April 29, 2014 / 7:56 AM / 3 years ago

Pakistan's state bank appoints Wathra as governor

ISLAMABAD, April 29 (Reuters) - The acting head of the State Bank of Pakistan has been appointed permanent governor, a spokesman said on Tuesday, a move that analysts say signals that the bank will continue to be dominated by the finance ministry.

Ashraf Mahmood Wathra has been the acting governor since January but formally became the permanent governor on Tuesday, said bank spokesman Khubaib Usmani. He comes from a background of 35 years in international commercial banking and finance.

His formal appointment comes as Pakistan faces daily power cuts, inflation and widespread unemployment. The nation of 180 million people must also comply with stringent reforms demanded by the International Monetary Fund.

The fund saved Pakistan from a possible credit default last year by giving it a $6.7 billion, three-year loan. In return, it wants the narrow tax base widened, reforms in the troubled power sector and the central bank to be more independent.

Wathra is seen as close to Finance Minister Ishaq Dar, said Farooq Tirmizi, a former business journalist who has done consulting work for the government.

“This guy has basically pledged that he will do what the government wants him to on issues that make headlines like the exchange rate and policy rate,” said Tirmizi.

Dar has said publicly that the rupee should trade at 98 to the dollar after months of volatile fluctuations.

Pakistan received a $1.5 billion gift from the Saudi government last month, prompting the strongest rally of the rupee in 30 years. It recovered from 105.40 on March 4 to its current rate of 98.14.

This month, the government further plumped up its foreign reserves by raising $2 billion in a Eurobond offering and $1.1 billion from an auction of 3G and 4G telecommunications licenses.

Muzammil Aslam, who heads the think tank Emerging Economics Research, said he believed the central bank would bring down the policy rate, currently at 10 percent.

“While speaking in Karachi last week at some business forum, Mr. Mathra had signaled that interest rates will come down,” said Aslam.

The Finance Ministry did not interfere in policy rate or exchange rate decisions, said a spokeswoman for the ministry.

But Wathra was unlikely to pursue policies that might clash with the finance minister, said Aslam.

“The status quo will continue, the central bank will be run on the dictations of Finance Ministry,” he said. “I don’t think he will be able to run the central bank independently as envisaged by the IMF.”

In February, during the last meeting with Pakistani officials, the IMF said that it was broadly pleased with the government’s progress but that it had missed targets for the central bank’s net swap/forward positions and the ceiling on government borrowing from the central bank.

Authorities had reaffirmed their commitment to adopt reforms, the IMF said. (Writing by Katharine Houreld; Editing by Kim Coghill)

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