News about cancellation of the Chinese President Xi Jinping’s visit to Pakistan on account of the sit-ins outside the Parliament House caused great embarrassment to the government. The Pakistan government fears that this diplomatic setback sent a negative message to the International community resulting in a detrimental effect on the economy.
The Nawaz Sharif government claims that materialisation of many commitments and MoUs with Chinese investment companies were on the agenda of Chinese head of state’s visit. It was also apprehended that foreign direct investment (FDI) from other countries would halt or slow down after the visit was cancelled.
The government has criticised the Pakistan Tahreek-e-Insaf (PTI and Pakistan Awami Tahreek (PAT) for causing this diplomatic and economic setback, terming it a colossal loss to the national economy.
Previously, Imran Khan had announced a ‘civil disobedience’ campaign against the government and asked his supporters to stop paying taxes and utility bills to force the government to resign. This civil disobedience appeal coupled with an appeal to send foreign remittances through Hundi or Hawala — the banned informal system for transfer of foreign exchange from overseas. It received severe criticism from all quarters including traders and industrialists, besides opposition political parties.
Apparently, every day activities were at a standstill, at least in some parts of Islamabad due to the sit-ins since August 15, 2014. During the initial days as the protest rallies were marching from Lahore to Islamabad, the situation was even worse as all entry points to the federal capital and Rawalpindi were sealed off with containers. However, at present these two sit-ins are confined around the Parliament House and Secretariat areas at D-Chowk only.
The government on two different occasions gave rather unbelievable figures of the heavy economic losses to Pakistani economy due to the protests and political uncertainty. The rumours of any military intervention in the form of Martial Law or dissolution of the National Assemblies further fuelled these notions of prevailing uncertainty, especially after the attack on PTV’s head office and entry of protesters inside the premises of Parliament House and Federal Secretariat on September 1.
In the meantime, on September 3, Justice Anwar Zaheer Jamali of Supreme Court of Pakistan had asked the Attorney General Salman Aslam Butt to submit a list of cases of financial losses due to the ongoing protests in a constitutional petition. The Attorney General, in a report to the apex court on behalf of the federal government, claimed that the ongoing protests had caused a loss of Rs547 billion to the national exchequer. This was followed by a statement by the Federal Minister for Planning and Development Ahsan Iqbal, who put the estimated losses to the tune of Rs1000 billion. MQM Chief Altaf Hussain had also indicated the same figure in an earlier speech during the impasse.
Ahsan Iqbal went a step further by providing a break-up of these losses at a press conference on September 9, 2014 at Islamabad. According to him, out of the total Rs 1 trillion estimated losses, Rs250 billion were lost due to depreciation in the Pakistan rupee’s value, Rs350 billion went down the drain due to the stock market crash, Rs225 billion loss occurred because of inflation while Rs150 billion vanished due to rise in the import bills, of which petroleum products comprise a heavy chunk.
Although these figures seem quite startling, senior economists believe that the impact of the losses due to political agitation by the two groups in Islamabad will be reflected after sometime. However, the extent of loss may be much less than the figures portrayed by the government and its cabinet ministers.
Economists don’t consider the initial plunging of the stock market’s index as a big loss to the economy as it later recovered all its lost points in the following days. Many economists do not even consider the equity market’s indices a barometer of the economy.
Similarly, in the initial days there might have been losses to the transport sector due to a standstill of the goods being moved to Islamabad, KPK and upper parts of the country. But that movement has also resumed now. “I think the main losses may have been suffered by traders around Blue Area in Islamabad, which is not very significant,” commented senior economist Dr Asad Sayeed, head of Collective for Social Science Research.
Even those losses have recovered from the flourishing businesses around D-Chowk, where the participants of ‘Dharnas’ are buying eatables and other daily essentials from the newly-established stalls.
According to Dr Sayeed, except the D-Chowk area, economic activities throughout Rawalpindi and Islamabad are open and functioning at their normal pace. “I don’t see any flight of capital from Pakistan as a result of these Dharnas,” said Dr Sayeed, adding that we need to wait for some time to see the figures of commercial remittances from exports during the month of August.
Interestingly, private foreign remittances from overseas Pakistan have increased by 7.14 per cent to $1.32 billion only in August 2014 in comparison to August 2013. According to a break-up, the inflow of remittances during August from Saudi Arabia, UAE, USA, UK, GCC countries (including Bahrain, Kuwait, Qatar and Oman) and EU countries amounted to $396.90 million, $284.90 million, $199.01 million, $172.71 million, $152.17 million and $33.14 million, respectively.
The main loss to the economy because of political uncertainty and sit-ins can be depreciation of the Pakistan rupee, which has lost almost Rs3 per dollar since August 13, 2014. Pakistan is a big importer of petroleum and machinery as well as food items like tea and vegetable oils and the import bill would certainly increase in the rupee term amid depreciation.
On August13th a day before the both rallies started from Lahore, the exchange rate was US $1= Rs99.11, which went as high as $1=Rs103.52 on September 4, 2014. However, the rupee got strength and its exchange rate with dollar is stable around Rs102 since then. “I can see in the long term Pakistan would suffer heavily due to rupee depreciation,” said another senior economist Dr Shahid Hasan Siddiqi.
The value of Pakistan’s foreign debts, which are around US$ 65 billion, has also increased in rupee terms with appreciation of the US dollar by Rs3, said Siddiqui who is Chairman of Research Institute of Islamic Banking and Finance.
Pakistan’s total annual import bill is around US$45 billion and if dollar’s value appreciates by Rs3 our import bill per month will also increase with the same rate. Similarly, the customs duty and General Sale Tax will also be increased on imported items, which would ultimately increase cost of production for the industries which export.
Dr Siddiqui sees a long term impact of these protests on the overall economy of the country and the losses, according to him, are difficult to quantify. The call for non-payment of taxes is also very unfortunate as it would mar the tax collection efforts by the Federal Baord of Revenue, which is already lagging behind in tax collection targets. “Tax evasion is quite common in Pakistan and tax collection target for the current fiscal year is difficult to achieve at the end of year,” said Dr Siddiqui.
According to him the ultimate sufferer would be the Khyber-Pakhtunkhwa (KP) governemnt, which receives around 88 per cent of the total budgeted revenues from the federal divisible pool. The federal as well as provincial governments would have to curtail their development budget due to less recovery of revenue, fears Dr Siddiqui.
He said it is expected that the provinces would eventually have to reduce their social development budget on education and health sectors due to lesser receipts from the federal government and the funds for federal projects will also be unavailable in case of any colossal revenue shortage.
Even though it is quite difficult to quantify the economic losses due to events in the federal capital, economists are apprehensive about the figures given by the government saying they are hard to believe. They said the economic losses due to rains and floods in KPK and Punjab provinces would be much more than the losses because of two sit-ins in the federal capital.