Every year, millions of individuals and thousands of companies withdraw money from banks for Eid-specific shopping or Eid-related payments, including Eidi or cash gifts and special work bonuses.

There are some ways of looking at the level of pre-Eid spending and Eid-necessitated withdrawals from bank accounts. Surveys indicating pre-Eid shopping activities, sales carried out a little before and during the month of Ramazan and a drawdown on overall bank deposits can suggest volumes of Eid-related expenses of all kinds.

But these or any other proxy chosen to assess pre-Eid spending are all bound to remain wanting on some counts. The size, quality, scope and nature of shopping surveys matter a lot. And, the tools used for recording additional sales ahead of Eid, the exact nature of application of such tools and their scope of coverage also matter.

Similarly, pre-Eid movements in bank deposits on the whole cannot be easily linked to Eid-related spending. The current rate of inflation, interest and exchange rates, the pace of

Banks begin witnessing Eid-related drawdowns on deposits at least two weeks before the start of Ramazan

economic growth, level of joblessness and specific time-triggered changes in the pattern of routine deposit withdrawals — particularly by the corporate sector — or an occasional urgency for specific outward payment obligations can make things complex.

On top of all this, the time lag between actual movements in the banks’ deposit base and their reporting to the central bank means that an attempt to quantify Eid-related spending can be made only a few weeks after Eid — when data for the desired range is available.

Nevertheless, media outlets try to assess Eid-related spending every year using a few or all of the above-listed proxies.

During this Eid, what is most noticeable is that the spending has apparently increased compared with the last Eid if we use withdrawals of bank deposits as a proxy. And this makes sense. Last year, the economy slumped 0.4 per cent and this year it is recovering at an estimated pace of 3pc. Consumer inflation in April last year was 8.5pc but this year it rose to 11.1pc.

Traditionally, banks begin witnessing Eid-related gradual drawdown on deposits at least two weeks before the start of Ramazan. The withdrawal from bank accounts goes on throughout the holy month and comes to a halt only at the beginning of Eid holidays. This year, the intensity of such withdrawals just before the advent of Ramazan remained stronger due to economic recovery and higher inflation. Besides, since people were expecting Covid-19–necessitated lockdowns within the first half of Ramazan — and surely during the third and fourth weeks of the holy month ahead of Eid — they started Eid shopping a bit earlier. The National Command and Operation Centre had also raised alarm bells regarding country-wide lockdowns on time and urged people to do Eid shopping earlier.

Eid spending has apparently increased from the last year’s level given the withdrawals of bank deposits

That is perhaps why we see massive deposit withdrawals from banks starting from the week ended April 2, or 12 days before the beginning of Ramazan. Within next three weeks (between April 2 and April 23) net withdrawals totalled Rs393 billion, according to the State Bank of Pakistan. Last year, net deposit withdrawals in the comparable three weeks (ie two weeks ahead of Ramazan and one week into Ramazan) had remained negative by Rs102bn.

Negative net withdrawals were an outcome of negative growth in the economy and of wider and prolonged lockdowns as Pakistan was battling with the first wave of Covid-19. Those lockdowns had resulted in a boom in online shopping, nevertheless — even amidst net negative withdrawals from bank accounts.

The SBP data shows that the bulk of the increase in e-commerce volumes (about 79pc) and values (33pc-plus) in the last fiscal year had occurred in the fourth quarter of the year ie

April-June 2020. It was during the April-June quarter of last year that Covid-19–triggered lockdowns were imposed across the country — and for far longer length of time than this year’s ongoing lockdown. And Ramazan last year had started on April 24 and Eid was celebrated on May 23.

Based on these facts, it becomes easier to argue that three-week data on deposit withdrawals ahead of Eid this year is massive compared to that of the last year because a large part of Eid spending this year took place through traditional cash transactions whereas last year, e-commerce and online shopping had become the norm. What also explains the larger deposit withdrawals ahead of this Eid compared with the last Eid is that last year the government and the SBP were generously crediting support funds into the accounts of financially devastated individuals and companies — and the money thus distributed to people and firms and spent by them mostly online was quickly coming back into the banking system.

This is not the case now even though the online shopping trend is catching up and banks are still making concessional loans to companies. The difference is in the scale and volumes. The trend is intact. One can explain the link between withdrawals from bank deposits and Eid spending a bit more authentically once the data on more recent deposit withdrawals — ie those that took place after April 23 and just before Eid holidays — pours in.

The availability of the full range of deposit withdrawals data will also help analysts explain how a meteoric rise in remittances this year has impacted the pattern of withdrawals from bank deposits for Eid spending. Traditionally, Pakistanis tend to spend more on Eid during times of thicker inflows of home remittances. The average monthly inflow of remittances during this year has surged to $2.4bn from about $1.9bn last year. But since a sizable part of the remittances flowing in during this Ramazan was also invested in government debt papers, the contribution of higher remittances towards Eid spending should have remained measured.

Published in Dawn, The Business and Finance Weekly, May 17th, 2021



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