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Challenge for Pakistan's next bank chief

December 31, 2008 11:12 IST

Pakistan has appointed Saleem Raza, a former international banker, as central bank governor.

He faces inflation near 25 per cent, dwindling foreign reserves and has to implement a $7.6bn (€5.3bn, £5.2bn) International Monetary Fund rescue package.

Mr Raza will succeed Shamshad Akhtar, who on Thursday completes her three-year term as Pakistan's first woman in the post.

Yousaf Raza Gilani, prime minister, "expressed confidence that the new governor, who has sound experience in the financial sector and international banking, would work to the best of his abilities to meet the enormous economic challenges", according to a statement from his office in Islamabad.

A finance ministry official said: "This is a position which will require the new governor to spend sleepless nights, making certain that there are no slippages on our promises to the IMF."

A Pakistani bank president described Ms Akhtar's term as "half disappointing", noting she would leave "without resolving big issues, notably high inflation". However, inflation was at single-digit levels through her term until January. Foreign reserves fell 42 per cent between June and November.

Mr Raza, who could not be reached for comment, worked with Citigroup in London until returning to Pakistan two years ago to head the Pakistan Business Council, a lobby group. He joined the PM's economic advisory council in May.

Separately, Masood Ahmed, director of the IMF's Middle East and central Asia department, told the Financial Times that Islamabad needed to revamp its tax collection system as a priority for turning around the economy. "The single most important issue for reducing Pakistan's economic vulnerability in the medium-term is to improve the revenue of the government," he said.

Economists say Pakistan must raise its ratio of taxes collected to gross domestic product from less than 10 per cent to at least 15 per cent. Corruption and inefficiency weigh down tax collection. "It is hard to imagine how you can sustainably run a major emerging market economy with tax to GDP ratio of 10 per cent," Mr Ahmed said.

Officials say they plan to introduce tax reforms by May. Less than 1 per cent of Pakistan's population of 165m pays income tax. While Pakistan and Sri Lanka impose a general sales tax of nearly the same rate, Sri Lanka's collections run at 7.6 per cent of GDP against Pakistan's 3 per cent.

A government official said there was a danger that some tax receipts could fall in the near-term as a result of the economic slowdown.

Copyright The Financial Times Limited 2008

Farhan Bokhari