Government has committed an economic suicide. The recent decision of the government to take Saturday off is ill-conceived and preposterous. The economic managers and policy makers have no idea how to run the economy and drive the business without key stake-holders. They would now be working for 5-days only out of 7.
I was talking to some senior members of FPCCI/KCCI who were flabbergasted at this decision of GoP. It is the private sector that creates jobs, increases productivity; enhances living standards of the labor force. According to some trade experts, some government officials do not understand basic economics or finance; let alone evolving policies to reduce the country’s debt. They have increased debt in the last 3-years without analysing the basic problem at hand. What is the marginal productivity of this debt to GDP? In my humble opinion, it is negligible.
It is imperative that government should take all the stakeholders and decision makers on board before venturing into this disappointing action without realising the economic cost of the decision. Is it purely nonsensical without rationale? You decide.
If we carefully analyse the economic impact of this decision, it is quite precarious taking into account the position of our economy and geo-political and strategic challenges that Pakistan is confronting at this point in time. Pakistan’s economy is in stagflation i.e. low growth, high unemployment and high inflation. People in the country are financially repressed right now. So the question is what is the economic cost of a Saturday holiday?
To understand this let us make a strategic analysis of the economic cost, by making a few assumptions. Firstly we estimate one dollar to be Rs85, second assumption is that there are 300 working days in a year. Total revenue figure is Rs1.55 trillion and total trade export plus imports stands at $66 billion.
In order to calculate a single day’s loss of revenue, I have divided total revenue by number of working days divided by the rate of dollar to come to an approximate figure of $65 million revenue loss in a single day. Total trade loss is calculated using the same principle, which is estimated at approximately $220 million. Productivity loss to GDP is $57 million, International investment transfer and goodwill loss is estimated at $145 million, International/global economy share loss is estimated at $150 million therefore the total approximate cost of a holiday to Pakistan stands at a colossal $637 (approx) million per day. (** Assumption 1. These are international investment transfers – however, ignoring debt servicing for a moment, Sources: Economy Survey of Pakistan 2010 -2011, FBR Site, Wikipedia, Tradingeconomics.com, IMF / World Bank)
While the daily cost of a holiday is a mammoth $637 million, it also results in lost opportunities for entrepreneurs / GOP. These are approximate figures, which can go even higher if we work in an environment where we don’t have to bear the colossal cost of war on terror/strikes/rallies/extortion. More so, the intangible costs like social costs are not even estimated in my analysis. Government does not comprehend the long term impact of this suicidal decision. It will have to sincerely re-evaluate this decision for the economic prosperity and well being of the people.
Furthermore, this decision has a very deep rooted macro economic impact as well. Firstly, foreign buyers are critical of our policy makers since they feel that economic regimes are not drafted strategically. Moreover, the goodwill loss is huge in the international market which is expecting orders to be delivered on time.
Daily wage earners have to go without meals due to lack of work. The same people will eventually resort to criminal activities, in order to make ends meet. If we take the undocumented economy into account, using an arbitrary figure of 40 per cent not being disclosed and 300/280 days, we could easily say that a direct loss to the people of Pakistan approaches $1.17 billion. Another social cost.
The government needs to revise this suicidal decision and take the stake holders on board in order to remove all the misgivings and low confidence level among entrepreneurs. I sincerely hope that given the economic costs, good sense will prevail and our rulers would work for the betterment of the economy.
The writer is a financial economist and commodity expert. He is a graduate from university of Chicago and IBA with 12 years of financial market experience. He can be reached at saeedshan@gmail.com Blogs at www.economistshan.blogspot.com