Aug 03 - 09, 2009

In the aftermath of Russian assault on Afghanistan and Pakistan's selection as it defenders by the US has gradually and slowly shattered Pakistan's economy. Financial assistance may have come to the country but overall exposed the country to external threats. In the post 9/11 era Pakistan was once again selected but not as defender of Afghanistan but as part of the crusade against Taliban. The money came once again but Pakistan is still paying the cost. Most the economic analysts say if one tries to quantify the losses the number may run into trillion of dollars.

According to ministry of finance the country has suffered directly or indirectly loss of over two trillion rupees in the war against terror from 2004-09. The quantum of loss was around Rs484 billion during 2007-08, which badly affected the country's socio-economic development. It is estimated that it would increase to Rs678 billion during 2008/09. The cost includes both direct and indirect on account of loss of exports, foreign investment, privatization, industrial output, soft image and tax collection. The report further indicates that the expected direct cost of war on terror would reach Rs114 billion in 2008-09 from Rs109 billion a year ago. 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 38%. 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.

On the eve of Benazir Bhutto's assassination alone assets worth billions of Rupees were turn into ash in a few hours. The assets included from motorcycles to railway locomotive and from small shops to Railway stations, bank branches and private properties. Not all this happened suddenly but according to a clearly laid down plan, while the prime target was Ms Bhutto the aim was to create serious law & order situation and plunge the country into serious economic problems.

As the onslaught continued hotels became prime target resulting in billions of rupees losses, railway locomotives also came under attack some times even on the pretext of load shedding. In the energy related riots dozens of building, bank branches petrol pumps and public transport has been torched.

Terrorism is a curse and since the start of the war on terror after the 9/11, an overall sense of uncertainty has prevailed in the country and lately a war like situation in the NWFP and FATA has spilled over throughout the country. It has contributed to capital flight and slowed down economic activities making foreign investors jittery. 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), Pakistan has been the prime victim of Afghanistan's instability and country's economy has suffered directly or indirectly a huge loss of $35 billion. Moreover, due to widespread unrest and political uncertainty in Afghanistan a large quantity of Pakistan food items/commodities are smuggled to Afghanistan, which ultimately results in acute food scarcity within the country.

The investment from US in Pakistan posted a decline of 75% during fiscal year 2008-09 mainly due to US sub prime mortgage crisis followed by global economic meltdown. The US investment in Pakistan was on the rise over last seven years. The US investors became a little conscious after the global economic recession and adopted a wait and see policy. As a result, the rising US investments in Pakistan also witnessed a sharp decline during the year. While, on domestic front, political uncertainty, poor law and order situation, and power shortage were some major hurdles in foreign investment.

According to the data available with the central bank, the US investment both as foreign direct investment and portfolio investment declined in fiscal year 2009. Overall, US average investment in Pakistan was over US$1.5 billion during last two years. However, it declined to $434.4 million during fiscal year 2008-09 as compared to $1.748 billion during fiscal year 2007-08, depicting sharp decline of $1.313 billion dollars.

Major declined was witnessed in portfolio investment, which decreased by 200% to a negative position of $441 million during 2008-09. Foreign direct investment (FDI) amounted $875 million after a decline of 33% in 2008-09 as compared to by $1.309 billion in fiscal year 2007-08. Despite the recent decline, the US remained on the top position with an investment of $434.4 million.

Similarly, UK's FDI stood at $263.4 million relative to $460.4 million a year ago, showing a decrease of nearly 43%. Portfolio investment stood at a negative position of 77.7 million dollars. Other leading countries in foreign investment were United Arab Emirate, Singapore, Switzerland, Mauritius, Hong Kong and Malaysia.

The domestic business conditions are deteriorating fast on matters of energy crisis, increasing cost of utilities, poor law & order situation. In nut-shell, economic performance would further deteriorate on poor law and order situation, expanding war on terror, escalating border security dangers, water and power crisis, increasing power tariff and unemployment, increasing corruption, unstable political conditions and unwanted government spending.