If no party wins a simple majority, the nation will descend into even greater political and economic chaos.
Analysts' concerns about Pakistan's continued economic suffering have been heightened by the prospect that a political impasse could postpone both reforms and vital foreign finance. This has caused a selloff in the nation's international bonds.
Following the results of Thursday's election, the Pakistan People's Party of Bilawal Bhutto Zardari and the Pakistan Muslim League-Nawaz (PML-N), led by former prime minister Nawaz Sharif, showed a surprisingly strong showing for independents. These independents were primarily supporters of the imprisoned former prime minister Imran Khan.
Although Sharif has declared victory early, his party still lacks the number of seats required to form a government on its own.
The election, which was significantly postponed in the first place, occurs at a crucial time.
Pakistan's economy is in dire straits, with diminishing foreign exchange reserves that will be made worse by an impending $1 billion bond payment and a $3 billion loan agreement with the IMF that ends on April 12.
Sajid Amin, the former adviser to the minister of finance and head of the Sustainable Development Policy Institute, stated that "Pakistan will be entering into more severe political and economic instability if no party emerges with a simple majority."
"The most crucial factors are the legitimacy of the government and the credibility of the elections; a government lacking in credibility will not be able to implement the urgently needed reforms."
Since the nation has not yet fully met its obligations for external finance for 2024 and its almost $100 billion foreign debt burden is casting a long shadow over the future, securing funds will be a major concern.
In order to finish the final evaluation of the $3 billion IMF Standby Arrangement, a bridging loan that assisted in pulling the nation back from the verge of default, a new government is anticipated to act swiftly on certain matters, such as state-owned firm governance.
When the present IMF programme ends in mid-April, securing a last $1.1 billion tranche would be necessary. The government would then need to immediately arrange a new plan.
Negotiating a new IMF Extended Fund Facility programme, which normally lasts for three to four years, is anticipated to be among the next government's most urgent policy measures, according to Johanna Chua, global head of Citi's emerging market economics, in a note to investors.
According to calculations by Oxford Economics, the country's external debt amortisation is high in percentage of FX reserves, even though its foreign bonds only account for 3.4% of its overall public debt, which is dwarfed by the nearly 13% it owes to China.
China is one of Pakistan's biggest creditors and, like the UAE and Saudi Arabia, has recently rolled over loans to the nation.
According to academics, political fragmentation may make it more difficult to enact unpleasant and unpopular but essential policies like expanding the tax base.
The economy would be impacted as well if the violence and protests that Pakistan saw leading up to the election persisted, according to Joe Delvaux, a portfolio manager at Amundi, whose company owns bonds issued by Pakistan.
"We are closely monitoring this as this is a country that experiences political unrest on a regular basis," Delvaux stated.
Prior to partially recovering their losses, Pakistan's foreign bonds had a decline of up to 5 cents in the dollar on Friday. According to Tradeweb statistics, the sovereign dollar bond due on April 15 trades at 95 cents in the dollar, showing hopes among investors that they will be repaid. However, maturities due in 2027 and later trade at or below the 70 cents in the dollar below which debt is considered distressed.
With time running short, investors and experts cautioned that pressure on the bonds could persist based on how quickly and effectively a government can be established.
Former finance minister Hafeez Ahmed Pasha said that "our reserves will evaporate in weeks." He pointed out that the present amount of foreign exchange reserves, at just over $8 billion, is only enough to support one and a half months' worth of imports, far less than the three months minimum that is typically seen to be safe.