IMF report: Pakistan incurs Rs 2.08 trillion loss due to war on terror

[Nahraf]

IMF issues country report on economy

Pakistan incurs Rs 2.08 trillion loss due to war on terror

Sunday, July 04, 2010
By Shahnawaz Akhter

KARACHI: Pakistan has incurred a loss of Rs2.082 trillion in exports, foreign investment, industrial output and tax collection during the last five years due to the war on terror, a country report issued by the International Monetary Fund (IMF) said on Saturday.

The report on Pakistan: Poverty Reduction Strategy Paper (PRSP-II) highlighted the recent political, economic and social events, both domestic and international, which have put an adverse impact on Pakistan.

The cost to the national economy, both direct and indirect, was estimated during FY05 and FY09. According to the report, the cost gradually increased from Rs259.103 billion in FY05, Rs300.78 billion in FY06, Rs360.9 billion in FY07, Rs484.367 billion in FY08 and 678.8 in FY09.

Pakistans 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.

The anti-terrorists campaign, which followed the 9/11 event in the United States in 2001, overstrained Pakistans budget as allocations for the law-enforcement agencies had to be increased significantly meaning erosion of resources for development across Pakistan, particularly in FATA and Khyber-Pakhtunkhwa areas, in addition to human sufferings and resettlement costs.

Several development projects, started earlier in the affected areas are afflicted with delays, which would ultimately result in large cost over-runs, 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.

It is apprehended that the foreign direct investment, which witnessed a steep rise over the last several years may be adversely affected by the ongoing anti-terrorism campaign in FATA and other areas of Khyber-Pakhtunkhwa, in addition to an excessive increase in the countrys credit risk, which has made borrowing from the market extremely expensive, it said.

Besides, Pakistans sovereign bonds have also underperformed owing to similar reasons.

Pakistans participation in the anti-terrorism campaign has led to massive unemployment in the affected regions. Frequent bombings, worsening law and order situation and displacement of the local population have taken a toll on the socioeconomic fabric of the country, the report said.

To steer Pakistan back on the path of sustained and broad-based economic growth and to create jobs and reduce poverty, the IMF said, Pakistan requires a prolonged period of macroeconomic stability, financial discipline and consistently transparent policies that place poverty reduction at the centre of the countrys overall economic policies.

Linking the economic growth-poverty reduction nexus are the very elements that the new PRSP focuses on, which was extensively chalked out in the entire document.

During the five years ended in FY06/07, Pakistans economy more than doubled in size with an annual GDP growth rate averaging seven percent. With relative price stability, the debt burden had reduced to one-half, foreign exchange reserves were sufficient to provide import cover for almost six months, stock market was one of the best performing in the emerging markets, foreign direct investment touched close to six percent of the GDP and Pakistan successfully launched sovereign bonds of maturity ranging from 5-30 years in the international capital market with manifold oversubscription, reflecting strong vote of confidence of the global investors, it said.

However, the last fiscal year, ie, 2007/08 caused turmoil for Pakistans economy with several political and economic events, both on domestic and external fronts, occurring unexpectedly, the report said.

The country suffered a series of shocks since the eruption of the judicial crisis in March 2007. The then government went into policy inaction, delaying important decisions that were needed to face these challenges. Root causes of macroeconomic instability included delay in passing the effect of the oil price hike to the consumers, resulting in a very high budget deficit, which was financed by excessive borrowing from the State Bank of Pakistan (SBP).

The report said that the overall vision of PRSP-II is to regain macroeconomic stability and Pakistans growth of 5-7 percent per annum over the next five years, create adequate employment opportunities, improve income distribution and global economic competitiveness through economic liberalisation, deregulation and transparent privatisation.

To ensure that macroeconomic difficulties do not further slowdown the pace of job creation and, hence, ultimately adversely effect poverty reduction, the government took and would continue to undertake a series of fiscal, monetary and exchange rate measures to stabilise the economy, the report said.

