Economy suffered $68 bn loss due to terror war

Mehtab Haider
ISLAMABAD: The upcoming Economic Survey 2010-11 puts at $68 billion the official figure for losses borne by different sectors of the national economy in the aftermath of Pakistan’s decision to become an ally in the US-led war against terrorism (2002-2011).

In return, Pakistan has so far received around $15 to $17 billion, including reimbursements of $8.2 billion through the Coalition Support Fund (CSF), an amount that cannot be termed assistance since it is payback for expenditures incurred by Pakistan in helping Washington in the terror war.

On average, the per annum economic assistance Islamabad has received is a mere $374 million while military assistance is in the same range against total losses of over $68 billion. The last Economic Survey for 2009-10 had given a figure of $43 billion loss to the national economy since 9/11, 2001, when Musharraf took the decision to stand with the US in the war against terror and launched an offensive against supporters of the Taliban and al-Qaeda.

A top official at the Ministry of Finance confirmed to The News Tuesday that the government was revising the cost of war against terrorism in consultation with other ministries and divisions and preliminary estimates suggested it would be around $68 billion by the end of the ongoing fiscal year.

The Economic Survey for 2010-11, expected to be launched by the Minister for Finance, Dr Abdul Hafeez Sheikh, on June 2, will incorporate the latest estimates for the war against terror.

Former Economic Advisor to the Ministry of Finance, Dr Ashfaque H Khan, had taken the lead in coming up with the figure in 2007-08. The last survey, launched during the tenure of former economic advisor Sakib Sherani, came up with a figure of $43 billion.

In the Economic Survey 2009-10 it was said that between 2002 and end-April 2010, a total of 8,141 incidents of terrorism had occurred in Pakistan, resulting in 8,875 deaths of both civilians and law enforcement personnel and injuries to at least 20,675 people.

In terms of the economic impact, the fallout on Pakistan has been immense. As a frontline state in the global war on terror, it is officially estimated that Pakistan has been impacted to the extent of over US$43 billion between 2001 and 2010. Since 2007-08, when the terror war moved to a qualitatively different phase with the Pakistan army mobilising and undertaking large scale military operations in the country’s North West (in Malakand/Swat, and the Agencies of South Waziristan, Bajuar, Mohmand, Khyber, and lately, Kurram and Orakzai), the negative effects on the economy have greatly increased.

A brief list of the areas where the economy has been impacted include decline in GDP growth, reduction in investment, lost exports, damaged/destroyed physical infrastructure, loss of employment and incomes, diversion of budgetary resources to military and security-related spending, cutbacks in public sector development spending, capital and human capital flight, reduction in capital plus wealth stock, exchange rate depreciation and inflation.

As an illustration of the magnitude of the direct costs, the additional expenditure incurred on security related and civil relief operations since July 2007 has amounted to an estimated US$4 billion (2.4 percent of average GDP). In addition, the cost of the humanitarian crisis spawned by this conflict has been the displacement of over 3 million people, at its peak, resulting in a budgetary outlay of US$ 600 million for the last fiscal year alone, for relief and rehabilitation of the IDP population.

As a result of the negative effects of the war on terror, growth and investment have stalled. Pakistan’s economy grew by 1.2 percent in 2008/09, with large-scale manufacturing (LSM) contracting to -8.2 percent for the year. The five-year annual average rate of growth of the economy was 6.6 percent in the 2004-2008 period, while LSM output had expanded at an average of 12 percent.

Hence, the change in the five-year average-to-2009 works out to over 4.5 percent of GDP. Cumulatively, the loss of potential GDP for 2008 and 2009 was estimated at 7 percent (approximately US$11.7 billion).