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IMPACTS OF TERRORISM ON PAKISTAN ECONOMY INTRODUCTION:

What is terrorism:
The UN has no internationally-agreed definition of terrorism. But according to mostly used definition by UN.

"Terrorism is any act that is intended to cause death or serious bodily harm to civilians or noncombatants, when the purpose of such an act, by its nature or context, is to intimidate a population, or to compel a Government or an international organization to do or to abstain from doing any act."
Today whole of the world is facing threat of terrorism. Pakistan is on the hit list of terrorists since then when it decided to be a front line member of NATO and America in their war against terrorism after 9/11 incident. This war started to effect our economy slowly but constantly. Our northern areas were in the grip of terrorists. As a result of this our army started operations in northern areas in 2007. Since 2007 terrorisms activities in Pakistan rises to their peak and impose serious harm to our economy. Areas of impact: Maintaining law and order: Situation of law and order is worsening day by day and costs in order to maintain the law and order are increasing rapidly. Human cost: Pakistan is paying a huge human cost including no of deaths, injuries, conflict affectees, IDPs and refugees which are increasing day by day. Fiscal costs: Our revenue is falling constantly, foreign exchange resources are vanishing and we lack resources for the programmes of growth and to rebuild society. Economic costs: Our economy is in crisis due to reduced investment, flight of capital and lower growth rate. Social costs: Our living standards, including health, education and infrastructure has damaged . This conflict often harms the poor most. Sectoral distribution: Shift from tradable to non-tradable sectors increases, due to, e.g., the undermining of banks and failure of transport system.

Most effected areas of Pakistans economy:

A decline in GDP growth, shift of capital, unemployment, fall in FDI, lost tourist attraction, low agricultural production and increasing social & human loss are the most affected areas of Pakistans economy.

AGRICULTURE:
Agriculture is the main source of revenue in most of the terrorism-affected areas, including FATA and NWFP. The districts of Swat, Buner, Shangla and Lower Dir, along with the Malakand Agency are famous for their specialized agricultural produces all over the country. The area of Malakand division has earlier made substantial contribution to national production of various crops: peach (60 per cent), pear (34 per cent), tomato (18 per cent), apple (15 per cent), plum (14 per cent), tobacco (11 per cent), maize (eight per cent), onion (eight per cent), all vegetables (five per cent), apricot (five per cent), wheat (one per cent), and rice (one per cent). The five districts are also the main source of persimmon (Japani fruit, in local parlance). Swat leads the other four districts in the production of fruits by a large margin. A survey by the National Agricultural Research Centre (NARC) shows that nearly 48 per cent of Pakistans total fruit is produced by the NWFP, with Swat district being a major contributor. Swat has 98,100 hectares arable land, while 408,175 hectares remain uncultivable. Agriculture is the main source of livelihood for most households, accounting for 80 per cent of the total population. It specializes in many commodities like peaches and contributes about 60 per cent to the national production. Swat also produces 13 per cent of total national production of tomato. In the overall provincial production of vegetables in the NWFP, one-fourth comes from Swat. These commodities arrive in markets when supplies from other corners of the country are short. Normally, 500 to 600 trucks transport fruit from Swat to the rest of the country during the harvest season on a daily basis. But, due to the insurgency, the Swat valley has been subjected to continuous attacks since 2007. According to the government of Pakistan estimates, the loss to agriculture alone amounts to Rs. 35 billion. The local media, citing Swat-based agricultural officials has reported that 55 to 70 per cent of the total fruit produce has gone waste. That has been due to various factors, including hostilities, artillery shelling, blowing of bridges in bomb blasts, blockade of roads, attacks, and curfews. The breakdown in law and order has damaged the districts fruit-based economy and rendered billions of rupees losses to agriculture sector. Also, the Economic Survey of Pakistan report shows that the share of agriculture in the gross domestic product (GDP) has been constantly falling. It accounted for 25.9 per cent of GDP in 1999-2000; however, gradually its share shrank to 21.3 per cent in 2007-2008 but improved slightly to 21.8 per cent in 2008-2009. The figures show that terrorism has not only decreased the productive capacity of agricultural activity in these regions but also in the entire country.

FOREIGN DIRECT INVESTMENT:


What is FDI: FDI is direct investment into production of business in a country by a company in another country either by buying a company in the target country or by expanding operations of an existing business in that country. It is a basic measure for checking a countrys economic condition..

Decline in our FDI: total investment has declined from 22.5 percent of GDP in 2006-07 to 19.7 percent of GDP in 2008-09.

Drop in FDI by 44.7% in 2009-10 as compared to last fiscal year: Pakistans foreign direct investment (FDI) dropped by 44.7% in fiscal year 2009-2010, compared with a year earlier. Source: according to an official document of the Board of Investment (BOI), a division responsible for promoting investment in Pakistan. The following table shows FDI secured by Pakistan during fiscal years 2005-10: Year 2005-06 2006-07 2007-08 2008-09 2009-10 FDI($) 3.52 5.14 5.41 3.72 1.72

$3.52 billion in FDI in 2005-2006. FDI grew to $5.14 billion in 2006-2007, then $5.41 billion in 2007-2008.this rise was mainly due to the investment comes to pak in form of aid provided to assist pak in war against terrorism. . However, with the chsnge of govt. ,decline in economic growth and the start of military operations rah-e-nijat and rah-e-rast agianst terrorists in northern areas and KPK, its FDI level dropped to $3.72 billion in 2008-2009. As terror attacks intensified, investment continued to shrink, dropping to $1.72 billion in 20092010 Causes of decline in FDI: According to former Govt. official Dr. Ashfaq Ahmad paksitans debt has gone upto 60% of its GDP: FDI cannot be encouraged in a worsening law-and-order situation. No one comes to invest in a country like Pakistan confronted with a debt trap and a growing fiscal deficit. If you look at developments of the past two years, in Pakistans case its debt has gone up to 60% of GDP and (it has a) growing fiscal deficit prime minister economic advisory committee (EAC) and former advisor to the Finance Ministry Dr. Ashfaq Ahmad. No answer to investors why they should invest in Pakistan:

The rise in suicide attacks and a counter-terror operations in Pakistan led to a flight of capital that peaked in 2009. At international forums seeking FDI, Pakistani officials had no answer to investors who asked why they should invest in Pakistan when Pakistanis were investing abroad.