In March 2008, the prime minister laid out a series of future commitments (100 days agenda) to benefit the poor during the PRSP-II period and beyond.

Coming of a new era of democracy in Pakistan has, thus, immediately resulted in promising opportunities for the people belonging to the lower middle class and poor segments of the society.

 

[AZADPAKISTAN2009]

50-100 billion is my estimate

But I hope we wax those 3 F16 that cost 30 million combine etc

 

[SMC]

I hope the Indians who keep harping about aid, aid, aid, aid listen to this. The aid is peanuts compared to what we've lost.

 

[sparklingway]

Pakistan’s War on Terror has cost Rs 2 trillion to the national economy – IMF Report​

by Ahmed Iqbalabadi

It boggles my mind when I hear statements from leaders living in utopia that “It’s not our war”, “We are fighting someone else’ war” and then self contradictory points on “we are not getting enough for being involved in war on terror”. Over focusing on petty political gains, we fail to realize the economic costs of OUR war on terror. Suicide Bombs, Militant Rule in certain areas and then a military campaign, don’t they cost us? In the meanwhile, we had one of the biggest internal displacements in the history of world with nearly 2.3 million people moving from their homes to other areas, being taken care of and then finally being repatriated and rehabilitated to their homes. According to estimates, Pakistan’s state and people bore a cost of approximately USD 10 billion or Rs 850 billion approximately for the Malakand operation of summer of 2009, out of which approximately USD 800 million was received in form of aid. It can be very easy to point towards the government for not being able to control budgetary deficits, but what about costs which you cannot envisage in a budget. Imagine, I am preparing the budget for 2008-09 and I was required to make budgetary estimates. Could I have correctly guessed that an internal displacement will take place and a lot of resource would have to be apportioned towards that end?

The International Monetary Fund has released Pakistan: Poverty Reduction Strategy Paper on July 2, 2010. 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. As per the report:

Three main structural weaknesses can be identified for the current economic difficulty: (i) government spending in excess of revenue (fiscal deficit); (ii) imports in excess of exports (trade deficit); and (iii) inadequate social services to allow the poor and the vulnerable to fully participate in times of economic stability and prosperity and be protected during shocks. More recent reasons for the prevailing macroeconomic instability include domestic law and order situation, an unprecedented global increase in prices of oil, food and other essential commodities, instability in international financial markets and, most importantly, bearing the direct and indirect costs being a frontline state in the ‘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 also highlighted the economic cost by looking at the direct cost of resource movement and indirect cost of loss of exports, foreign investment, privatization, industrial output, tax collection, etc.

​

The findings are staggering and should be give enough to detractors of our involvement in a war of our own existence. The Rs. 2.08 trillion that has been calculated, is close to USD 24.4 billion whereas when brought back to actual foreign exchange rates prevalent in those years comes to close to USD 30 billion.

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. It is apprehended that the foreign direct investment, which witnessed a steep rise over the last several years may be adversely affected by the ongoing anti-terrorism campaign in FATA and other areas of Khyber-Pakhtunkhwa, in addition to an excessive increase in the country’s credit risk, which has made borrowing from the market extremely expensive. Besides, Pakistan’s sovereign bonds have also underperformed owing to similar reasons. Being a game of image building and how we present ourselves, we fail to appreciate the fact that despite of all challenges, Pakistan has not defaulted from its obligations and successfully paid back the entire amount of a Sovereign Euro Bond in January 2010.

The political crises caused by the Judicial crisis also finds a mention in the report. Have we ever thought of the impact of the political crises on our economy?

How much bad press we get from the judicial activism? Be it political matters, or economic matters, the meddling of judiciary in these affairs is not welcomed by markets as they bring in doubts about stability and highlights risks.

