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HERE we go again. It seems swatting away dubious numbers is almost a full-time occupation for an economic journalist in this country. This time the number relates to the quantum of loss that the economy has suffered due to the ongoing protests in Islamabad. We’ve heard so many wildly different numbers being thrown around by now that only one thing is clear: we have no way of quantifying this loss.
Only a week ago, ministers on TV claimed the loss amounted to Rs450 billion. Then a few days later, the number had risen to Rs547bn as the attorney general told the Supreme Court. Earlier, newspaper articles circulated a figure saying the loss was Rs800bn.
Also read: Rs500bn lost so far due to PTI’s protest: PML-N
And now, only a few days after all this, Minister for Planning Ahsan Iqbal trumped them all by saying the loss has been in excess of Rs1 trillion.
I wonder if the people bandying about these figures realise that the latter are larger than our GDP. Consider the Rs1tr figure as an example. The total output of the entire country’s economy, is just about Rs70bn per day. Now if we take the Rs1tr figure, and assume it was incurred over a period of two weeks, that gives us Rs70bn per day.
Know more: Economic cost of protests
This means the minister is actually claiming that the entire country and its total economic output — goods, services, agriculture, everything — shut down for two weeks. For that to be accurate, you would see all factories and offices and petrol pumps and power plants and shops shut for two weeks. You would also see agriculture come to a halt, and no livestock being bought or sold or slaughtered. No flights would be taking off or landing, no train departures, no cheques being cleared, no restaurants or shops functioning. Hotels would be shut as would banks. No marriage ceremonies would be taking place and all schools would be closed. If all this happened, and a lot more, then you might end up with a Rs1tr loss in two weeks.
The figure of Rs1 trillion accrued in losses is so absurd that it’s surprising to hear it coming from a minister of the calibre of Mr Ahsan Iqbal.
It doesn’t get much less absurd if you tweak the assumptions a little bit, let’s assume that the losses were incurred in three weeks and not two, or that they were restricted to the formal sector only. The Rs1tr figure is so laughably absurd on the face of it that it’s a little surprising to hear it coming from a minister of the calibre of Mr Ahsan Iqbal.
So how has it been derived? All the figures, earlier as well as the ultimate Rs1tr one, use two common yardsticks. One, they argue that the devaluation of the rupee, from 98 to a dollar to 102 is the consequence of the protests and therefore all price movements connected with it such as elevated payments for imports as well as debt servicing, are part of the “losses” suffered by the economy. Two, they all say the declines suffered by the stock market are a “loss” for the economy. Let’s deal with each in turn.
How has the currency devaluation been caused by the protests? The value of the currency moves in connection with the supply of and demand for foreign exchange in the money markets. Usually, sharp downward swings are seen when reserves are low, which in turn cause shortages in the markets, and sometimes trigger speculative moves.
This is not the case these days. In fact, through the protests, reserves have only improved slightly, so there is no real shortage of foreign exchange in the money markets to create a downward move. The only other way a downward move can be produced is if the State Bank stops intervening for a brief period, thereby allowing the currency to fall as per a predetermined judgement.
The currency saw its steepest fall on Aug 11 when it crossed 99 to a dollar, considered a “psychological barrier” by the superstitious. That same day the IMF sent out a tweet urging us all to not “get overly concerned about 1 day movements in the exchange rate”. Somebody asked them: doesn’t this reflect the political uncertainty in the country? “Certainly” came the response. “My only point was that a one day movement is not yet a trend. Panic helps no one.”
But don’t believe everything you see on social media! The context of this little exchange was not the political protests, but the meetings that were under way in Dubai between the IMF and the government. You see, the State Bank and the Fund have been warning for a long time that the rupee is overvalued at 98 to a dollar, and the money markets were abuzz with rumours on that day of steep declines that the government has yielded to the IMF and agreed to bring the rupee to 102.
Subsequent movements in the exchange rate appear to bear this out. Even now, market players suggest that they see the State Bank begin to intervene every time the rupee goes too far from 102, meaning that it appears to be the new value. The protests only provided an excuse for a downward movement that was inevitable.
And yes, the stock market saw some declines in the early days of the protests, which some valued at Rs350bn, when it fell by 2,000 points over a couple of weeks. But it regained 1,900 of those points in the past few days, so what does that say for the “loss” suffered by the economy?
Truth of the matter is that the real cost of this whole exercise is impossible to quantify. There has been some material impact, in terms of loss of output and destruction of capital, but that is marginal compared to the real loss. In fact the real loss has been in confidence that Pakistan’s democratic story will survive, and it’s hard to put a number on that.
Published in Dawn, September 11th , 2014
