Impacts of terrorism on the economy of Pakistan 1

Impacts of terrorism on the economy of Pakistan
1. Introduction:
Pakistan has been a frontline ally in war against terror since 9/11 that shook entire world and specifically United States of America. Whether it was Pakistan’s war for real or America imposed it on Pakistan is a spate topic for discussion but the former had to pay a huge loss in terms of innocent civilian causalities, radicalized religious version, billion dollars loss to the economy and many more. This article will only focus upon economic loss due to destruction of infrastructure, reluctance of foreign investment, uncertainty at stock exchanges and various other factors.
According to one the Bloomberg’s report, that finds the impact of terrorism on 177 different countries between the years 1968-2000, shows that the impact of terrorism on the economic growth came out to be negative. The report also shows that terrorism causes shifting of resources from investment spending to government spending.
In one of the reports presented by Sandler and Enders, presented in 2005, they came up with similar views that in developed countries having vast economy, any terrorist act will result into the reallocating of resources between different sectors of economy but this may not be true in the case of developing countries where a major terrorist activity can seriously jeopardize the economic growth.
Terrorist activities are just like any epidemic disease. Its effects are instantly felt around the neighboring countries as well. In one of the reports conducted on civil war by Murdoch and Sandler (2005) found the impacts of civil wars on adjacent countries. As a result of civil war, the economic growth can reduce as high a up to 85 percent in an affected economy but in log run this impact is 30 percent. The same impact for a neighboring country is 24 percent in short run and 30 percent growth reducing impact in the long run.
Terrorists’ activities bordering Afghanistan, Iran and India have often caused serious problems within Pakistan. Non states actors funded from foreign countries are also busy in plotting various terrorists’ activities of suicide bombing, blowing up railway tracks and other infra structure damaging causing restlessness in the country that adversely affects the economic activities and economic development.
According to World Bank report below, terrorism has negatively affected the country’s GDP.

2. Background:
Some events shape the entire history of the globe and their effects are long lasting. One of many such incidents was the 9/11 attack on the World Trade Centre by members of Al Qaeda, killing thousands and giving them some bitter memories. Americans responded aggressively to this terrorist activity and there began the war of Afghanistan. Right after two weeks of 9/11 attack, aerial bombing in Afghanistan started by American jets.
The then President and Army chief of Pakistan, General Pervez Musharaf took American side and formally announced war terror against Al Qaeda. Soon after the attacks, refugees from Afghanistan started entering the Pakistani territories. As a result of the war in Afghanistan, the social structure, political system and economic development in Pakistan got severely affected.
According to Arshad Ali, in his research article, “ECONOMIC COST OF TERRORISM: A CASE STUDY OF PAKISTAN”, after 9/11 terrorist incident, the phenomenon of terrorism has drastically changed not only the socioeconomic but also the geopolitical situation of the world. Terrorist activities have seriously threatened law and order situation,
The acts of terrorism are threatening Pakistan’s law and order situation, violating human rights of the citizens, damaging basic infrastructure and economic opportunities.
3. Consequences of Terrorism on the economy of Pakistan:
As discussed previously, how foreign countries use non state element to perform malicious activities against a country to sabotage its economic activities, the case of Pakistan is no different. Because of the these economic terrorism, Pakistan is facing sluggishness in the economic activity, seizure in investments, decline in domestic and foreign tourism, damage to infrastructure and effects on agricultural sector.
3.1. Seizure in Economic Activities/investments:
When main infrastructure is targeted by terrorists in a country, its direct impact is seen on the stock exchange. Stock market index and shares instantly collapse. As a result of this fall, investors and investment become uncertain. According to Ministry of finance, between 2008-2010, the losses surmounted $40 billion dollars. In such an uncertain atmosphere, huge amount of capital flows out of country resulting in fiscal deficit and stunted economic growth.

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3.2. Decline in Tourism:
Both domestic and foreign tourism got badly affected because of the terrorism issue. Cases of suicide bombing, targeting marketplaces and parks and heinous incidents of Nanga Parbat Base camp where twenty foreigners were killed cold blooded and many other such incidents made Pakistan a living hell for the tourists and a very negative image emerged in the western media, due to which economic activity from tourism collapsed. Hostelling industries were at the verge of collapse. According to one the reports, in 2017, around two million foreign tourists came to Pakistan.
According to the reports of The Economic Impact of Travel and Tourism March 2017, tourism has flourished greatly owing to the better Law and Order Situation.

3.3. Effects on agricultural sector:
Pakistan is an agricultural country and due to these ongoing terrorist ativities agricultural productivity remarkably decreased especially in the regions of KPK and FATA. According to the research report by Arshad Ali, agriculrural loss alone mounts to Rs. 35 Billion. Only in Swat valley, fifty five to seventy percent of fruit produce in Swat alone went waste. The agricultural share of GDP kept fluctuating between 1999-2000 to 2007-2008. The decrease in GDP between 2007-20008 is due to frequent terrorists activities in the country.
3.4. Defense Expenditures:
In the year 2007-2008 due to enhanced militancy in the region the country had to put additional US $ 4 billion (2.4 percent of average GDP) on the annual budget to counter militancy and provide security relief. Problems of security, food and shelter to the IDPs were the biggest challenge for the government. 3, 11,303 million Defense budget was allocated in 2009-10 which was increased to 3, 11,303 million. All these additional expenditures on defense and counter militancy further weakened the shaky economy of Pakistan.

4. Recommendations:
Economic Terrorism is a grave threat to the survival of any state. If this threat is not realized timely, it can even cripple mighty empires to the dust. Following recommendations can be given to enhance economic development without getting affected by terrorists’ acts.
4.1. To ensure a strengthen economy, Law and order situation must be the top priority of the state. State must deal with iron fist with all those terrorists and non state actors who get involved in such malicious activities.
4.2. National interest play vital role and they must be given top priority because these interests collectively ensure a conducive economic growth, and for that purpose main stakeholders like political leadership and military leadership must be on the same page, irrespective of their individual differences.