The report highlights the nine pillars on which we can aim to reduce poverty:

(i) Macroeconomic Stability and Real Sector Growth; (ii) Protecting the Poor and the Vulnerable; (iii) Increasing Productivity and Value Addition in Agriculture; (iv) Integrated Energy Development Programme; (v) Making Industry Internationally Competitive; (vi) Human Development for the 21st Century; (vii) Removing Infrastructure Bottlenecks through Public Private Partnerships; (viii) Capital and Finance for Development; and (ix) Governance for a Just and Fair System.

The report also acknowledges that “the government is putting in place a stringent results-based system to monitor and evaluate the progress of the Poverty Reduction Strategy”

It is only fair to say that we have numerous challenges to overcome. The first and foremost is from law and order and militancy. That can only happen if we fight against the common enemy and forget our petty differences.

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? The thrust of my point is getting our bilateral debt written off. It is pertinent to note that during the 9 months of July 2009 to March 2010, Pakistan serviced USD 1.72 billion of foreign debt (according to SBP figures) or approximately PKR 150 billion. In all our total foreign debt is USD 54.235 billion as of March 2010. Out of that approximately USD 14.1 billion is with Paris Club in which there are 18 nations who rescheduled our debt in December 2001. The names of these countries include US, UK, Canada, Japan, Korea, Netherlands, Norway, France, Germany etc. I believe, US is the biggest contributor in the Paris Club for Pakistan with nearly USD 1.7 billion. If we take other bilateral loans and Islamic Development Bank loans, that will make it another USD 2.62 billion. Similarly, China has given Pakistan USD 795 million, Saudi Arabia has given USD 455.6 million, Japan USD 71.11 million, Germany USD 45.6 million and Kuwait USD 39 million.

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. For example, if the interest and debt service cost over the next 3 years from these loans of around USD 18 billion come to PKR 400 billion, then the government can freeze its expenditures by the same amount. Imagine the trickle down effect on our economy. We will be saving servicing cost and also reducing our expenditure. It will be a saving of PKR 800 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.

 

[Xeric]

And what about the human cost?

 

[sparklingway]

The estimated cost of last year's effort is almost equal to this year's budget deficit. The cost of fighting the war has more than doubled since '07.

How can a government handle such a big war, in a time of global economic recession, and with so many politico-judicial games in play?

And what about the human cost?

We don't need to be told that, we all know it already.

 

[WAQAS119]

We are receiving 7.5 billion of Karry Lugar Bill in next few years, its present value will be something 6 Billion plus 1.5 Bn USD for military thus net loss is
24.3-6-1=17.3 Bn USD...........OMG

 

[Xeric]

So, now as we know the cost - both in terms of men and materiel, should we still be accepting the 'do more' BS?

 

[WAQAS119]

So, now as we know the cost - both in terms of men and materiel, should we still be accepting the 'do more' BS?

Obviously not!! Even we should not have accepted this BS had we been accruing profits ---- but who will tell this to our beloved democratically elected leaders.

 

[sparklingway]

So, now as we know the cost - both in terms of men and materiel, should we still be accepting the 'do more' BS?

We should be doing it for ourselves and that should not involve finding "strategic depth" amongst Haqqanis. We should do what we have to do to make sure that Afghanistan does not fall back into the hands of Taliban when the US leaves. Crackpots might think it is wise but it never will be.

 

[Xeric]

We should be doing it for ourselves and that should not involve finding "strategic depth" amongst Haqqanis. We should do what we have to do to make sure that Afghanistan does not fall back into the hands of Taliban when the US leaves. Crackpots might think it is wise but it never will be.

i was not exactly concerned about Afg here, but anywaz, the bottom line is that we have done best that we could have given our 'limitations', resources and will. Now, most importantly we should keep our interests the foremost during this entire fight and see what suites us best and not only to those who have been pressurizing us around.

We need to be a bit 'selfish', we need to talk with them on equal terms and protocols and stop this relationship that exists between a 'giver' and a 'taker'.

Primary concern - india, then the anti-72-virgins campaign and de-talibanization of the society while keeping in mind the concerns of our friends - simple it may seem but we would have to make some bitter decisions in the times to come.