TOURISM:
What is tourism: Many countries of the world are gaining a large part of their GDP by exploiting their beautiful spots to attract the tourists from all around the world to gain a large amount of foreign exchange. Scope of tourism in Pakistan: Pakistan is a country full of suitable spots for tourist attraction.Gilgit-Baltistan and the KPK are important destinations in Pakistan and people living there depend on tourism. Swat contain 400 Buddhist sites: Swat is suitable for all sorts of tourism, i.e., eco-tourism, 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. Terrorists grip: However, most parts of Pakistans northern belt and KPK have fallen into the terrorists grip due to which 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. Effects of terrorism: Out of 855 hotels mostly remained closed during past 3 years: 40,000 people lost their livelihood: Hotel industry suffer a loss of RS.60 billion from 2007-09:

There are more than 855 hotels, including 405 restaurants, in the valley. But they have mostly remained closed during the past three years due to militancy and the subsequent military operation. According to governments own estimates, the hotel industry in Swat valley has suffered a loss of RS. 60 billion from 2007 to 2009. The 40,000 workers associated with the hotel industry have also lost their jobs due to the ongoing incidents of terrorism. Credibility of Pakistan in minds of tourists:

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.

SOCIAL LOSS:
The impact of terrorism on pakistans social state is enormous, leading to unemployment, homelessness, poverty and other economic and social ills. According to the Ministry and Finance, Pakistans participation in the anti-terrorism campaign has led to massive unemployment in the affected regions which has ultimately increased rural poverty too. That reached 37.5 per cent from 23.9 per cent in 20072008. In addition, internally displaced persons are increasing day by day thus enhancing terror. Frequent incidents of terrorism and displacement of the local population have severely affected the socioeconomic fabric of the country, particularly in KPK and FATA. Terrorism also has considerable implications for the future of education in Pakistan. The NWFP Department of Education reports that education for students in the province has been affected because of damaged or destroyed schools. That includes 65 per cent of the schools in Swat and 35 per cent in Buner, Upper and Lower Dir, Shangla and Malakand Districts. According to some estimates, nearly 150,000 students have been deprived of education, while 8,000 teachers are without jobs due to the insurgency.

HUMAN COST:
The human cost of the war against terror is very high. Source: Institute for Conflict Management (SATP) The human cost of Pakistans bold decision to become a frontline State against terrorism is very high. Pakistan has suffered more than any other country in the world in the war on terror, as shown in the table above. The NWFP and FATA have witnessed large-scale violence and insurrections throughout the year 2009. In NWFP, there were 1,137 terrorist attacks, including 52 suicide attacks. At least 1,438 persons, including 1,005 civilians and 435 security forces personnel, were killed; and 3,616 injured, including 2,777 civilian and 828 security forces personnel. Peshawar, Swat, Dir, Charsada, Bannu and Kohat were the most affected districts. A clearer picture is shown in the following table: Table 4: Terrorist attacks in NWFP (2009) District No. of attacks Killed Injured Peshawar 170 445 1,520 Swat 248 223 295 D.I. Khan 90 161 441 Kohat 140 119 291

Bannu 110 81 219 Total: 1,137 1,439 3,616

In FATA, 559 terrorist attacks, including seven suicide attacks, were reported during the year. At least 644 people, including 390 civilians and 244 security forces personnel, were killed; and 1,046 injured, including 560 civilians and 486 security forces personnel: Table 5: Terrorist attacks in FATA (2009) Agency No. of Attacks Killed Injured South Waziristan 89 75 152 North Waziristan 66 139 187 Khyber 109 183 420 Bajawar 123 66 107 Mohmand 108 125 134 Total 559 644 1,046

RECOMMENDATIONS:
Focus at domestic investors if they invest foreigners will automatically invest: Primarily, it is the domestic investors who have to be encouraged and motivated to take the lead for the investment. The administration of governmental incentives to them should be more business-friendly. Once, domestic investors start flourishing, it will encourage foreigners to invest in Pakistan as well. Business environment must be improved: There is a need to improve business environment in the country, including the availability of educated and skilled manpower and utility services. Make infrastructure conductive to foreign and local investments: We need to improve our infrastructure facilitations to make the Business environment more conducive to foreign and local investments. Sort out power shortage problems as soon as possible:

Power shortage has already resulted in closure of many business it needs to be sorted out as early as possible. The main stake of our economy is agriculture and facilitation. Incentives to develop the cottage industry need special attention. In order to boost up investment particularly in livestock, poultry and fisheries, associated value added production facilities like financing, development of services infrastructure and manpower development should be part of government plans and programs. Prefer FDI in foreign exchange sectors in future: So far, most of FDI has been in the services sectors which are non-tradable and adversely affects the balance of payment. Taking into account the unfavourable balance of payments problems of the country, we need to prefer further FDI in the foreignexchange-earning sectors in future. Ensured continuity of economic policies: However, the adhocism, and poor implementation of policies have been distorting the system. In order to stimulate investment and revitalize our economy, we have to ensure continuity of economic policies coupled with political stability. One door operation must be activated: In order to boost up further investment in the home grown manufacturing like textile industry the system of one-door operation need to be activated and extended.