Effect of Terrorism on Pakistan Economy

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ECONOMIC COST OF TERRORISM: A CASE STUDY OF PAKISTAN

Arshad Ali *

The world is currently confronting terrorism in different manifestations. After the 9/11 terrorist events, the phenomenon of terrorism has abruptly changed the socioeconomic and geopolitical situation of the world. Terrorist groups have linkages with each other and are utilising each other‟s areas for recruitment and training, exchanging illegal weapons, engaging in joint planning and ventures, and also providing administrative and other logistic support. Pakistan is also facing the menace of terrorism which is eroding the country‟s social structure, economic development and political system. The acts of terrorism are threatening Pakistan‟s law and order situation, violating human rights of the citizens, damaging basic infrastructure and economic opportunities.

The immediate costs of terrorist acts are loss of human lives, destruction of property and infrastructure and curtailment of short-term economic activity. Additionally, terrorism creates uncertainty, reduces confidence and increases risk perceptions; leading to lower rates of investment and lower economic growth. In fact, Pakistan has not only lost precious lives and infrastructure; according to official estimates, it has also suffered a loss of around $ 35-40 billion since 2001-2002.

Pakistan‟s economic growth came to a near halt at around 2.00 per cent in fiscal year 2009, not only as a result of the global financial crisis, but also because of internal issues. These included a war on terror launched by security forces in the North West Frontier Province (NWFP) and the Federally Administrated Tribal Areas (FATA) bordering on Afghanistan, and the resultant displacement of some three million people from their homes. Both the war on terror and the rehabilitation of the internally displaced persons (IDPs) consumed a big chunk of the government‟s financial resources, thus widening the fiscal deficit and halting economic growth. Pakistan has suffered more than any other country due to the war on terror.

With the threat of terrorism, normal business requires more time and extra security. Thus, terrorism leads to a general slowdown in economic activity. Moreover, the terrorists have challenged the writ of the government by creating chaos and uncertain conditions that have tarnished the soft image of Pakistan. According to analysts of international economics, the soft image is like a cashable commodity, as it is an important source for attracting foreign direct investments (FDI). The FDI fell to $ 463 million during the first quarter as against $1.116 billion during the same period the previous year, a decline of 58.5 per cent. The frequent incidents of terrorism have given a bad name to Pakistan in the world and international markets. Terrorism has damaged the economy, polity and society of Pakistan, on multiple levels.

Against this background, recognizing and estimating the cost of terrorism is an extremely difficult exercise. Moreover, the absence of primary data makes the task even more challenging. The present study should thus be treated as an attempt at filling the knowledge gap in this area, encouraging more sophisticated analyses for better frameworks, and conflict cost estimates. The paper focuses on the economic cost of terrorism in Pakistan in a multi-dimensional perspective. While highlighting the impact of terrorism on GDP growth, it also takes into account the impact on FDI and tourism, along with the social sector.

Cost of terrorism: an assessment

Assessing the economic cost of terrorism is a very difficult exercise. The terrorist attacks have imposed a number of significant costs on individuals, societies and the State, and have thereby substantially changed the economic and social structure of the country.

Areas of impact

Any analytical framework devised to estimate such figures must include a wide range of impacts. Some of the areas that can be included in...
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