Depositing Eid Withdrawals and Expenses – Journal

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

There are several ways to look at the level of pre-Eid spending and required Eid withdrawals from bank accounts. Surveys showing pre-Eid buying activity, sales made just before and during the month of Ramazan, and a levy on all bank deposits can suggest volumes of Eid-related spending of all kinds.

But these or any other proxy chosen to assess pre-Eid spending are sure to be lacking in some ways. The size, quality, scope and nature of procurement surveys matter a lot. And, the tools used to record extra sales before Eid, the exact nature of the application of those tools and their scope also matters.

Likewise, the movements of bank deposits before Eid as a whole cannot easily be linked to Eid-related spending. The current inflation rate, interest and exchange rates, the pace of

Banks start witnessing Eid-related deposit drawdowns at least two weeks before Ramazan begins

economic growth, the level of unemployment and specific changes triggered over time in the pattern of routine deposit withdrawals – particularly by the corporate sector – or an occasional urgency of specific outgoing payment obligations can make matters more complex .

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

Nonetheless, the media attempt to estimate Eid-related spending each year using some or all of the indicators listed above.

Most notable during this Eid is that spending has apparently increased from the last Eid if we use bank deposit withdrawals as a proxy. And that makes sense. Last year the economy collapsed 0.4% and this year it is recovering at an estimated rate of 3%. Consumer inflation in April of last year was 8.5%, but this year it has risen to 11.1%.

Traditionally, banks begin to witness progressive withdrawals from Eid-related deposits at least two weeks before the start of Ramazan. Withdrawal from bank accounts continues throughout the holy month and does not stop until the start of the Eid holiday. This year, the intensity of these withdrawals just before the advent of Ramazan remained higher due to the economic recovery and rising inflation. Also, as people expected necessary lockdowns for Covid-19 in the first half of Ramazan – and surely during the third and fourth weeks of the holy month before Eid – they started shopping for Eid an little earlier. The National Command and Operation Center had also sounded the alarm about the nationwide lockdowns on time and urged people to shop for Eid earlier.

Eid spending has apparently increased from last year’s level given bank deposit withdrawals

Perhaps this is why we are seeing massive withdrawals of deposits from banks starting the week ended April 2, which is 12 days before the start of Ramazan. In the next three weeks (between April 2 and April 23), net withdrawals amounted to Rs 393 billion, according to the State Bank of Pakistan. Last year, net deposit withdrawals in the comparable three weeks (two weeks before Ramazan and one week after Ramazan) remained negative at 102 billion rupees.

The negative net withdrawals were the result of negative economic growth and wider and prolonged lockdowns as Pakistan battled the first wave of Covid-19. These lockdowns had nonetheless led to a boom in online shopping, even amid negative net withdrawals from bank accounts.

SBP data shows that most of the increase in e-commerce volumes (around 79%) and values ​​(33% more) in the last fiscal year occurred in the fourth quarter of the year, that is -to say

April-June 2020. It was during the April-June quarter of last year that lockdowns triggered by Covid-19 were imposed across the country – and for a much longer duration than the current lockdown of this year. And Ramazan last year started on April 24 and Eid was celebrated on May 23.

Based on these facts, it becomes easier to argue that the three-week data on pre-Eid deposit withdrawals this year is massive compared to last year because so much of the spending of the Eid is overwhelming. Eid this year took place through traditional cash transactions while last year e-commerce and online shopping had become the norm. What also explains the larger deposit withdrawals before this Eid compared to the last Eid is that last year the government and the SBP generously credited support funds to the accounts of individuals and companies. financially devastated – and money distributed to people and businesses and spent mostly online was quickly flowing back into the banking system.

This is not currently the case, although the trend of online shopping is catching up and banks continue to grant concessional loans to businesses. The difference lies in the scale and the volumes. The trend is intact. The link between bank deposit withdrawals and Eid spending can be explained a little more authentically once the data on more recent deposit withdrawals – i.e. those that took place after the April 23 and just before the Eid holidays – flocking.

The availability of the full range of deposit withdrawal data will also help analysts explain how a skyrocketing increase in remittances this year impacted the pattern of bank deposit withdrawals for Eid spending. Traditionally, Pakistanis tend to spend more on Eid during times of heavy influx of home remittances. The average monthly inflow of remittances this year climbed to $ 2.4 billion from around $ 1.9 billion last year. But since a significant portion of the remittances flowing in this Ramazan was also invested in government debt securities, the contribution of larger remittances to Eid spending should have been kept measured.

Posted in Dawn, The Business and Finance Weekly, May 17, 2021

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