ISLAMABAD (BLOOMBERG) - Pakistan's new Prime Minister Shehbaz Sharif faces a crucial few weeks when he must end fuel subsidies and convince the International Monetary Fund (IMF) he is doing enough to win a bailout, while ousted premier Imran Khan threatens new protests amid soaring inflation.

A fuel-price review is due May 15 and the leader faces a "very difficult" decision on raising prices of gasoline and diesel, Mr Ishaq Dar, a senior leader of Sharif's party, told reporters on Monday (May 9).

Meanwhile Mr Khan - who as premier had capped pump prices until June by providing a subsidy of more than 300 billion rupees (S$2 billion) - has warned he will lead two million people to march on the capital to demand new elections immediately.

The political test for Mr Sharif, who has so far talked of more populist measures, will play out as the IMF resumes talks with Pakistan to revive a suspended loan programme that is needed to help shore up dwindling foreign exchange reserves.

The cost of insuring Pakistan's debt against the risk of default has jumped in recent weeks. Mr Sharif's "inaction is taking its toll on the economy", said Mr Asif Ali Qureshi, chief executive officer at Optimus Capital Management Ltd in Karachi.

"Political considerations are weighing heavily on the government's ability to make tough economic decisions."

Credit-default swaps for the country have increased 92 basis points in May off a two-month low to the highest in almost three weeks at about 913 basis points. That brings the contracts closer to the highest in a decade of 1,068 marked in April, according to CMA data.

While finance minister Miftah Ismail has publicly advocated raising fuel costs, Mr Sharif has twice refused to raise pump prices. Pakistan's inflation rate has accelerated to 13.37 per cent - second-fastest in Asia after Sri Lanka, its forex reserves of US$10.3 billion (S$14.4 billion) are enough to cover about two months of imports, stocks have tumbled more than 5 per cent in the past month and the rupee is trading at a record low against the US dollar.

The IMF has said it will start talks with Mr Sharif's government in the second half of May and the administration needs to implement policies to achieve macroeconomic stability.

Mr Sharif and his key Cabinet members, including Finance Minister Ismail, early this week flew to the UK to consult with his brother and three-time premier Nawaz Sharif about raising fuel prices. The former leader has lived in self-exile in London since 2019, a year after he was convicted and jailed in a corruption case.

To add to Mr Sharif's woes, Mr Khan's rallies are attracting huge crowds and he has called on his supporters to be prepared to converge on the capital Islamabad for protests until fresh elections are announced.

He has blamed the Sharif brothers and former President Asif Ali Zardari, whose Pakistan Peoples Party is a part of Mr Sharif's month-old coalition government, of planning his ouster from power with help from the Biden administration. The Pakistani leaders and the US have denied the allegations.

Ruling and opposition parties blamed each other for the economic concerns in a series of tweets on Friday. Pakistan's foreign-exchange reserves have fallen by US$6 billion since a no-confidence vote was brought against Mr Khan, his party member and former Finance Minister Asad Umar wrote.

Current Information Minister Marriyum Aurangzeb wrote that Mr Khan inflicted "irreparable damages to save his failed politics" due to the fuel subsidies.

"Imran is responsible for the difficult decisions that are being taken today," she added.

Pakistan's KSE-100 stock index rose 1.1 per cent on Friday, most since April 25. The rupee extended its drop toward a fresh record low of 193 per dollar.

Mr Khan was ousted from power last month when Mr Sharif and Mr Zardari joined hands and led a successful no-confidence vote against him. Mr Sharif will complete his term in August 2023 and national elections must be called within three months.

Mr Khan does not have the "momentum to destabilise" the government, according to Mr Akhil Bery, a director at the South Asia Initiatives of Asia Society Policy Institute. Mr Sharif would do well to focus instead on the economy, he added.

"The government is not performing well on the economic front," Mr Bery said. It has opted to keep the subsidies in place, even though this is a "significant drain on the treasury".