The government is in the process of finalizing the appointment of SBP Governor, a position that has now been vacant for almost three months. Six names are in consideration, and most likely out of these one would be selected. These names include four central bankers including the current caretaker Governor, one economist from the IMF and one commercial banker.
News flow suggests that government is coming up on a compromised solution where three parties (PPP, MQM and PML-N) in the PDM have reached a consensus on the name. However, within the leading party (PMLN), competing economic czars appear to have conflicting views. Ex-finance minster Dar wants his choice while the current FM has different notions. History suggests that Dar would want a ‘yes man’ at SBP while the PPP would also desire someone who can be accommodating. Without delving into the names and intentions of parties, let’s have a theoretical discussion on what should be the profile of an ideal Governor.
First, is the education background. Central Bankers generally have a similar educational background. The level of educational attainment is quite high – 47 percent of the central bank governors are PhDs. Around 83 percent have degrees in economics, which is therefore the dominant field of study and, as such, the norm for this position.
Then Governors also have strong affiliations with national and international research institutes and publications in top economic journals and (or) have written books or at least book chapters. They should have a macroeconomic policy perspective, developed through published research work (not necessarily accessible by a layman per se). Educational background also helps in stance and authority.
Second, is the prior experience working in various roles within the central bank. Most of the governors are insiders; over the last couple of decades, there is an increase in the number of governors who have already worked at the central bank prior to their appointment as a governor. This ensures structure within the institution. Central bank leaderships have to deal with global professional as counterparties – whether central bankers from other nations or international financial institutions such as IMF or WB.
Thus, central bank leadership must have expert insider knowledge of the economy and proven track record, as a criterion, in reaching top management positions. They must also have stated positions on important issues of monetary policy. They must understand institutional pressures with respect to economic realities. They should also have exposure to public policy, and government dealings from a central banker's perspective.
Another important criterion should be political neutrality. The position of central bank governor should be apolitical. The appointment should be merit based and not on the basis of political leanings, even if on ideological grounds. Governor’s willingness and ability to withstand political pressure, and track record (if any) in withstanding the same in past should also be given due credit.
The government should keep in mind these factors before finalizing the appointment of the key position. Given the precarious balance of payment crisis the country is facing, it is of utmost importance to have a governor with best credentials. IMF would also have a keen eye on the appointment and may not be pleased if the appointee has obvious political leanings or is a yes-man.
In the recent history of SBP governors, Muhammad Yaqub, Ishrat Hussian, Shamshad Akthar and Reza Baqir were some good choices. Government should not reach a compromised political solution over this crucial appointment.