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.
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.
The anti-terrorists campaign, which followed the 9/11 event in the United States in 2001, overstrained Pakistan’s 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 country’s credit risk, which has made borrowing from the market extremely expensive, it said.
Besides, Pakistan’s sovereign bonds have also underperformed owing to similar reasons.
Pakistan’s 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 country’s 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, Pakistan’s 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 Pakistan’s 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).”
