KARACHI/ISLAMABAD (Reuters) - Pakistan on Friday appointed former finance ministry official Tariq Bajwa as the new governor of its central bank in a move likely to raise concerns that the independence of the State Bank of Pakistan is being eroded.
His appointment comes days after Finance Minister Ishaq Dar sparred with the central bank over the rupee’s unexpected 3.1 percent plunge against the dollar on Wednesday.
Bajwa recently retired as the top bureaucrat at the ministry and has worked closely with Dar in the past.
“The President of Pakistan is pleased to appoint Tariq Bajwa as Governor State Bank of Pakistan (SBP) for a period of three years from the date he assumes office,” the finance ministry said on its official Twitter feed.
Traders said SBP, run by an interim governor since May, this week effectively devalued the rupee by not propping it up as it normally does. Though the currency is meant to be freely traded, in practice SBP controls the thinly traded rupee market that works as a managed float.
After the apparent devaluation, the bank put out a statement backing a weaker currency, saying it would help ease balance of payments pressures in Pakistan’s $300 billion economy.
But Dar, an advocate of a strong rupee, was furious and ordered an inquiry into what he termed a “mind-boggling” rupee tumble. He also said it was not the SBP’s job to worry about the current account deficit.
Dar blamed the rupee’s fall on a “miscommunication” between the SBP and other banking institutions.
Analysts say the appointment of a civil servant governor, rather than an economist, is likely to add to doubts about the state bank’s autonomy.
Saad Hashmey, research director at brokerage Topline Securities, said with Bajwa’s appointment “independence of the State Bank does come into question” but it also offers extra policy security for Pakistan.
“(The SBP and finance ministry) have to be on the same page,” Hashmey said. “Certainty is good”.
The rupee, trading at 105.50/75 against the dollar on Friday, has regained some of the losses since Wednesday, when it traded as high as 108.50.
Bajwa, a former career bureaucrat, previously served as the chairman of the Federal Bureau of Revenue (FBR), one of the toughest jobs in Pakistan government due to an entrenched culture of tax evasion.
He has a masters degree in Public Administration from Harvard University and previously served as a director at the SBP, media reports said.
Deputy Governor Riaz Riazuddin was in May appointed as acting governor for three months. But Dar said a permanent chief’s appointment would be brought forward after the rupee plunge.
Riazuddin is expected to revert to his post as the deputy governor, according to an SBP source.
Pakistan’s economy has picked up speed in recent years, with a reduction in militant attacks and vast Chinese infrastructure investment spurring growth to above 5 percent for the first time in a decade.
But the IMF last month warned that some of the macroeconomic gains made since the 2013 balance of payments crisis were beginning to erode, posing a risk to economic outlook.
Additional reporting by Asif Shahzad; Writing by Drazen Jorgic; Editing by Sam Holmes and Gopakumar Warrier