Taliban attacks have been costing Pakistan’s economy as much as $5 billion a year in lost investment. This debt keeps open the option of another IMF programme.
Speaking as Pakistan officials met bond investors in London, Finance Secretary Waqar Masood Khan stressed a lot was at stake in the latest $1.9 billion three-year military drive to rid the country of the violence.
“We have seen in the past foreign (investment) inflows of $5-7 billion but today we are not even having $2 billion,” he said, noting that security costs and damage to the economy had to be added to that.
With the army making headway against the Taliban in North Waziristan, the situation is finally reversing. However, this has come at an economic cost. Not only has the war required huge budget allocations but the whole environment of insecurity has dampened foreign investment. Pakistani products have lost their market share to their competitors. Additionally, terrorism created uncertainty, reduces confidence and increases risk perceptions; leading to lower rates of investment and lower economic growth.
Currently Pakistan needs enormous resources to enhance productive capacity of the economy by repairing damaged infrastructure and to create a favourable investment climate. The Security situation is the key determinant of future flow of the investment because Productivity and growth decline in areas where the threat of terrorism escalates, when terrorists strike consumers and business confidence weakens.
Due to terrorist acts and security threats not only have foreign investors terminated projects and investments but residents of Pakistan also prefer investing and taking their money out of the country to safer countries like UK, USA, Middle East and Europe.
It is very easy to put all the blame on terrorism, but Pakistan’s business environment itself is not conducive to trade and investment. Power outages, floods and bad planning have also an equal role to play. Additionally, signals from the Finance Ministry are always mixed. On one account terrorism is being blamed for falling investment but on the other had they are also stating that the economy is benefitting from the near 60 percent drop in global oil prices, its biggest import. The outlook is good according to the Finance Ministry. GDP growth is expected to be 5.5 percent for the year to June 2016.