Impact of Terrorism on The Economy of Pakistan.

 
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Byline: Asifa Khalid

Introduction

Pakistan has experienced different types of government such as military dictatorship and elected democracy and her economy has also undergone many ups and downs. The global and internal issues have always affected Pakistan's economy. Paradoxically whenever the military rule was imposed on Pakistan, the inflow of foreign aid was accelerated assupport against the international phenomenon of terrorism. Terrorism is not a new phenomenon but it got much importance after 9/11 incidence. The Middle East and South Asia were effected by terrorism more than other regions of the world. Pakistan as a neighboring state of Afghanistan was affected from terrorism more than any other state and also became once again a front-line state. Terrorism has affected the developing economies more than these developed economies.

"In fact, terrorism affects developing countries much more severely than developed ones, as developed countries have diverse economies and terrorism results only in reallocation of resources to more secure sectors of the economy, while in case of developing countries, where there is much concentration of resources in certain sectors, are more affected."1 However, terrorism is tinted from religion and sectarianism but it's seeds like economic deprivation, social injustice, absence of rule of law and insufficient opportunities can't be ignored.

There is no universal definition of terrorism but Tariq Khan states, "Terrorism means harassment, destruction, suicide attacks and killing of innocent people for no reasons." Terrorism has also been defined as, "the premeditated use or threat of use of violence by individuals or sub-national groups to obtain a political or social objective through the intimidation of a large audience, beyond that of the immediate victim." 2

Pakistan has been facing many economic and political problems like sanctions due to nuclear tests, military coups and terrorism.Pakistan was considered as a no go area for foreign investors and businessmen who did not like to visit Pakistan. Economic situation was however changed when Pakistan became a front-line state in war against terror. Sanctions were removed; debt was either rescheduled or written off and remittances into Pakistan picked up significantly. The 9/11 incident occurred in the start of Musharraf era and flow of foreign aid picked up. Foreign reserves increased from $ 700 million to $ 17 billion within a few years. The Karachi Stock Exchange was declared as the "best performing in the Asian markets" and got the third rank in banking profitability. The growth rate of GDP increased from 3.29% in 1999-2000 to 6.83% in 2003-2008, per capita income increased and positive economic outcomes emerged. Investment and exports grew up.

However, the benefits of this economic improvement were for the elite class as the common man was still waiting for benefits to trickle down. Consequently, income disparity increased.3

Although the economy of Pakistan improved during Musharraf regime but this improvement could not remain stable as this government also failed to present any visible strategy for economic development.(The fundamentals of economic sectors could not be improved. The number of people living under poverty line increased, in spite of higher flows of foreign aid and World Bank's anti-poverty reduction programme. Under Musharraf's administration, nepotism, corruption, inequality and unemployment wereaugmented.4

Consequences of this economic progress on weak foundations started to emerge in PPP regime (2008-13). Trade deficit increased to $ 15 billion in 2008 from $ 10 billion in 2007. The prices started to rise from an annualrate of 12% in 2005 and reached a level of 20% in 20085.

The collapse of Pakistan's economy, paved the way for economic and social injustice and let the state toward further political instability. Unfortunately Pakistan is a politically unstable state. Political instability had a negative impact on foreign investors.

Participation in War against Terror and inflow of US aid

Pakistan's economy experienced rapid growth during Musharraf's era. The average GDP growth was recorded at 5.2%. The inflow of foreign aid can be identifiedas a major cause of this growth. Musharraf government also signed one year Stand-by-Agreement (SBA) equivalent to $ 596 million in June 2000. Due to its successful implementation, the government also adopted Poverty Reduction Growth Facility (PRGF) agreement of $ 1.3 billion in December, 2001. After Musharraf, the elected government of PPP also entered into SBA of $ 7.6 billion in October 2008 for 23 months. It was raised to $ 11.3 billion in August, 2009 and was also extended by nine months till September 2011. During this period,the economy was under IMF programme while these loans rescued the Pakistan's economy6.

During the PPP regime (2008-13), foreign aid was reduced as compared to aid inflows during Musharraf's regime. See Figure 1.1. Pakistan economy showed poor performance and reduction of foreign aid could be one of its reasons. As foreign aid was reduced, Pakistan's economy suffered a slowdown. So this growth canbe termed as borrowed growth. The borrowed growth was defined as,

"that growth which is financed through borrowing and at the same time remains dependent upon external factors outside the control of policy makers."7

In 2001 Pakistan faced the worst economic situation. The per capita income was low and the rates of poverty and unemployment were high. In the start of the year 2001-02, there were limited foreign exchange reserves at $3,231 million could finance the imports only for three months. After the participation in war against terror, "inflow of concessional assistance" and assistance in the shape of US grants increased. From 2001-02 to 2007-08 the US funding for Pakistan was recorded at $ 12.2 billion but almost 70% this was reserved for counter terrorism operations. See Table 1.

Table 1: US Funding to Pakistan from 2001-02 to 2007-08###$ Million

Purposes###2001-02###2002-03###2003-04###2004-###2005-06###2006-07###2007-08

Military###1465###1473###782###1273###1218###1095###1387

Law###100###32###36###40###46###31###31

enforcement

Development###665###258###304###405###677###442###445

and economics

Diplomacy###3###4###7###6###9###9###1

Total###2232###1767###1129###1724###1951###1578###1866

Assistance for development was recorded at $ 3.2 billion in the same period. The overall inflow of aid increased the foreign reserves to a levelof $ 12,389 million at the end of 2003-04. The foreign aid not only boosted the foreign reserves but it also expanded the money supply, interests rates were reduced and the...

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