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Salim Raza resigns as SBP governor

June 03, 2010

Syed Salim Raza had several times in the past expressed his desire to quit for some personal reasons. - File Photo.

KARACHI Pakistans central bank governor has stepped down, citing “personal reasons,” the Finance Ministry announced on Thursday, two days before the announcement of the 2010/11 federal budget.

“We dont know what the reasons are for the resignation, but the timing of it can be worrisome,” said Sayem Ali, an economist at Standard Chartered Bank.

“It is right before the budget is announced and relations with the IMF are in a bit of a difficult stage.” Pakistan turned to the IMF in November 2008 for a $10.66 billion emergency loan to avert a balance of payments crisis and shore up its reserves. Last month it received the fifth tranche of the loan amounting to $1.13 billion.

“It (Razas resignation) does not fundamentally change anything ... There are many other sources of anxiety that investors would focus on,” said Agost Benard, credit analyst for rating agency Standard & Poors.

“The deciding factor is still whether the fiscal and other reforms that the country has committed to with the IMF are being implemented and whether Pakistan can remain on track.”

Moodys Investors Service also said the news fit in with its view of the unpredictability of Pakistan and the inner workings of its policy institutions. Though the economy has stabilised, the rating agency said volatile local politics, government debt levels and acts of terrorism remain key concerns.

Raza is the second senior policymaker to quit in Pakistan this year, following the resignation of Finance Minister Shaukat Tarin in February.

Although Raza had little direct impact on the budget in his role as central bank chief, Pakistans financial institutions have been under pressure from the IMF to make painful reforms.

“There is definitely more than personal reasons to his resignation,” said a senior government official, requesting anonymity. “There was a tussle going on between him and the government. I cannot divulge the issues, but all was not well.”

The announcement was made overnight in an e-mail from the Finance Ministry, which said it had received Razas resignation letter on May 6.

Raza, who has a reputation for honesty, was appointed central bank governor in December 2008 and was part of the team negotiating with the IMF.

While acknowledging the resignation could send a negative signal to foreign investors, another senior government official said Razas exit was prompted by the desire of the new finance adviser, Abdul Hafeez Shaikh, to bring in his own team.

Its acceptance was delayed because of Pakistans notoriously slow bureaucracy.

Raza would not have been able to serve out a full three-year term anyway because he would have hit the mandatory retirement age of 65 in the middle of his tenure, the official said.

Yaseen Anwar, deputy governor of the State Bank of Pakistan, was named acting governor. Anwar was a former executive vice president for Londons Kraken Financial Group.

Investors appeared unfazed by Razas resignation, with Pakistans main stock exchange index rising 1.4 per cent.

It has gained more than 2 per cent this year, outperforming Asias major markets. But even among risky “frontier markets”, Pakistan is seen by many investors as a long shot due to its security problems, poor governance, corruption and crippling power shortages.

“The resignation of the SBP governor should have no material impact on the markets, especially since most policies are coordinated with donor or multilateral agencies, leaving little room for dynamism by individuals in formulating such policies,” said Asad Iqbal, chief investment officer at Faysal Asset Management Ltd.