Imran Khan took the oath to become Pakistan’s 22nd prime minister late last week. The election results were contested. In as many as 169 national and provincial assembly constituencies, the victory margin was much less than the number of rejected votes, according to election observer group Free and Fair Election Network. This included the NA-131 constituency won by Imran Khan in Lahore.

Against this backdrop, his party’s election manifesto was “Naya Pakistan". Turning Pakistan into a welfare state will require considerable resources. At the moment, Pakistan needs a bailout by the International Monetary Fund (IMF) or by bilateral creditors. The country’s future will be decided by harsh economic realities, rather than by the arithmetic of legislative politics or composition of the cabinet.

Asad Umar, who has been appointed the minister for finance, revenue and economic affairs in Imran Khan’s cabinet, stated that, “We are facing a significant current account crisis." He added that the current account deficit had gone up from $2 billion a year at the beginning of Nawaz Sharif’s term to $2 billion a month recently.

According to the IMF report of March, Pakistan’s fiscal deficit is expected to reach 7% against the target of 4.1%. Pakistan’s current account deficit has increased from 1% of gross domestic product in 2014-15 to 4.4% in 2017-18. The foreign exchange reserve had dwindled to $9 billion, which is less than two months of imports. Since the IMF report came out, the sharp increase in oil prices means that the actual situation is worse.

The reports that Pakistan is likely to approach the IMF for a $12- billion bailout package touched off a sharp exchange between the US and Pakistan. US secretary of state Mike Pompeo said that there was no rationale for the IMF and associated US tax dollars to go towards the payment of Chinese loans. Umar, in turn, said the US should worry about “Chinese loans" that it has to repay.

The remark misses the point that the Chinese have invested in US treasury bonds. Any Chinese attempt to precipitate a crisis would undermine the value of their own investment. Besides, the Americans enjoy the extraordinary privilege of printing the dollar. Pakistan is reportedly trying to tie up assistance from Saudi and Chinese sources.

During the period 2014-15 to 2017-18, the share of Chinese debt in Pakistan’s external debt (non-IMF sources) went up from $551 million (out of $3,088 million) to $2075 million (out of $6,144 million). In percentage terms, China’s share has gone up from 17.84% to 33.77%.

China as creditor outranked the World Bank at 10.61% ($652 million) and the Asian Development Bank at 13.44% ($824 million) last year. IMF’s share in external credit was low (7%) in 2017, and is expected to decline further. The inescapable conclusion is that China’s influence over Pakistan’s macroeconomic policies is set to increase.

The phenomenon of an increasing Chinese share in Pakistan’s loan profile is co-terminus with the China-Pakistan Economic Corridor. The initiative is based largely on credit, not investment. A predominant share of the borrowing is for projects in power and infrastructure sectors, which do not generate foreign exchange returns.

Second, Pakistan’s increasing reliance on liquified natural gas for the power sector will increase the import bill. Both these factors will worsen Pakistan’s current account balance.

Serious economic reforms will require political consensus. The election campaign and the results have, however, produced a highly fractious polity. This will make it difficult to get the opposition’s support for the major decisions that lie ahead. The Pakistan Tehreek-e-Insaf (PTI) did not win a simple majority in the national assembly, or in the provincial assemblies with the exception of Khyber Pakhtunkhwa. The majorities were cobbled together with post-election political engineering. Pakistan’s Election Commission has notified 158 seats for PTI in the national assembly, while a simple majority requires 172 seats in the house, which has a total strength of 342 members.

While the PTI’s claim can be conceded at the federal level, it was the Pakistan Muslim League (Nawaz) which had emerged as the single largest party in the Punjab assembly with 129 seats as against 123 seats for PTI. After the elections, PTI has won over independents and smaller groups (171 against 160 for PML-N) and formed the government. This goes against precedent: In 2013, Nawaz Sharif had given space to PTI to form the government in Khyber Pakhtunkhwa as the single largest party.

The Punjab high court had ordered a recount in NA-131 won by Imran Khan in Lahore, as the law allows a full recount where the margin of victory is less than 5 % of total votes. Khan’s loss in the recount would have undermined the legitimacy of his claim to form a government in the province. The Supreme Court came to his rescue by overturning the Lahore high court’s order on the grounds that the matter came within the ambit of the Election Commission.

As if these political frailties weren’t enough, Khan’s relationship with his main backers, the army, is by no means assured. He had, after all, opposed the army’s operation Zarb-e-Azb against the Tehreek-e-Taliban-e-Pakistan.

We need to wait and see how he plays his cards in Afghanistan and deals with democratic opposition in Pakistan. The utility of the civilian leadership in Pakistan to the generals in Rawalpindi lies in its ability to get international support and domestic consensus required to run the economy. If Imran Khan fails on that front, he will have his hands full.

D. P. Srivastava is a distinguished fellow, Vivekananda International Foundation, and a former diplomat who has served in Karachi.

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