The International Monetary Fund has asked Pakistan to focus on the energy sector in the next budget as the South Asian country seeks a new bailout package from the lender to support its economic plans.

Sources said the IMF has presented Pakistan with guidelines for the upcoming budget negotiations.

Electricity and gas rates should be determined according to the cost, and circular debt should not be allowed to increase.

The lender has also demanded the elimination of subsidies for tube wells and industries in the budget.

“A mission team led by Nathan Porter, IMF’s Mission Chief to Pakistan, will meet with authorities next week to discuss the next phase of engagement,” Esther Perez Ruiz, IMF Resident Representative for Pakistan, said in a statement.

“The aim is to lay the foundation for better governance and stronger, more inclusive, and resilient economic growth that will benefit all Pakistanis,” she added.

Pakistan last month completed a short-term $3 billion programme, which helped stave off sovereign default, but the government of Prime Minister Shehbaz Sharif has stressed the need for a fresh, longer term programme.

In its staff report earlier this week, the IMF acknowledged Pakistan’s economic improvement, however, it warned that the outlook remains challenging, with downside risks remaining exceptionally high.

The country narrowly averted default last summer, and its $350 billion economy has stabilised after the completion of the last IMF programme, with inflation coming down to around 17% in April from a record high 38% last May.

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It is still dealing with a high fiscal shortfall and while it has controlled its external account deficit through import control mechanisms, it has come at the expense of stagnating growth, which is expected to be around 2% this year compared to negative growth last year.

Earlier, in an interview with Reuters, Finance Minister Muhammad Aurangzeb said the country hoped to agree the contours of a new IMF loan in May.