Economic Impact of 9/11 on Pakistan Essay

ECONOMIC IMPACT OF 9/11 ON PAKISTAN Nine years down 9/11, we note that three countries Afghanistan, Iraq and Pakistan bore the brunt of the aftermath of the dastardly deed. Destruction and mayhem resulting from the occupation of Iraq has regressed it from a booming oil economy into a hotbed of terror attacks. Then Afghanistan, which was already reeling under the impact of the after effects of the Soviet invasion and tribal wars for supremacy, has retrogressed further after the US-led invasion.

The Taliban resurgence and machination by various secret services to establish their presence for their nefarious designs, makes Afghanistan a battleground for proxy wars. What is more, Pakistan got sucked into the war on terror, in response to the famous query from ex-US President Bush: “You are either with us or against us? ” And the historical warning by US Assistant Secretary of State Richard Armitage to Lt Gen Mahmood Ahmed, then DG ISI, to “be prepared to be bombed. Be prepared to go back to the Stone Age. When the US-led forces attacked Afghanistan in October 2001, Pakistan snapped its ties with the Taliban and supported the foreign forces. Since then, Pakistan has suffered tremendous losses, both directly in the shape of valuable lives, property and the cost of waging the war and indirectly through loss of revenue, investment and business. Since the start of the anti-terror campaign, an overall sense of uncertainty has prevailed in the country, especially in Khyber Pakhtunkhwa (KP).

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It has contributed to capital flight and slowed down economic activities making foreign investors jittery. The Foreign Direct Investment (FDI) indeed has been adversely affected by the ongoing anti-terrorism campaign mainly in FATA and other areas of KP. Pakistan’s participation in the international campaign has led to an excessive increase in the country’s credit risk, due to which the World Bank has lowered its credit rating. In 2008 and 2009, Pakistan’s industrial base saw one-third of its factories close down.

With a loss of jobs and the lack of foreign investment, domestic revenue collections fell pushing the country into a debt trap. Pakistan was thus driven to resort to IMF to bail it out, to which the IMF consented, but with stringent conditions, which have aggravated the situation further. During the last nine years, according to data gleaned from the Institute of Conflict Management, till August 29, 2010, a total of 30,643 fatalities have occurred, including 3,191 security personnel. Pakistan’s economy, which was lready tottering due to numerous constraints like the international economic meltdown, political instability and financial mismanagement, has suffered incalculable damage and is struggling to recover from a deep crisis. Terrorism creates uncertainty, reduces confidence and increases risk perceptions leading to lower rates of investment and lower economic growth. In this context, Pakistan has not only lost precious lives and infrastructure, but has also borne tremendous financial loss since 2001-02.

Both the war on terror, as well as rehabilitation of the IDPs, has consumed a big chunk of the government’s financial resources, thus widening the fiscal deficit and halting economic growth. A major negative impact of terrorism is the fear factor that has directly affected the spending habits of the consumers and has created a negative effect on the country’s economic growth. The people are afraid to visit the markets since currently they have become a major target of the terrorist attacks. The GDP growth rate has gone down from 8. 40 percent in 2004-05 to 5. 80 percent in 2007-08, and more recently it has reduced to 4. percent in 2009-10. The terrorist activities have also caused a fall in the FDI, as investors have lost confidence in Pakistan, due to which not only the foreign investors have reduced their investment, but Pakistani expatriates are also not interested in bringing their money into their own country. Moreover, the exchange rate of the country has rocketed from 61 (Rs/$) in 2001-02 to 85. 50 (Rs/$) that has a negative multiplier effect on the country’s econ-omy. Due to this depreciation of the currency, it has increased the cost of imports; hence, increasing the prices of various consumer goods.

The trade deficit stands at a staggering $20 billion, as against a projected oil import bill of $11 billion which can only be paid by completely depleting the country’s foreign exchange reserves. The trend is unlikely to be reversed. The price of oil five years ago was a mere $25 per barrel. In view of the prevailing environment, fraught with risks, the government is constrained to give top priority to security and is bound to spend more on the security and law enforcing agencies, compromising development expenditures.

Countert-errorism efforts, do not entail the high security measures for VIPs only, but in view of the armed forces and security agencies, financial, medical and educational institutions being targeted, allocation of the scarce resources to security has resulted in the acute decline in productive spending in the economy. The law and order situation has deteriorated to such an extent that Pakistan, which was a co-host for the 2011 Cricket World Cup, along with India, Bangladesh and Sri Lanka, has been deprived of the opportunity.

It is estimated that the PCB will lose $10. 5 million, due to the tournament being taken away from them. According to the Finance Division, in terms of the economic impact, the fallout on Pakistan has also been immense. As a frontline state in the war on terror, it is officially estimated that Pakistan has been impacted to the extent of over $43 billion between 2001 and 2010. The above figures provide a realistic estimate of the economic cost to Pakistan since 9/11 and it will take years to recover.


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