The International Monetary Fund (IMF) said on Friday it will support formulating a new economic programme for Pakistan if the country’s new government seeks one, while encouraging the fair resolution of all electoral disputes.

Cash-strapped Pakistan grappled with an uncertain Feb 8 election that delayed the formation of a coalition government until new Prime Minister Shehbaz Sharif was sworn in on Monday, although a new finance minister has yet to be decided.

“We look forward to engaging with the new government to complete the second review under the current stand-by arrangement and, should the government request, support the formulation of a new medium-term economic program,” an IMF spokesperson said in an e-mail.

Sharif has asked his government to open talks with the IMF for a new programme after clearing the stand-by arrangement.

Pakistan secured a $3 billion IMF stand-by arrangement last summer, but the country is still struggling with record inflation, currency devaluation and shrinking foreign reserves.

The party of jailed former prime minister Imran Khan asked the IMF last month to ensure an audit of the disputed February election before any more bailout talks with Islamabad.

The IMF said that while it did not comment on domestic political developments, it encouraged the fair and peaceful resolution of all electoral disputes, given the importance of the institutional environment for economic stability and growth.

“If developing countries are to prosper and grapple (their) way out of debt and borrowing, the lender needs to be as responsible,” said Zulfikar Bukhari, Khan’s close aide and spokesman for his Tehreek-e-Insaf party.

Pakistan’s finance ministry did not immediately respond to a request for a comment.

After a new cabinet is formed, the IMF is ready to send a mission for the second review of the stand-by arrangement, its communications official Julie Kozack told a briefing, adding that its focus is to complete the existing programme, which ends in April.

“With good compliance of IMF stand-by arrangement, I think the probability for Pakistan to get a 3 to 4 year programme is high,” said Mohammed Sohail, the CEO of Karachi-based Topline Securities.

Pakistan’s sovereign dollar bonds gained as much as 4 cents on Friday, to hit their highest level since early 2022.

The 2036 maturity gained the most, adding 4.13 cents to trade at 77.68 cents by 1057 GMT, on track for a weekly rise of some 6 cents, its third straight week of gains, Tradeweb data showed.

Pakistan’s bonds gained around 4 cents on Friday. The 2036 maturity gained the most by 1510 GMT, adding 3.85 cents to trade at 77.4 cents on the dollar.

“It’s been an incredible rally,” said Mark Evans, a fixed income analyst with Ninety One. He said moves on currency and interest rates helped improve Pakistan’s financial position, and that they remained overweight.

“There’s too much at stake for a country like Pakistan to default from a geopolitical perspective,” he said.

But Pakistan’s still-fragile politics, along with daunting economic troubles, leave risks.

The IMF encouraged a peaceful resolution of all electoral disputes, given the importance of the institutional environment for economic stability and growth.

Pakistan’s finance ministry did not immediately respond to a request for a comment.

Emre Akcakmak, head of frontier markets with East Capital, said investors would watch progress closely.

“There are reasons to be more optimistic compared to the darkest days of last year, but the country is still in the beginning of a much-awaited economic rebalancing and reform process,” Akcakmak said.

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IMF to send team for second review after cabinet is formed

The International Monetary Fund announced on Thursday that it will send its team for the second review of the Stand-by agreement as soon as the new cabinet is formed.

In a scheduled press briefing on Thursday, IMF Communication Director Julie Kozack said that the caretaker government has maintained economic stability through ‘through strict adherence to the fiscal targets’.

She added that this was done by social safety net, maintaining a tight monetary policy stance to control inflation, and continuing to build foreign exchange reserves.

“The SBA supported program underpins the authority’s efforts to stabilize the economy with a strong emphasis on protecting the most vulnerable segments of the population,” she said.

Kozack said that a total of $1.9 billion has already been disbursed to Pakistan. However, the IMF would send a team for the second review so the final tranche could be released.

“The IMF stands ready to hold a mission for the second review of the Stand-by shortly after a new cabinet is formed,” Kozack said.

“We look forward to working with the new government on policies to ensure macroeconomic stability,” she added.

However, Kozack refused to comment on a question regarding political instability.

She reiterated that the Fund looked forward to working with the new government for ensure ‘macroeconomic stability, for the good of the people of Pakistan’.

Facing a near default situation last year, Pakistan managed to sign a SBA worth $3 billion in July to stabilise its economy.

However, the implementation of the program, which largely fell to the caretaker government, saw record high inflation in the country with protests breaking out across Pakistan over inflated electricity bills.

Kozack’s comments come a day after a news report revealed that India had tried to block another IMF program.

The report had revealed that India had asked its representative to convey to the IMF that ‘checks and balances and ensure a stringent monitoring’ were needed for funds handed over to Pakistan.