Pakistan’s War on Terror has cost Rs 2 trillion to the national economy – IMF Report – by Ahmed Iqbalabadi

It boggles my mind when I hear statements from leaders living in utopia that “It’s not our war”, “We are fighting someone else’ war” and then self contradictory points on “we are not getting enough for being involved in war on terror”. Over focusing on petty political gains, we fail to realize the economic costs of OUR war on terror. Suicide Bombs, Militant Rule in certain areas and then a military campaign, don’t they cost us? In the meanwhile, we had one of the biggest internal displacements in the history of world with nearly 2.3 million people moving from their homes to other areas, being taken care of and then finally being repatriated and rehabilitated to their homes. According to estimates, Pakistan’s state and people bore a cost of approximately USD 10 billion or Rs 850 billion approximately for the Malakand operation of summer of 2009, out of which approximately USD 800 million was received in form of aid. It can be very easy to point towards the government for not being able to control budgetary deficits, but what about costs which you cannot envisage in a budget. Imagine, I am preparing the budget for 2008-09 and I was required to make budgetary estimates. Could I have correctly guessed that an internal displacement will take place and a lot of resource would have to be apportioned towards that end?

The International Monetary Fund has released Pakistan: Poverty Reduction Strategy Paper on July 2, 2010. The report talks about the recent political, economic and social events, both domestic and international, which have put an adverse impact on Pakistan. To emphasize the impact on the economy, the role in war on terror finds its place in the very beginning of the report.  As per the report:

Three main structural weaknesses can be identified for the current economic difficulty: (i) government spending in excess of revenue (fiscal deficit); (ii) imports in excess of exports  (trade deficit); and (iii) inadequate social services to allow the poor and the vulnerable to  fully participate in times of  economic stability and prosperity and be protected during shocks. More recent reasons for the prevailing macroeconomic instability include domestic  law and order situation, an unprecedented global  increase in prices of oil, food and other essential commodities, instability in international financial markets and, most importantly,  bearing the direct and indirect costs being a frontline state in the ‘War on Terror’. As a result of these issues, Pakistan is currently facing major challenges including growing fiscal and current account deficits; rising inflation; growth deterioration; and depleting foreign exchange reserves.

The IMF has also highlighted the economic cost by looking at the direct cost of resource movement and indirect cost of loss of exports, foreign investment, privatization, industrial output, tax collection, etc.

Rs. In Billion FY05 FY06 FY07 FY08 FY09
Direct Cost 67.10 78.06 82.50 108.53 114.03
Indirect Cost 192.00 222.72 278.40 375.84 563.76
Total 259.10 300.78 360.90 484.37 677.79

The findings are staggering and should be give enough to detractors of our involvement in a war of our own existence. The Rs. 2.08 trillion that has been calculated, is close to USD 24.4 billion whereas when brought back to actual foreign exchange rates prevalent in those years comes to close to USD 30 billion.

The report goes on to say that Pakistan’s role in the war on terror severely dented the development work in the country. “Pakistan has sustained immense socioeconomic costs of being a partner in the international counterterrorism campaign,” the report said. Since the start of the anti-terrorism campaign, an overall sense of uncertainty has contributed to the capital flight, as well as, slowed down domestic economic activity making foreign investors jittery. It is apprehended that the foreign direct investment, which witnessed a steep rise over the last several years may be adversely affected by the ongoing anti-terrorism campaign in FATA and other areas of Khyber-Pakhtunkhwa, in addition to an excessive increase in the country’s credit risk, which has made borrowing from the market extremely expensive. Besides, Pakistan’s sovereign bonds have also underperformed owing to similar reasons. Being a game of image building and how we present ourselves, we fail to appreciate the fact that despite of all challenges, Pakistan has not defaulted from its obligations and successfully paid back the entire amount of a Sovereign Euro Bond in January 2010.

The political crises caused by the Judicial crisis also finds a mention in the report. Have we ever thought of the impact of the political crises on our economy?

How much bad press we get from the judicial activism? Be it political matters, or economic matters, the meddling of judiciary in these affairs is not welcomed by markets as they bring in doubts about stability and highlights risks.

The report highlights the nine pillars on which we can aim to reduce poverty:

(i) Macroeconomic Stability and Real Sector Growth; (ii) Protecting the Poor and the Vulnerable; (iii) Increasing Productivity and Value Addition in Agriculture; (iv) Integrated Energy Development Programme; (v) Making Industry Internationally Competitive; (vi) Human Development for the 21st Century; (vii) Removing Infrastructure Bottlenecks through Public Private Partnerships;  (viii) Capital and Finance for Development; and (ix) Governance for a Just and Fair System.

The report also acknowledges that “the government is putting in place a stringent results-based system to monitor and evaluate the progress of the Poverty Reduction Strategy”

It is only fair to say that we have numerous challenges to overcome. The first and foremost is from law and order and militancy. That can only happen if we fight against the common enemy and forget our petty differences.

At the same time it is also important to highlight the importance of relief that we can get from International Community. If the likes of IMF acknowledge the role we are playing and also suffering because of it economy wise, then why can’t we lobby effectively and get ourselves some relief? The thrust of my point is getting our bilateral debt written off. It is pertinent to note that during the 9 months of July 2009 to March 2010, Pakistan serviced USD 1.72 billion of foreign debt (according to SBP figures) or approximately PKR 150 billion. In all our total foreign debt is USD 54.235 billion as of March 2010. Out of that approximately USD 14.1 billion is with Paris Club in which there are 18 nations who rescheduled our debt in December 2001. The names of these countries include US, UK, Canada, Japan, Korea, Netherlands, Norway, France, Germany etc. I believe, US is the biggest contributor in the Paris Club for Pakistan with nearly USD 1.7 billion. If we take other bilateral loans and Islamic Development Bank loans, that will make it another USD 2.62 billion. Similarly, China has given Pakistan USD 795 million, Saudi Arabia has given USD 455.6 million, Japan USD 71.11 million, Germany USD 45.6 million and Kuwait USD 39 million.

We should demand from the world that we need this relief as it will allow us to plug the holes in our budget and also allow for spending more on development. For example, if the interest and debt service cost over the next 3 years from these loans of around USD 18 billion come to PKR 400 billion, then the government can freeze its expenditures by the same amount. Imagine the trickle down effect on our economy. We will be saving servicing cost and also reducing our expenditure. It will be a saving of PKR 800 billion over three years of time. With this saving, we can reduce our fiscal deficit and at the same time increase our development programs. All it requires is for all of parties in the parliament to join hands and stand together. The PPP will not be in power for ever but Pakistan has to be there forever and that we can only achieve by setting aside our petty differences and working towards a consensus that can actually help Pakistan.



Latest Comments
  1. Sehar Tauqeer
  2. Abdul Nishapuri
  3. Mansoor Khalid
  4. Sadia Hussain
  5. Georgia Orozco