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Pakistan’s Central Bank Governor Resigns Over Policy Dispute

Pakistan’s central bank Governor Shahid Kardar resigned, the second person to quit the post in 15 months in an economy with one of Asia’s highest inflation rates and where growth has been hobbled by terrorism and floods.

“I have resigned over policy differences with the government,” Kardar said in a phone interview from Lahore yesterday. “The acceptance of my resignation is pending with the government.”

The government will name the new governor when it formally receives Kardar’s resignation from the office of the prime minister, presidential spokesman Farhatullah Babar said by phone from Islamabad.

Kardar blamed increased government borrowing for price gains, while keeping the benchmark discount rate unchanged at 14 percent since January this year. The combination of inflation, rising debt and slow economic growth is a “nightmare,” his aide and director of the monetary policy department at the State Bank of Pakistan, Hamza Ali Malik, said last month.

“He was on a collision course with the government on the rate issue,” said Sakib Sherani, chief executive officer at the Islamabad-based research group Macroeconomic Insights, and a former adviser in the finance ministry. “He pursued a relatively tighter monetary policy, which might not have gone well with the political objectives of the government.”

Growth Target

Pakistan’s benchmark stock index, the Karachi Stock Exchange 100 Index, has advanced 2.7 percent since Jan. 1, while the currency has weakened 0.5 percent to 86.07 against the dollar.

Prime Minister Yousuf Raza Gilani’s government aims to boost growth to 4.2 percent in the year to June 30, 2012, from 2.4 percent in the previous 12 months.

Kardar, a chartered accountant who studied politics, philosophy and economics at Oxford, took charge as the head of Pakistan’s central bank on Sept. 14, 2010, for a three-year term. He replaced Syed Salim Raza, who quit in June last year.

Kardar raised rates in September and November by half a percentage point each.

Government borrowing rose 58 percent to 716 billion rupees ($8.3 billion) in the last fiscal year from the previous 12 months, according to the central bank.

Consumer prices in Pakistan climbed 13.1 percent in June, the most after Vietnam, among the 17 nations in the Asia Pacific tracked by Bloomberg.

Budget Deficit

Further monetary tightening to tackle inflation is difficult because of the risk of hurting investment, State Bank’s Malik said in an interview with Bloomberg on June 1.

Pakistan’s government last month pledged to cut the budget deficit to a seven-year low of 4 percent of gross domestic product in the year ending June 30, 2012, from 5.7 percent of GDP in the previous 12 months, to help ease living costs.

The International Monetary Fund told Pakistani officials in May that the government needs to keep cutting the deficit to take pressure off monetary policy and allow more credit to companies.

The Washington-based fund stopped disbursing money to Pakistan in May 2010 after the country failed to meet conditions attached to an $11.3 billion loan first issued in 2008. The next round of talks is due this month.

Pakistan’s $162 billion economy is lagging behind emerging markets including India and China, which helped lead the global economic rebound from the deepest postwar recession. Pakistan’s expansion has also been undermined by a Taliban insurgency and record floods in 2010.

The floods destroyed $3.3 billion of crops, swept away 4,000 kilometers of roads and 1,000 bridges, according to government estimates.

The nation’s military has stepped up its fight against insurgents in the northwest after al-Qaeda leader Osama bin Laden was killed by U.S. troops in Abbottabad on May 2. At least 35,000 Pakistanis have been killed in terrorist attacks in the last decade, according to the government.

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