The Pakistan economy is in distress. How else to describe an emerging market that has seen three currency devaluations since December, depleted its foreign-currency reserves and may soon ask for a bailout from the International Monetary Fund, less than two years after its last $6.6 billion emergency cash infusion. It all adds up to \u201csome daunting challenges,\u201d said interim Finance Minister Shamshad Akhtar. Complicating matters is a raucous parliamentary election, amid much political tumult and civil-military tensions, on July 25. Two parties are vying for control of the next government: The Pakistan Muslim League-Nawaz, led by the family of ex-premier Nawaz Sharif, and the opposition Movement of Justice run by the popular former national cricket captain, Imran Khan. Pakistan is currently run by a caretaker government, which took the reins in June after Sharif\u2019s party ended its five-year term. This time last year the nation\u2019s Supreme Court tossed Sharif out of power after corruption charges about his family\u2019s offshore holdings surfaced after the publication of the Panama Papers in 2016. He was convicted last week and handed a 10-year jail sentence. Sharif has denied financial wrong-doing and has been barred from holding public office. His younger brother Shehbaz is the party\u2019s current president and may serve as prime minister if the party prevails. Whoever succeeds will face some tough policy choices. Even amid wider emerging-market turmoil, Pakistan stands out what with the rupee down almost 10 per cent against the dollar this year. South Asia\u2019s second-largest economy has gone through decades of erratic growth, debt blowouts and balance-of-payments crises. Despite an economy growing at its fastest pace in a decade, the government\u2019s finances still remain shaky. This is a country renowned for rampant tax avoidance - from the highest political and business figures to market grocers - with only about 1 per cent of Pakistan\u2019s more than 200 million people filing income returns. A government amnesty intended to lure back ill-gotten wealth isn\u2019t expected to boost foreign currency reserves significantly, which currently hovers at $9.8 billion, close to the lowest level in three and a half years. Pakistan\u2019s current account gap has increased by 45 per cent to $16 billion in eleven months ended May, while its trade deficit rose to $3.7 billion in the same month. The country\u2019s external debt and liabilities, now at 31 per cent of GDP, is at its highest level in six years. \u201cThere is a general five to six-year cycle where there is an expansionary phase followed by a fairly hard landing,\u201d said Maheen Rahman, the chief executive officer of Karachi-based Alfalah GHP Investment Management, which handles about 48 billion rupees ($394 million). \u201cThat really has to change - exports and tax collection have to go up.\u201d Benefiting for years from low oil prices, Pakistan is now contending with the costs of rising crude, which the central bank says contributed to further balance-of-payments deterioration as foreign inflows remained limited. Added to that is Islamabad\u2019s mounting debt to China, which has provided more than $60 billion in loans and financing as part of its Belt and Road infrastructure program. \u201cIt is hard to see China providing the scale of balance-of-payments support which is needed,\u201d said Timothy Ash, a senior strategist at BlueBay Asset Management in London, which has reduced its dollar debt holdings in Pakistan ahead of the elections and doesn\u2019t hold any local currency assets. Pakistan\u2019s rupee rose 0.1 percent to 121.65 per dollar on Tuesday. Terrorism Financing Yet an IMF loan may come with stringent conditions as Pakistan\u2019s troubled relationship with the U.S. hit new lows this year. In January, President Donald Trump cut military aid after he accused Islamabad of supporting militant groups that attack Afghanistan. Thanks to a U.S. push, Pakistan was added onto a global terrorism-financing monitoring list in June. Short-term financial assistance is Pakistan\u2019s pressing need, but business leaders say significant and unpopular reforms after the national ballot will have to be pushed to get the nation out of its rutted economic cycle. \u201cIndia has similar problems, they run these large deficits but it is supplemented by foreign direct investment, portfolio investments and a lot of tourism,\u201d said Waleed Saigol, a director at Maple Leaf Cement Factory Ltd. in Lahore. \u201cWe don\u2019t have those avenues and we run into trouble. Until and unless we start reforming, things won't change.\u201d Welfare State Senior officials in Khan\u2019s party have indicated that they will go to the IMF for support if elected. Khan himself has repeatedly blamed widespread corruption for the problems besetting Pakistan\u2019s economy. He has pledged to fix state institutions, create an \u201cIslamic welfare state\u201d and reduce the nation\u2019s widening deficits by taxing the country\u2019s elite. \u201cCorruption has destroyed our state institutions, which have destroyed our capacity to give good governance,\u201d Khan said while campaigning in Karachi, Pakistan\u2019s financial hub, last week. \u201cThat\u2019s what stops investment coming into the country.\u2019\u2019 While in office Sharif\u2019s pro-business Muslim League has said Pakistan doesn\u2019t need an IMF bailout, highlighting its success in reducing power cuts, attracting Chinese infrastructure funding and improving national security. The party introduced its one-time amnesty to lure overseas funds stashed away by rich Pakistanis and vows to reduce corporate taxes. Pakistan\u2019s plunging currency, meanwhile, still is far from stable and veteran emerging market investor Mark Mobius thinks the government will need an adrenaline shot from international lenders. \u201cGiven the currency movements, there is a good chance that they will need to go to the IMF,\u201d said the founder of Mobius Capital Partners LLP.