Socio-economic costs of terrorism with special reference to Pakistan 3


Mehmood-Ul- Hassan Khan
Terrorism is a curse. Since the start of the anti-terror campaign, an overall sense of uncertainty has prevailed in the country and it is at its peak in NWFP and FATA. It has contributed to capital flight and slowed down economic activities making foreign investors jittery. The foreign direct investment has been adversely affected by the ongoing anti-terrorism campaign in Fata and other areas of the NWFP. Pakistan’s participation in the international campaign has led to an excessive increase in the country’s credit risk. Due to which recently, the World Bank has lowered our credit rating further.

According to the Pak-US Business Council report (2009), we are the prime victim of Afghanistan’s instability and our economy has so far suffered directly or indirectly a huge loss of $35 billion. Moreover, due to widespread unrest and political uncertainty in Afghanistan a large quantity of our food items/commodities is smuggled to Afghanistan, which ultimately leads to acute food grain scarcity within our country.

Most recently, the new Obama’s administration has cautioned Pakistan that it would be held accountable for security in the border regions of Afghanistan and that its performance in the fight against terrorism would be linked to the financial aid. Moreover, the frequent drone attacks are becoming counter-productive and we are now facing the consequences.

According to Pakistan’s Finance Ministry, Pakistan suffered directly or indirectly loss of Rs 2080 billion in the war against terror from 2004-05 to 2008-09. It was around Rs 484 billion during FY 2007/08 which badly affected the country’s socio-economic development. It is estimated that it would increase to Rs 678 billion during FY 2008/09. The cost includes both direct and indirect on account of loss of exports, foreign investment, privatisation, industrial output, soft image and tax collection. The report further indicates that the expected direct cost of war on terror will reach Rs114.03 billion in 2008-09 from Rs108.527 billion last year. The indirect cost will increase to Rs563.760 billion from Rs375.840 billion. According to the report, the anti-terrorism campaign overstrained Pakistan’s budget as allocation for law-enforcement agencies had to be increased significantly, curtailing the funding for development projects since 9/11.

According to poverty reduction strategy papers-II of the Finance Ministry revealed that Pakistan’s participation in the anti-terrorism campaign has led to massive unemployment in the affected regions which has ultimately increased rural poverty too. It has reached to 37.5 percent from 23.9 percent in 2007-08. Frequent bombings, deteriorating law and order situation and displacement of the local population, have taken a toll on the socio-economic fabric of the country and especially the embattled Northern areas. Due to deteriorating law and order situation and high political risk the World Bank has blocked lending for two key loans, of at least $834 million, market-based loans which may increase serious economic problems for the country.

Pakistan’s cost of war against terrorism (Rs. Billion_
2004-05 2005-06 2006-07 2007-08 2008-09
Direct c cost 67.103 78.060 82.499 108.527 114.033
Indirect cost 192.000 222.720 278.400 375.840 563.760
Total 259.103 300.780 360.899 484.367 677.793
Source: Finance division, government of Pakistan ( 2008 )

Annual fatalities in terrorist violence in Pakistan, (2003- 2008 )
Years Civilians SF Personnel Terrorists Total
2003 140 24 25 189
2004 435 184 244 863
2005 430 81 137 648
2006 608 325 538 1471
2007 1523 597 1479 3599
2008 2155 654 3906 6715
Total 5291 1865 6329 13485
Source: Institute for Conflict Management (SATP)

Moreover, human miseries are on the rise which can be verified from the above table. There were 60 suicide attacks in 2008 as against 56 in year 2007. At least 852 persons, including 712 civilians and 140 security force (SF) personnel, were killed and over 1,867 persons injured by 65 suicide bombers involved in these attacks. 729 persons, including 552 civilians and 177 SF personnel, were killed and 1,677 persons injured by 58 suicide bombers, in 2007. Its socioeconomic repercussions are multidimensional due to which foreign investors are still reluctant to invest in Pakistan. The severe tussle between the security agencies (120,000) and the Taliban militants has produced the sentiments of insecurity and fear among the general masses.

