The real cost of Pakistan’s war on terror

Published: July 11, 2010

How the country getting $0.8b for a $10b operation is a common occurrence

We fail to realise the economic costs of someone else’s war on terror that we have been fighting because of how our leaders tend to focus on petty political gains. We do not realise how expensive suicide bombs, militant-rule and a military campaign against them can be.

We had one of the biggest internal displacements in the history of world with nearly 2.3 million migrating to other areas, being taken care of and then finally being repatriated and rehabilitated to their homes.

The country received around $0.8 billion for an operation that cost Pakistan approximately $10 billion. We are talking about the Malakand operation that was staged during the summer of 2009.

It is easy to blame the government for not being able to control budgetary deficits, but the government cannot be blamed for costs that cannot be envisaged in a budget.

No one should expect policy makers to make budgetary estimates that would take dealing with 2.3 million internally displaced people into account.

The International Monetary Fund’s Poverty Reduction Strategy Paper identifies the “government spending in excess of revenue” to be the country’s main problem. The report talks about the recent political, economic and social events, both domestic and international, which have put an adverse impact on Pakistan. To emphasize the impact on the economy, the role in war on terror finds its place in the very beginning of the report.

There are other problems that can easily be blamed for Pakistan’s macroeconomic instability including domestic  law and order, an unprecedented global  increase in prices of oil, food and other essential commodities, instability in international financial markets.

But the fact remains that the most important factor is Pakistan bearing the direct and indirect costs being the frontline state in the first worlds War on Terror.

As a result of these issues, Pakistan is currently facing major challenges including growing fiscal and current account deficits; rising inflation; growth deterioration; and depleting foreign exchange reserves.

The IMF has highlighted the economic cost of the war by looking at the direct cost of resource movement and indirect cost of loss of exports, foreign investment, privatization, industrial output, and tax collection.

The findings are staggering and should give enough thought to detractors of our involvement in a war of our own existence. They calculate the economic costs of the war to be $30 billion, using the actual foreign exchange rates prevalent in those years.

The report goes on to say that Pakistan’s role in the war on terror severely dented the development work in the country. “Pakistan has sustained immense socioeconomic costs of being a partner in the international counterterrorism campaign,” the report said.

Since the start of the anti-terrorism campaign, an overall sense of uncertainty has contributed to the capital flight, as well as, slowed down domestic economic activity making foreign investors jittery despite all these challenges Pakistan has not defaulted on any of its obligations and successfully paid back the entire amount of a Sovereign Euro Bond in January 2010.

At the same time it is also important to highlight the importance of relief that we can get from International Community. If the likes of IMF acknowledge the role we are playing and also suffering because of it economy wise, then why can’t we lobby effectively and get ourselves some relief?

We should try to get our bilateral debt written off. It is pertinent to note that during the 9 months of July 2009 to March 2010, Pakistan serviced $1.72 billion of foreign debt (according to SBP figures) or approximately PKR 150 billion.

Our total foreign debt is $54.235 billion as of March 2010. Out of that approximately $14.1 billion is with the  Paris Club in which there are 18 nations who rescheduled our debt in December 2001. These countries include the US, UK, Canada, Japan, Korea, Netherlands, Norway, France and Germany.

We should demand from the world that we need this relief as it will allow us to plug the holes in our budget and also allow for spending more on development which is a foremost strategy to shun extremism.

For example, if the interest and debt service cost over the next 3 years from these loans of around $18 billion come to Rs400 billion, then the government can freeze its expenditures by the same amount. Imagine the trickledown effect on our economy.

We will be saving servicing cost and also reducing our expenditure. It will be a saving of Rs800 billion over three years of time. With this saving, we can reduce our fiscal deficit and at the same time increase our development programs. All it requires is for all of parties in the parliament to join hands and stand together.

The PPP will not be in power for ever but Pakistan has to be there forever and that we can only achieve by setting aside our petty differences and working towards a consensus that can actually help Pakistan.

Published in The Express Tribune, July 12th, 2010.

Reader Comments (11)

  • Umayr Masud
    Jul 12, 2010 - 12:32AM

    It is NOT someone else’s war , why cant people realize this? Lets put it this way , PAKISTAN is the only country in the world where there is an actual area where there is NO LAW.. We are the ones who have by POLICY helped independent mercenaries groups to work for us to gain strategic depth, We are the ones who have no global support what so ever. So if we do not fight against the people we created we’d be waged war on. And the army IS smart enough to realize what they can or can’t do.
    The economic cost will remain rising unless we honestly accept the truth and work for a REAL solution.Recommend

  • Syed A. Mateen
    Jul 12, 2010 - 12:55AM

    Now after nine years people have started realising the fact that General (R) Pervez Musharraf’s sided with the US after 9/11 attacks on the World Trade Centre and the Pentagon was wrong.

    Pakistan is paying the price for siding US, whereas many countries in the world remain distant from US.

    It is unfortunate that Pakistan’s Head of the State has made a wrong decision after 9/11 attacks due to which Pakistan is suffering a lot.

    Pakistani leadership is afraid of CIA, although CIA could not save US from 9/11 terrorist attacks. CIA is a failed intelligence agency that cannot protect the borders of its own country.

    Uncounted people have died in terrorist attacks all over Pakistan, besides unprecedented loss to public and private properties, and yet Pakistan cannot stop the drone attacks on its soil?