 

[sparklingway]

Primary concern - india, then the anti-72-virgins campaign and de-talibanization of the society while keeping in mind the concerns of our friends - simple it may seem but we would have to make some bitter decisions in the times to come.

India is secondary to the TTP, LI crowd, at least for now. Being prepared against India does not require continuing military operations, it just requires adequate preparations and necessary precautions including a sound foreign policy.

As of now, the TTP crowd is far more important than India. (Linking India with TTP does not change the scenario as the perpetrators are the TTP/LI in the end)

 

[Nahraf]

I have already been posted this article yesterday in Economy section.

http://www.defence.pk/forums/econom...urs-rs-2-08-trillion-loss-due-war-terror.html

 

[Old School]

We should congratulate Late Gen. Zia ul Haque for laying the very foundation of our foreign policy which costed us a loss of this small amount of money not to mention the socio-political disorder with some concurrent fireworks in public places. Well done General !

 

[Nahraf]

IMF scratches Pakistan?s back – The Express Tribune

IMF scratches Pakistan’s back
By Ghazanfar Ali

July 05, 2010

The West protects its interests based on tension in the region

KARACHI: The International Monetary Fund (IMF) has praised Pakistan’s commitment to the $11.3 billion loan programme, despite delays in imposing Value Added Tax (VAT). IMF Managing Director, Dominique Strauss-Kahn said in an interview last week that Pakistan has taken a good step forward on economic reforms.

These comments are welcome and a source of encouragement for the government as the lender has always been critical of borrowers. The remarks come in spite the government’s denial to impose VAT from the start of the fiscal year in July and a three months delay in announcing a power tariff hike of six per cent. The tariff was eventually increased a few days ago by 7.6 per cent.

Besides the budget deficit also exceeded the revised target of 5.1 per cent of gross domestic product due to less-than-expected collection of revenues. Earlier, the deficit target was raised from 4.9 per cent to 5.1 per cent as per agreement with the IMF.

The multilateral lender is providing its highest loan package ever to Pakistan and sweetening the deal with rare praise. Why the special treatment? Could Pakistan’s strategic location in an unstable region be the reason?

What is the real reason?

A stone’s throw from Afghanistan, where US and Nato forces are battling the Taliban and al Qaeda, Washington wants to express its support for Pakistan. The government has claimed that the country is the frontline state in the so-called ‘war on terror.’ The government has received foreign backing on several occasions and the US plan to provide $7.5 billion over five years under the Kerry-Lugar bill is a significant example.

The US is also considering helping the construction of Reconstruction Opportunity Zones in Pakistani areas bordering Afghanistan. Products manufactured in these zones will get duty-free access to US markets, a long-standing demand of Pakistan to permit easy access to the American markets.

These positive steps are due to Pakistan’s key role in solving the Afghan problem and the fact that the international community needs us. Just think, would Pakistan have received substantial financial assistance with relaxed conditions in the face of imminent default, had there been no Afghan problem?

When the money stops flowing

The government might have devised a plan on how to proceed when current IMF loan programme ends this December this, but it has not been unveiled so far. Reports suggest that the country will have to enter another IMF programme to keep its economy running and cope with rising external debt, which currently stands at around $55 billion.

Has the government considered what will happen when the US troops start leaving in July 2011? Will the country have the same key position and will it remain in the US’ good books?

After the Afghan war in the 1980s when Soviet forces invaded the mineral-rich country, the US used Pakistani jihadis against the Soviet Union and provided arms and money generously to counter the Russians. But later when Soviet forces withdrew from Afghanistan in 1989, Pakistan was abandoned. Instead sanctions were imposed in 1998 when the country conducted nuclear tests to counter the Indian threat of aggression.

Is there any guarantee the US will not abandon Islamabad again? Although Washington has given assurances that it will not repeat mistakes e past only time will tell what direction foreign relations will take and what their economic fallout will be.

Published in The Express Tribune, July 5th, 2010.