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 Nawa...