhered to the program, preventing a plunge into crisis. However, this does not signify complete safety but rather a temporary pause, halting the trajectory toward disaster. The current state is a holding pattern, a temporary reprieve.

The upcoming review, right after the new PM takes office, is anticipated to pass smoothly. Yet, the real challenge lies ahead – a successor program, not designed merely to avert default but to address the underlying issues persisting since 2022.

Constrained fiscal and foreign exchange resources limit the new PM’s room for maneuver, making it difficult to regain lost party votes. SBA targets hint at the requirements for the successor program. For instance, the current account deficit should not exceed 1.5% of GDP until at least 2028, implying no substantial growth for the next four years. Upon assuming office, the new prime minister must promptly seek fiscal and foreign exchange space, possibly through visits to Gulf partners and engagement with China. However, the latter has signaled the end of rescue lending. A deal through the Special Investment Facilitation Council may be explored, but unlikely to meet the government’s requirements.