ARTICLE: State Bank of Pakistan Governor Shahid H. Kardar has submitted his resignation to Federal Finance Minister Dr Abdul Hafeez Sheikh, who has so far not forwarded the same to Prime Minister Yousuf Raza Gilani. With less than a year on the job, the incumbent was regarded as a key player in the team of Hafeez Sheikh. Others being Chairman of the Planning Commission Dr Nademul Haq, the Federal Finance Secretary Dr Wiqar Masood Khan and Chairman Federal Board of Revenue Salman Siddiq.
The five burnt the midnight oil towards the preparation of Federal Budget 2011-2012. No governor SBP made to much efforts in the budget making process as Kardar did. As a result, he was forced to spend more time in Islamabad and in Kardar's own words to SBP staff "he's a visiting governor".
In a developing country with an abysmally law taxation base and high inflation - there is bound to be a clash between fiscal needs and monetary policy aimed to curb demand to lower inflation. Neither the finance secretary nor the governor can be obstinate and employ "my way or the highway" approach. Egos and jealousy have to be set aside in the larger interest of the country and the best one can do is to negotiate a number on borrowing from the central bank to check inflationary expectations getting deeply entrenched.
One cause of friction was the contrarian view taken in the amendment in the SBP Act before the Senate Banking committee - after as proposed passage by the National Assembly's banking committee. Abolishing the Monetary Policy Committee - which could independently fix the SBP policy rate and the decision to bring back the finance secretary as an ex-officio member of the Central Board of Director of SBP was said to be the beginning of differences between the finance secretary and the governor. However, the final draft bill approved was settled not between them but between the Finance Minister Hafeez Sheikh and the 'shadow' Finance Minister (in the opposition) Senate Ishaq Dar of PML(N) on the Senate Committee.
The straw that broke the camel's back is not the unsavoury relationship between SBP and MoF. What has actually irked the President Asif Ali Zardari is SBP's approach toward the Sindh Bank. The SBP had shown a great deal of resistance to the establishment of Sindh Bank because of gross misuse of banks under control of previous provincial governments in Punjab and Khyber-Pakhtunkhwa. The issue was raised first in the last days of Governor Shamshad Akhtar. A letter was given permitting Sindh government to establish the bank if it fulfilled the SBP criteria for establishing a new bank, although the constitution allows provincial governments to establish provincial banks without permission from SBP.
Both Bank of Punjab and Bank of Khyber were established by PML provincial governments while PPP was in power at the Centre. It is for obtaining a scheduled bank's status - for full-fledged operations throughout the length and breath of the country - SBP approval is needed.
At the time of Syed Salim Raza's tenure, Sindh government sought permission to buy branches of Royal Bank of Scotland (RBS) - as the foreign institution was then pulling out of the country. SBP denied the Sindh government permission and finally the Sindh Bank was established with closed branches of the now defunct Atlas Bank.
Sindh Government feels SBP raised the capital requirement for Sindh Bank from Rs 6 billion to Rs 10 billion to create difficulties. However, SBP argued that the need to be cautious. According to sources in the Finance Department of government of Sindh, SBP officials have been found to be strict and even harsh in their dealings with them on Sindh Bank.
Grant of permission to establish more branches took too long and SBP inspectors even took copies of personal files of even Grade III officers appointed in Sindh Bank - forcing the Finance Minister of Sindh Murad Ali Shah to complain to the Governor that we might as well close Sindh Bank's Human Resource Department and let SBP's H.R. Department undertake selection of personnel in Sindh Bank.
SBP is a statutory body. The uncertainty arising from Shahid Kardar's resignation, within SBP, is bound to impact adversely the moral of staff and productivity in central bank which is not in the larger interest of the country. Neither are the frequent changes at the helm of SBP of any help.