    We are in catch 22 situation.

    On one hand we are getting money from US to fight US war on terror in Pakistan, and on the other hand we cannot protect the lives of innocent people who are dying every day due to terrorist activities.

    How long Pakistan and Pakistanis are going to pay the price? Instead of utilising all resources for the betterment of the masses, our past and present government is engaged to please the US always with a smile.

    We should first of all think to protect our own interest rather than protecting the interest of US.

    US is a failed state and any country standing behind US cannot flourish and achieve its goal, unless she choose her own road map and the not the road map given by the US.

    When US cannot solve the problems of its own people, how come US will solve the problems of Pakistan and the Pakistanis?Recommend

  • Ammad
    Jul 12, 2010 - 3:45AM

    The article shows that this is not Pakistan’s war and those who call it our war are fools. Everybody can see the price we are paying(not just the apparent monetary figures), the most important thing is the lives we are losing, the deterioration in our law and order situation which has made Pakistan a perilous place to live. There are not as many US soldiers killed in war than our citizens. How can you call it our war. Did we have any enemy in our country before this. The people we are fighting now were never like that before 9/11. Does anybody used to bomb places before that, this is all after that. How can a poor country afford such a war. Even after becoming US allies we are not getting full support and they still want us to do more.

    The only way to develop is to relinquish this so called war against terrorism. Let those for whom it is terrorism fight. We should not be a part of it.

    I totally support Imran Khan’s point of view on it and I see him the only person to take Pakistan out of this quagmire. I call it America’s war. Recommend

  • Khalid Ahmed
    Jul 12, 2010 - 9:16AM

    Pakistan should effectively lobby to get our debt written off. At the end of the day, there is a tangible benefit that one expects to receive from the write off. Recommend

  • faraz
    Jul 12, 2010 - 10:41AM

    So should we hand over our land to these fanatics; nations are meant to live forever. Our blunderous policy of using jihadi organzitions to figth proxy wars and to create strategic depth proved to be a disaster but should we just give up, its not the end of the world.

    Taliban blew up 500 schools, slaughtered men and hung there bodies with electricity poles, captured the state apparatus of the entire Malakand division and you are worried about the cost?

    It is our war, come out of the state of denial, come out the Zia era.Recommend

  • Sher Zaman
    Jul 12, 2010 - 1:41PM

    Excellent observations of the author; it is important for the lenders to understand the overall effect of this war on terror on our economy. They would have to ease the conditions of the loan, so that our economy can recover. Recommend

  • Ahmed Iqbal
    Jul 12, 2010 - 2:14PM

    For sure Pakistan needs the relief. IMF has very recently given debt relief to DR Congo (formerly Zaire) http://www.imf.org/external/pubs/ft/survey/so/2010/CAR070110A.htm and Liberia http://www.imf.org/external/pubs/ft/survey/so/2010/CAR062910A.htm worth total of USD 16.9 billion. We can get relief but for that we have fight our case and that case can only be fought if we are united on all fronts.Recommend

  • Meekal Ahmed
    Jul 12, 2010 - 9:56PM

    Debt relief constitutes a huge “moral hazard” problem for all indebted countries — including Pakistan. Because you know it is an option, you tend to be reckless with borrowing as we have.

    We should not take it lightly. Seeking debt-relief upsets bilateral donor’s, raises the country’s risk profile and un-nerves markets.

    Someone in another newspaper suggested “strategic default”. Brave words but I don’t think he has a clue of what that would entail for the Pakistani people.

    Also, if you ask for debt-relief, the Paris Club will INSIST on an IMF arrangement to go with it. Sorry, no free lunch.

    Finally, to the author, please check some of your facts. The external current account deficit is not increasing (it has actually dropped some 66%) and reserves are not depleting. I think they just crossed $16 billion, equivalent to about five months of imports. There was massive capital flight in 2008 which was more related to the parlous state of the economy rather than the security situation; some of that capital has probably reversed itself. Recommend

  • Narejo
    Jul 14, 2010 - 10:38AM

    There are blast in Pakistan every day. What else do you need to call it our war. Please don’t go into justifying these actions by terrorists. For a long time we supported these activities in Afghanistan and Kashmir and now once these places are closed for Jihadis we are paying the price of our policies. Sooner or later we had to face them. It is good that we are standing up to them..Recommend

  • Karmran
    Jul 16, 2010 - 3:04PM

    I appreciate the author of this article about his findings, but I have one question. Had we anther way to confront militant groups in Pakistan. Because when we look at the history this culture already had been penetrated in our society after Pakistan’s involvement in Afghanistan against Russia (during Zia’s regime). So we can not blame only current government policies, there are some historical facts as well. Recommend

  • Khalid Ahmed
    Sep 9, 2010 - 12:25AM

    Wikileaks has recently released CIA files which shows how they are doing terrorist activities in Pakistan and how they planned Mumbai attacks. Surprisingly noone talked about it, not in goverment and media even. We are actually being pushed to a situation where even after these foriegn forces are gone will have us fighting within our country. We were having extremisits not before 9/11 ? Why they just work up after 9/11 ? Extremisits aren’t in every society ? In Afghanistan, India, even US and UK ? Racists, intollerant, and religiously motivated people are in every society, but we have made a mind to crush them at any cost but this will cost us lives, economy, peace, development, education and God knows what else.Recommend

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