POVERTY EXACERBATES LAW & ORDER
Apr 30 - May 6, 2012
The worst victims of poor law and order as well as poor economy are always the poor. Their vulnerability to shocks is incomparable.
Deteriorated law and order situation not only leads to surge in poverty, unemployment, inflation but also causes serious impacts on the country's economy.
Violence and targeted killings in Karachi have crippled the national economy, causing a loss of Rs7 to 12 billion (US $80m-$130m) per day.
Karachi, home to about 18m people, provides nearly 70 per cent of the government's revenue and accounts for a quarter of Pakistan's GDP. In 2011, Pakistan's GDP was Rs18.4 trillion (US$202 billion).
Not only the national economy is suffering from a severe loss, but the country's stock markets are also facing losses due to poor law and order situation in Karachi.
Experts say the government needs to take immediate steps to improve the conditions in Karachi so that the stock markets get stable and investments come to Pakistan.
Karachi is the center of all the businesses in Pakistan; if this city gets hurt, it affects the whole country.
Terrorism has both direct and indirect costs for the economy. The direct costs include human casualties, 'collateral damage' to the infrastructure, factories and standing crops, and interruption of economic activities.
The indirect costs include the decline in investment, inability to proceed with development work, loss of production time, increase in unemployment and the high cost of supporting and rehabilitating the displaced persons.
With expanding insurgency in the tribal belt and increasing acts of terrorism in Pakistan, the direct and indirect costs are growing exponentially.
Pakistan's economy has significantly lost the momentum of economic growth since 2007.
The Annual Report by the Institute of Public Policy of Beacon House National University estimates the cost of the war on terror in Pakistan to be $31.4 billion since 2004-05, far in excess of the assistance of $1.7 billion annually.
According to the ministry of finance, Pakistan has suffered directly or indirectly a loss of Rs2,083 billion in the war against terror between 2004-2005 and 2008-2009.
As can be seen, at the beginning, that is, in the fiscal year 2004-05, it was around Rs259.103. However, it has increased rapidly since then, and reached Rs678 billion which has affected the country's socioeconomic development.
The economy is suffering from losses of income and employment opportunities especially in the war-torn areas and the cost of rehabilitation of hundreds of thousand uprooted people from Swat, Malakand, and FATA areas. If this trend continues, the direct and indirect costs would increase manifold.
In short, terrorism has adversely affected development and imposed a heavy economic burden on the economy. It is important to note that the general loss of confidence in the economy and the consequent inability to attract foreign inflows, high military expenditure, and enhanced transaction costs lead to economic distortions impacting economic growth and causing instability. However, effective action to combat terrorism would generate significant benefits for the economy, preventing losses from reduced trade flows and investment.
FOREIGN DIRECT INVESTMENT (FDI)
The behavior of foreign investors is always difficult to predict, as it depends on various factors such as wisdom, prior experience, perception, and tolerance of economic and political risk, and long-term objectives.
In the case of Pakistan, terrorism has affected the allocation decision of firms investing money in foreign assets. As a result, FDI, which had witnessed a steep rise over the previous several years, was adversely affected by the terrorist acts in the country, especially in FATA and other areas of NWFP.
A major concern for Pakistan is the perception in financial market that as a country it is failing to deal effectively with terrorism. In such a situation, markets face high-risk premiums and the cost of protecting assets rises, reducing investment inflows.
Pakistan's participation in the war on terror has led to an excessive increase in the country's credit risk due to which the World Bank has lowered Pakistan credit rating.
According to a study, higher levels of terrorism risk are associated with lower levels of net FDI. In an integrated world economy where investors are able to diversify their investments, terrorism may induce large movements of capital across countries. So, Pakistan is not an exception and the flow of FDI is likely to reduce further.
The countries or regions that depend heavily on tourism have been found to suffer significant economic losses due to the persistence of terrorism. That is because individuals who plan their holidays are not likely to choose a destination with a high threat of terrorist attacks.
Gilgit-Baltistan and the NWFP are important destinations in Pakistan and people living there depend on tourism. However, most parts of Pakistan's northern belt and NWFP have fallen into the terrorists' grip.
For example, Swat was an important tourist destination in Pakistan, which attracted people from across the world not only to its natural beauty but also to see its rich civilization and history.
Swat is suitable for all sorts of tourism, i.e., ecotourism, adventure tourism, spiritual tourism, culture/heritage tourism, sports and commercial tourism. It has over 400 Buddhist sites. It has also a number of snow-capped peaks, waterfalls, glaciers, springs, streams, vast grassy tracts, thick forests, natural parks, lakes, and dark forests. It is an ideal place for both summer and winter tourism.
There are more than 855 hotels, including 405 restaurants, in the valley and around 40,000 people are associated with these hotels. But, they have mostly remained closed during the past three years due to militancy and the subsequent military operation.
According to the government's own estimates, the hotel industry in Swat valley has suffered a loss of Rs100 billion from 2007 to 2011. The workers associated with the hotel industry have also lost their jobs due to the ongoing incidents of terrorism. Moreover, the transport industry has also faced a severe blow and both the national and international transport services have either closed down or decreased their services from Peshawar, Islamabad, and Lahore.
According to the World Economic Forum, Pakistan ranked 113 out of 130 countries in 2009 as a tourist destination. The low ranking is attributed to incidents of terrorism and the lack of a tourism regulatory framework in Pakistan. Sources said that many motels in the country's restive northwest were closed down as tourists were banned from those areas and the staff had migrated to other cities for work.
SOCIAL COST OF TERRORISM
The impact of terrorism on a state's economy is enormous, leading to unemployment, homelessness, poverty and other economic and social ills.
According to the ministry and finance, Pakistan's participation in the anti-terrorism campaign has led to massive unemployment in the affected regions, which has ultimately increased rural poverty too.
Frequent incidents of terrorism and displacement of the local population have severely affected the socioeconomic fabric of the country, particularly in NWFP and FATA.
According to Poverty Reduction Strategy Paper (PRSP), the government's spending on infrastructure development in relation to roads, highways, and bridges declined by 36.57 percent in the first quarter of current fiscal year as compared to corresponding period of last year, while expenditure on law and order shot up by 17.18 percent.
For the first quarter of current fiscal year, there is a sharp decline in infrastructure development spending to Rs5.536 billion, 36.57 percent down compared to Rs8.728 billion for the same period of last year.
The expenditures on law and order increased to Rs34.526 billion in the first quarter of current fiscal year, 17.18 percent up compared to Rs29.463 billion for the same period of last year.
Analysts say that any increase in spending on law and order is a clear indication of the deteriorating law and order and may be one of the reasons for cut in expenses on infrastructure development.
The expenses of federal government on law and order for the period under review went up to Rs11.234 billion against Rs9.232 billion for the same period of last year.
The expenditures of Punjab government to maintain law and order went up to Rs12.061 billion for the first quarter as compared to Rs10.955 billion for the corresponding period of last year.