The economics of Ramadan

The reduced energy levels - and working hours - of the month of fasting affects the stock markets.

Downtown Cairo is a boisterous place. The ubiquitous honks of the car horns and the ebullience of peoples on the street ensure that any form of silence exists only in the memory. However, for one month a year, every year, the streets go silent and the shops close for as long as the energy sapping sun stings the eyes. This is the holy month of Ramadan.

One of the five pillars of Islam, every Muslim should abstain from drinking, eating, smoking (as well as a few other things) between Fajr prayers in the early morning and Maghreb Prayers in the dusk. The Qur’an prescribes it as a way of learning self-restraint.

The eschewing of water and food, however, means that those observing the fast are also affecting their energy levels. Simply walking down the street, the vitality that would once overwhelm me is conspicuous by its absence. Those that are out languishing under the relentless Cairo sun reply to my salutations with a half-hearted wave where once I would have been invited into conversation.

In an effort to manage this problem, the Egyptian government reduces the work hours of private sector and bank workers. The reduction and/or adjustment of work hours during the month of Ramadan takes place in almost every Muslim-majority country. But whereas Malaysia and Indonesia generally practice a one-hour adjustment, one-hour reduction scheme, Egypt practices a two-hour reduction for private sector workers, a three-hour reduction for banks, as well as a one-hour reduction in their stock exchange trading hours.

This may well ameliorate the situation of fasting with the workers, but it also means that over the course of Ramadan, the private sector loses around 40 hours of operating time, the banks around 60 hours and the Egyptian stock exchange around 20 hours of trading time. 

Strangely though, the effect of losing 20 hours worth of trading time on the Egyptian stock market is minimal, if anything (see graph).  Using data from the benchmark EGX30 index – which looks at the top 30 companies in terms of liquidity and activity - between the years 2000-2006 there is absolutely no correlation between the typical monthly percentage change in stock value and the percentage change in the month of Ramadan, but it does seem to suggest that the reduced trading times has increased the market’s volatility.

 

The fact that Egypt releases its GDP and growth statistics in quarterly format mean any attempt to scrutinise the Ramadan periods within them is futile. However, the latest data released by the Ministry of Planning and Ministry of Finance can be examined as it covers the period from 1 June to the present, which encapsulates most of this month of Ramadan, plus 19 days of non-fasting.  In that time, the total GDP change has been -4.1%, which correlates to a recent report by the Dinar Standard - a research and advisory firm that focuses on emerging Muslim economies – which gave an estimate of an average loss of 4% to GDPs in Muslim-majority countries.

In that report, it estimated that Egypt made a loss of nearly 8% in its monthly GDP due to it’s reduced Ramadan hours, which would result in a total loss of just over US$1.4bn for last year’s Ramadan period. The reduction of hours may be necessary exchange for worker morale, but for an economy that is already struggling to attain the considerable US$22.5bn needed to finance its deficit for this fiscal year, it’s a hefty trade-off.

Men carry food for the fast-breaking meal. Photo: Getty
Photo: Getty
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Scotland's vast deficit remains an obstacle to independence

Though the country's financial position has improved, independence would still risk severe austerity. 

For the SNP, the annual Scottish public spending figures bring good and bad news. The good news, such as it is, is that Scotland's deficit fell by £1.3bn in 2016/17. The bad news is that it remains £13.3bn or 8.3 per cent of GDP – three times the UK figure of 2.4 per cent (£46.2bn) and vastly higher than the white paper's worst case scenario of £5.5bn. 

These figures, it's important to note, include Scotland's geographic share of North Sea oil and gas revenue. The "oil bonus" that the SNP once boasted of has withered since the collapse in commodity prices. Though revenue rose from £56m the previous year to £208m, this remains a fraction of the £8bn recorded in 2011/12. Total public sector revenue was £312 per person below the UK average, while expenditure was £1,437 higher. Though the SNP is playing down the figures as "a snapshot", the white paper unambiguously stated: "GERS [Government Expenditure and Revenue Scotland] is the authoritative publication on Scotland’s public finances". 

As before, Nicola Sturgeon has warned of the threat posed by Brexit to the Scottish economy. But the country's black hole means the risks of independence remain immense. As a new state, Scotland would be forced to pay a premium on its debt, resulting in an even greater fiscal gap. Were it to use the pound without permission, with no independent central bank and no lender of last resort, borrowing costs would rise still further. To offset a Greek-style crisis, Scotland would be forced to impose dramatic austerity. 

Sturgeon is undoubtedly right to warn of the risks of Brexit (particularly of the "hard" variety). But for a large number of Scots, this is merely cause to avoid the added turmoil of independence. Though eventual EU membership would benefit Scotland, its UK trade is worth four times as much as that with Europe. 

Of course, for a true nationalist, economics is irrelevant. Independence is a good in itself and sovereignty always trumps prosperity (a point on which Scottish nationalists align with English Brexiteers). But if Scotland is to ever depart the UK, the SNP will need to win over pragmatists, too. In that quest, Scotland's deficit remains a vast obstacle. 

George Eaton is political editor of the New Statesman.