#pakistan Central Banker Resigns in Economic Blow

ISLAMABAD—Pakistan's central bank governor resigned because of policy differences with the government over the country's mounting budget deficit, dealing a further blow to the nation's already bleak economic outlook.

Shahid Kardar, who had been governor for less than a year, was a vocal critic of the government's failure to contain a widening deficit, which was 6% of gross domestic product in the fiscal year ended June 30.

A person close to Mr. Kardar confirmed he had handed in his resignation to Pakistan President Asif Ali Zardari. Attempts to reach Mr. Kardar weren't successful. A spokesman for Mr. Zardari declined to comment. Mr. Kardar will remain central bank governor until his resignation is officially accepted.

The resignation of Mr. Kardar, who was respected by Pakistan's foreign donors, further complicates the economic picture for a country highly dependent on International Monetary Fund and World Bank loans.

Pakistan's elite pay some of the lowest taxes in the world, but the state pays out huge subsidies on the consumption of oil and other commodities. To fund the mounting deficit, the government has been borrowing from the central bank, essentially printing money and stoking annual inflation to about 13%.

In protest at Pakistan's failure to raise more taxes, the IMF since last year has withheld the disbursement of $3.5 billion in funding, part of a $11.3 billion balance of payments support package.

Pakistan called in the IMF in 2008 amid a balance-of-payments crisis, which has since abated due to strong commodity exports.

The government pledged last month in its budget for the current fiscal year to end some tax exemptions and bring more people into the tax net. But it stopped short of expanding its sales tax to include services, an immediate measure demanded by the IMF.

Currently, Pakistan's tax haul amounts to only 9% of GDP, one of the lowest ratios anywhere. Only two million Pakistanis from a population of 180 million pay income tax, while the government relies on donor loans to fill its deficit.

The World Bank and Asian Development Bank also have suspended budget-support loans amounting to $1 billion in protest at the slow pace of the tax overhaul.

Pakistan and IMF officials are due to meet later this month to review progress in implementing changes, but with little sign of progress it's unlikely to produce an agreement.

An Oxford University-educated economist, Mr. Kardar, 58 years old, took up the post in September after Salim Raza, the previous governor, resigned before completion of his tenure. The central bank governor normally has a three-year term.

Last year, Shaukat Tareen, the former finance minister, also resigned, citing widespread government corruption.