Amid political turmoil the country’s internal and external accounts appear to be entering uncertain territory.
The fiscal account, after showing marked stabilisation over the past four years, has started a downhill journey as evident from the 2016-17 budget deficit that was higher than a year before as tax machinery was Rs250 billion behind target.
The external account is on an even more precarious path as all of its three key sources are going down, stagnating or not picking up.
Exports have been falling for a few years now, remittances have started to show signs of disquiet, and foreign direct investment has not been able to show a marked improvement despite the CPEC shot in the arm.
The timing of all these indicators is crucial. Politics has entered an uncertain phase with the prime minister no longer in office to take effective corrective measures.
Therefore, the question about the need for another bailout programme from the International Monetary Fund (IMF) sometime around the upcoming political transition is again gaining ground.
To begin with, the fiscal deficit for the last fiscal year is estimated to be one per cent higher than the 3.8pc target despite changing definitions of revenue and financing items and a Rs110bn cut in federal development spending.
At the heart of problem lay the inability of the government to push through critical structural reforms, particularly on account of public sector entities and the power sector.
Despite significant reductions in subsidies and imposition of massive surcharges, power companies are still far from being self-sustainable.
No wonder then, the IMF has already hinted at a need for new tax measures of around 1.5pc of GDP (around Rs500bn) during the current fiscal year. It has been warning of insufficient buffers both on the external and internal front to cope with unseen large economic shocks.
In recent months the trend of robust remittance flow from overseas Pakistanis is reversing as evident from the 3pc decline last year.
Against $19.9bn remittances in fiscal year 2015-16, Pakistanis sent home $19.3bn during the previous fiscal year. The decline was seen across the board, though major cuts were seen from important sources like the US, UK, the Middle East and Europe.
FDI inched up from $1.98bn in the fiscal year 2015-16 to $2.16bn in 2016-17, but it was not enough to compensate for the decline in remittances.
Exports, the key source of foreign exchange, have continued to tread a declining route. From a peak of more than $25bn in the fiscal year 2014, exports dropped to $20.4bn last year.
This demands a deeper engagement with the export sector to understand what ails them, and how realistically they can be supported on the basis of possible outcomes.
On top of that, the imports have continued an upward trajectory to reach $53bn at end-June 2017, leaving a massive trade deficit of almost $33bn — around 70pc higher than fiscal year 2015-16.
Consequently, the current account deficit has gone beyond $12bn, almost 148pc greater than about $5bn in 2015-16.
That leads to the critical question as to how long such deterioration in fiscal and external accounts is sustainable and how long capital markets and lending agencies could be relied upon to support declining foreign exchange reserves in the absence an institutional support of the IMF.
As things stand now, it can be safely assumed that reasonable international reserves have built on the back of an IMF programme and the resultant issuance of bonds and receipts from other lenders who follow the IMF.
The government has not been able to create sustainable sources of foreign inflows.
Therefore, when exports and remittances are declining and trade deficit widening, the stability of forex reserves would depend on the international prices of oil as the current account deficit expands.
Officials believe Pakistan may be going back to the IMF in case oil prices make any steep increase, which does not appear forthcoming in the immediate future.
They agree that even though the PML-N government had been able to reverse deteriorating macroeconomic indicators, it could not institutionalise economic reforms as was evident from a stalled privatisation programme and bleeding public sector enterprises like Pakistan Steel, PIA and power companies.
This was the reason behind the previous IMF programme and may be the route to the next one.
“There are still some reasonable buffers — both on the external and domestic front — that may take us past the next general elections smoothly,” a senior government official believed.
“The country would still need another programme somewhere in 2019 or 2020 depending on the oil prices and the public sector losses.”
His argument was that exports and investments could not be expected to show sudden improvements and the revenue side was struggling to make deep rooted inroads into the revenue base.
While there is no immediate threat to macroeconomic stability, this is also not sustainable for a longer period and would depend on the revenue base, public sector losses and external inflows.