Pakistan Names Oxford-Educated Kardar Central Bank Head to Revive Economy

Pakistan named Shahid Kardar as central bank governor, filling a three-month void that’s seen the nation’s most destructive floods slash economic growth and fuel inflation.

Kardar, 57, a director at Royal Bank of Scotland Pakistan, will replace Syed Salim Raza, who quit in June. The appointment was confirmed by Kardar by telephone today. He will take charge at the State Bank of Pakistan on Sept. 14 for a three-year term.

Oxford University-educated Kardar needs to revive an economy already undermined by terrorism and falling foreign investment before floods caused as much as $7 billion of damage. Prime Minister Yousuf Raza Gilani on Sept. 1 said the disaster will cut gross domestic product growth to 2.5 percent in the year through June, 2 percentage points less than a government target, and stoke inflation to as high as 20 percent.

“It will be a challenging job for the new governor,” Ayub Humayun Ansai, an analyst at Invest & Finance Securities Ltd., said in Karachi before the report. “The post-floods scenario will be tricky to deal with -- supporting growth and controlling inflation at the same time isn’t easy.”

The cost of insuring Pakistan government debt is near a four-month high. Credit-default swaps on Pakistan government debt had increased by 329 basis points to 829.5 basis points between July 31 and Sept. 6, according to data provider CMA. The last time they traded at a higher level was on May 26, when the contracts closed at 840.9 basis points.

Inflation Woes

Pakistan’s inflation rate may climb from 12.34 percent in July as the government estimated the floods to have destroyed $1 billion of crops, causing shortages. Pakistan will harvest 4.4 million metric tons of rice in the year starting Nov. 1, down 35 percent from the previous year, according to a report by a unit of the U.S. Department of Agriculture.

Kardar is a chartered accountant who studied politics, philosophy and economics at Oxford. The central bank is scheduled to release the next monetary policy statement in the last week of September.

The State Bank of Pakistan was led by Deputy Governor Yaseen Anwar since June, when Raza quit. Anwar raised rates by half a point to 13 percent on July 30, describing the move as a response to “risks to the inflation outlook.”

The Food and Agriculture Organization has called for funds to replace half a million tons of wheat seed stocks depleted by the floods, with planting of the staple due to take place over the next three months.

Infrastructure Damage

Gilani said this month 4,000 kilometers of roads and 1,000 bridges were washed away, pushing up the cost of delivering goods and services. He said inflation may climb to between 15 percent and 20 percent, and estimated total losses from the natural disaster at $7 billion.

Flows in the Indus River basin reached 10 times their normal monsoon season levels, racing south through Punjab and Sindh provinces. At their peak, the floods covered an area the size of England.

Toyota Motor Corp. and Unilever affiliates in Pakistan said last month the disaster may sap growth and force production.

The World Bank on Sept. 1 increased its flood-related support to the nation to $1 billion from $900 million.

Before the floods hit the nation, Pakistan’s policy makers were grappling with the effects of terrorism on the economy. Hundreds of people died in bomb attacks as militants retaliated to Pakistan army’s offensive against Taliban extremists in the country’s northwestern region.

Falling Investment

Foreign direct investment in Pakistan fell 46 percent from a year earlier to $98.5 million in July, the central bank said this month.

Kardar may find support from credit rating companies, which said the floods may not prompt them to downgrade Pakistan’s ability to repay debt.

Standard & Poor’s on Sept. 1 described the calamity as a “temporary setback.” Moody’s Investors Service last month said the natural disaster will reduce the possibility of a rating upgrade.

Moody’s, which raised Pakistan’s credit-rating outlook to stable from negative in August last year, rates the nation’s foreign and local-currency debt at B3, six levels below investment grade. S&P ranks Pakistan’s foreign and local- currency debt at B-, six levels below investment grade.

To contact the reporter on this story: Farhan Sharif in Karachi at fsharif2@bloomberg.net To contact the reporter on this story: Khurrum Anis in Karachi at kkhan14@bloomberg.net

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