Provincial details

Areas Suicide attack
NWFP 32
FATA 13
Punjab 13
Sindh 1
Balochistan 1
Total 60
Source: Institute for Conflict Management (SATP)

Swat’s 1.7 million population has fled their homes. The government’s effective writ has receded from the state’s 5,337 sq km to 36 sq km around Mingora. Buner, Charsadda, Bannu, Peshawar, Hangu, Mardan, Upper Dir, Kohat, Dera Ismail Khan and Lakki Marwat have been severely hit. The tribal agencies, Khyber, Mohmand, Bajaur, Orakzai, Kurram, North Waziristan and South Waziristan have also been under attacks during 2008. Danish embassy, Marriot Hotel, Police lines and Melody Market attacks badly damaged the soft image of Pakistan and the produced huge dints in our society and economy. The tourism activities have decreased. Hotel industry is passing through a difficult time in the troubled areas of NWFP and FATA. Fruit, cottage, and small & medium industries are facing serious difficulties in the areas.

Sectarian Violence in Pakistan ( 2002-2008 )
Year Incidents Killed Injured
2008 97 306 505
2007 341 441 630
2006 38 201 349
2005 62 160 354
2004 19 187 619
2003 22 102 103
2002 63 121 257
Source: South Asia Terrorism Portal (2009)

The business activity in NWFP is at its lowest ebbs. Due to why the Sarhad Chamber of Commerce and Industry (SCCI has requested to declare the province a war-affected zone. The SCCI chief said 3,500 industrial units were functioning in the province in the year 1995, while the number had shrunk to 600 in 2009, and that terrorist activities had halted commercial activities.

Education under attack
Types of schools Total
Government 560
Private 368

Education is under attack in Swat and different parts of the FATA too. Till to-day more than 190 schools have been burnt. It has grave implications both for the government’s writ and bad for the future of education in Pakistan. Female education has been prohibited by Talban. Moreover, it is not just girls’ schools that have been targeted in Swat. Over 42 per cent of the institutions destroyed had boys on their rolls. Nearly 150,000, students have been deprived of education while 8,000 women teachers are without a job.

Impact of terrorism on FDI

A Harvard study (December 2008) states that higher levels of terrorism risk are associated with lower levels of net FDI and Pakistan is not any exemption. In an integrated world economy, where investors are able to diversify their investments, terrorism may induce large movements of capital across countries. According to the SBP statistics net foreign investment has declined by 13 percent during the first seven months of the current fiscal year mainly due to massive outflow from portfolio investment due to of poor law and order situation and political instability in the country. Net foreign investment has registered a decline of some $324 million during the first seven months (July-January) of current fiscal year 2009. In case of Pakistan massive outflow of $25.058 million of foreign portfolio investment from the country’s equity market was witnessed during the week ended on January 10, 2009. According to National Clearing Company of Pakistan Limited (NCCPL) data, the cumulative outflow of this mode of investment had increased to $49.557 million from January 1 to date The foreign portfolio investment has been witnessing a declining trend since the beginning of 2008, as a cumulative figure of this mode of investment has recorded negative $432.458 million from January 1, 2008 to January 9, 2009.

Decay of soft image

The soft image of Pakistan has badly ruined by the ongoing anti-terror campaign in the country. Many experts of international economics and marketing consider soft image as a cashable commodity. It is indeed a pre-requisite for attracting high ratios of foreign direct investments. It brightens the possibilities of joint venture. It encourages FTAs and regional economic integration. Our world is interdependent and interrelated entity and frequent incidents of terrorism, fanaticism, and fundamentalism have earned bad names for us in the international community and markets too. The ongoing series of anti-state/government activities of terrorism, sabotage activities, target killing and crimes against naked & helpless humanity, are negating our soft image efforts.

Concluding remarks

Terrorism is a great hurdle in our socio-economic prosperity, political stability, geo-strategic sustainability and energy security. Development activities are halt in these areas. The rule of ignorance, stagnation, fanaticism, and destruction is spreading like a wild fire especially in NWFP and FATA. The government should initiate three-pronged policy i.e. dialogue, development and deterrence. Let us hope that our soil will be freed from the terrorism and there will be no more bloodshed in the days to come.


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