Oscar Wilde once said, “To lose one parent may be regarded as a misfortune; to lose both looks like carelessness.” Well, Pakistan has now lost its third State Bank governor in three years and it looks like nothing but incompetence on the part of the government. Shahid Kardar confirmed in an interview that he had handed in his resignation but said he would only explain his reasons once the resignation has been accepted. His predecessor, Salim Raza, had officially quit for personal reasons but reportedly he was extremely unhappy with the government’s attempts to curtail the central bank’s independence. Mr Kardar, it is believed, does not want to agree to printing more money to meet the government’s demand for increased expenditures and to meet financial obligations (one report suggests that part of this may have to do with extending the allocation for the Benazir Income Support Programme).
Mr Kardar’s stance is correct for reasons related both to finance and governance. Inflation is well above double digits and printing more money will only exacerbate matters. Rather than meeting its debt obligations by raising revenue, the government has preferred to just print more currency. A state bank governor who refuses to exercise that option could force the government to improve its tax collection and eliminate untargeted subsidies. With the government now exerting pressure on Mr Kardar to bend to its will on the issue of monetary policy, he seems to have exercised the only honourable option that was available to him.
That said, even if resignation was the right decision for him, that does not mean it will be good for the country. With an IMF team due in the country later this month, the timing of the resignation could not have come at a worse time. The governor had been popular with the IMF because he supported many of its economic remedies and the acting governor may not have the same rapport with them. At this precarious time, Pakistan desperately needs stability at the central bank. That this is absent is the fault entirely of the government.
Published in The Express Tribune, July 18th, 2011.
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