I read a news article in WSJ (deaed tree version) that the Governor of Pakistan Reserve Bank has resigned over policy differences. Apparently he was getting blue in the face warning about the unsustainable deficit but was not heeded in this years budget. Article went on to talk about how the rich in Pak have a very light tax burden that has not been reformed.
Pakistan's chief economist, Jaffer Qamar, has resigned less than a year after taking office and less than a week after the central bank governor, Shahid Kardar, stepped down.
Qamar reportedly quit on Wednesday to return to the United States, where he has taught in two major universities, and to lead technical consultants at the Asian Development Bank. Sources however claim that he was frustrated by government interference in his attempts to secure independence in formulating policy at the Planning Commission.
His departure may further hamper talks with the International Monetary Fund (IMF) for revival of a US$11.3 billion loan program, which was suspended last year over the government's failure to implement fiscal reforms.
Outgoing State Bank of Pakistan governor Kardar had developed differences with the government mainly over the issue of the bank's autonomy, while his predecessor, Salim Raza, who quit last June, had difficulty in persuading the government over taking in hand the finances of state-owned enterprises and implementing economic reforms agreed to with the IMF.
"How can the economy be stable when the economic team is not stable?"
The Express Tribune reported renowned Pakistani economist Ashfaque Hasan Khan as saying. Since the present government came to power in September 2008, it has gone through four finance ministers, five finance secretaries, four Planning Commission deputy chairmen and three central bank governors.
International ratings agencies have warned that the resignations of the central bank chiefs send out a negative signal and reflect badly on the government's management of the economy.
Resignation "reflects the difficulties of the central bank governor to do his job: to maintain price stability in the backdrop of the dominance of the fiscal side in the form of large borrowings,” The News reported Agost Benard, S&P credit analyst, as saying. "Given Pakistan's unstable domestic political situation, the resignation does not come as a surprise." As its bankers and leading economists walk away, the government is increasing its borrowing from the central and local bank, with critics saying most of the borrowed money is used for unproductive purposes, like current expenses and to feed poorly performing public-sector companies. "The government again requires huge amounts of money as large public sector giants, PIA, Steel Mills, Wapda and Pakistan Railway, are facing shortages that cannot be provided from the expected revenue generation for the 2012 budget," Dawn reported Mohammad Imran, an investment researcher, as saying.
"The credit summary of the State Bank might include some more horrible figures at the end of this fiscal year." Pakistan's fiscal year runs from July 1 to June 30. The country's outstanding domestic debt has doubled in four years to 32% of gross domestic product. The IMF and Pakistani officials are due to meet this month. Last year, the IMF held back the sixth tranche of its $11 billion loan program over patchy implementation of fiscal reforms, including the imposition of a reformed general sales tax.
The central bank recently suggested broadening the tax base, gradually eliminating untargeted subsidies and improving debt management as demanded by IMF.
Before Qamar quit as Planning Commission chairman, Finance Minister Hafeez Sheikh and Planning Commission deputy chairman Nadeem ul-Haque had reportedly tried to persuade Kardar to stay on at the central bank. Sheikh was reportedly conscious of the negative impact the central bank governor's resignation would have internationally, including the way it might affect some IMF programs aimed at assisting the country financially. Qamar's departure can only make matters worse.