LAHORE SCHOOL OF ECONOMICS

Pakistan: Domestic pressures caused by the regional threats and Terrorism in particular.
BBA II Section H Class of 2013
Sidra Shahid Muhammad Ali Habibah Ahsan Zain Noor [Type the author name] 6/23/2011

This report presents a thorough research on domestic pressures caused by regional threats in Pakistan considering terrorism in particular. Also, it presents some plausible recommendations for the betterment of the economy and to prevent the effect of this regional threat.

Work Division 1. Sidra Shahid: Introduction Motivation Regional threats and its types Terrorism its types and causes Factors boosting terrorism

2. Muhammad Ali: Imapct of terrorism on Pakistans economy 3. Habibah Ahsan: Imapct of terrorism on Pakistans economy Agriculture Manufacturing Agriculture Tourism Sports Other Economic dimensions 4. Zain Noor: Current political scenario Recommendations Decline in Foreign Investments Internal Displaced People (IDP) Increase in Unemployment Stock exchange Suffered Decline Rise in Smuggling

Conclusion

Reason for selecting this topic for our research Since 9/11 many countries have been subjected to regional threats and economic uproar. But the incident of 9/11 has greatly affected Pakistans defense and economic condition. And we have selected this topic in order to study the causes and effects of regional threats on our economy in detail.

What is a threat? 1. An expression of an intention to inflict pain, injury, evil, or punishment. 2. An indication of future danger or harm. 3. One that is regarded as a possible danger; a menace. (The American heritage dictionary of security law version 8)

Regional threat: Any kind of expression of an intention to inflict pain, injury, evil or punishment that is concentrated in a particular region in order to achieve political, religious or ideological objectives is known as the regional threat. Domestic pressure: Pressure exerted upon the masses of a particular region as a result of a threat in order to create commotion and tension. According to Ishrat Hussain regional threat and domestic pressure is directly proportional to each other. Types of regional threats in Pakistan The main regional threats in Pakistan are: Terrorism Inflation Energy crises

According to Ishrat Hussain; inflation and energy crisis are due to terrorism.

Terrorism: Freedom and fear are at war Either you are with us, or you are with the terrorists George w. Bush (September 20, 2001) The calculated use of violence or threat of violence to inculcate fear; intended to coerce or intimidate government or societies in pursuit of goals that are generally political, religious or ideological. Joint publication 3-07.2, joint tactics, techniques, and procedures for antiterrorism. Causes of terrorism:

Poverty Injustice and Venality Improper Government Setups Soaring Unemployment Lack of Education

Poverty Pakistan as a developing countries faced serious problems since its inception and some of them sow their dragon teeth in the soil of Pakistan to give birth to terrorism, such as; Growing poverty affects the whole nation to cause terrorism. Population of Pakistan is 168.23 million by 2009, out of this 35-50% of population lives below the poverty line. In rural areas people do not have to eat two times a day that encourages them to adopt illicit alternatives to meet their basic needs. Injustice and Venality Corruption and injustice started rising since 1947 and did not stop, still rising above the maturity. Pakistan stays at 42nd position in the worlds providing justice and establishing sound departments. Injustice irks the society in scores to go for alternatives. On the other hand, Organization like Tehrik-i-Taliban (TTP) and Al-Qaeda offered prompt justice by imposing their written Islamic Shariah gained popularity and become cause of supporting terrorists. Ineffective and Improper government institutes in FATA and NWFP fuel the fire to grab the nation under its lap. It is a same repeated mistake done by the government which became cause of separation of East Pakistan. Improper Government setups

Governments lengthy procedure and acts of receiving bribe delayed justice and government benefits to deliver to the masses in NWFP and FATA. According to the National Accounting Database Regulatory Authority (NADRA) more than 0.8 millions IDPs were not having their Computerized National Identity Cards (CNIC) during registration process in IDPs camps. It becomes cause of lacking trust in the government and Taliban emerges as a well wishers to gain the support of masses. Soaring Unemployment Unemployment and ineffective quota system does not meet both ends. Lack of employment encouraged Kalashnikov culture in affected areas and people divert their support from government to Taliban. This makes Pakistan No. 73 in world rankings according to Unemployment Rate (% of Labour Force) in year 2010. The world's average Unemployment Rate (% of Labour Force) value is 4.82 %; Pakistan is 1.38 more than the average. In the previous year, 2009, Unemployment Rate (% of Labour Force) for Pakistan was 6.20 % Unemployment Rate (% of Labour Force) for Pakistan in 2010 was or will be 0.00% more than it was or will be in 2009. In the following or forecasted year, 2011, Unemployment Rate (% of Labour Force) for Pakistan was or will be 6.20 %, which is 0.00% more than the 2010 figure.

Lack of Education The major factor behind terrorism in Pakistan is declining standard of education and its implementation. Due to improper setup in rural areas, students were not benefited with education. In Pakistan there are only 51 universities mostly erected in urban areas. In NWFP and FATA there was no proper setup of primary education to develop base of education and negate the evil thinking of act of terrorism. Teachers were not paid due to corruption in departments and further education standard deteriorated. Government proved to fail by keeping balance between Islamic teachings and state education. Due to the presence of few elements in government or authorizes motivated the madressah without evaluation that becomes road towards terrorism. Former president, Pervaiz Musharraf inked in his book in the line of fire that, The period of Zia and Soviet invasion in Afghanistan was the inception of Taliban in Pakistan. Pakistan has given a birth to a threat for herself and it I left at large in past to strengthen its roots. Pakistan has to realize the factors which are motivating it and have to take prompt actions to uproot the terrorism from Pakistan.

Factors Boosting Terrorism Anti-Terrorism Campaigns Drone Attacks Negligence of Government

Anti-Terrorism campaigns After launching operations, Rah-i-Rast and Rah-i-Nijad in Swat and Waziristan respectively, the circle of the targettings areas of terrorism enlarged and lap over every city of Pakistan. In Pakistan 850 lives are lost which includes civilians, army and police officers. Suicide bombings and terrorists attacks become daily news breaking of the media. According to ISPR, in 2009 approximately 433 soilders are martyred and more than 8000 terrorists are put to death. But this will not end the terrorism; every death of individual terrorists affects three persons of his family to take revenge in the dress of terrorists. It is a zombie infection and has to tackle with care. Drone Attacks Drone attacks not only hurt the feelings of Pakistans society but also Amnesty International and United Nations are condemning these acts against terrorism. According to Pakistan analyst, Zahid Hamid, He said, Drone attacks are not more than other affected people to challenge, touch me if you can. It is noted that drone eliminated Taliban leaders like Baituallah Mehsud bit it also become cause of civilian causalities in Khudsan air strike and similar miss appropriate attacks in different cities. Negligence of Government Furthermore, Government turned deaf ear to the hue and cry of affected people and never ponder to pay their loyalties, implement strategies, development of projects, build schools and provide employment to win their heart and soul. Due to government negligence and inception of Taliban since soviet invasion; Talibanism concept south its roots in FATA and NWFP. In addition, conspiracy behind 9/11 portrait Al-Qaeda as a Anti-America and its allies and tremendous change in foreign policy of Pakistan after 9/11 emerge Pakistan as a important ally of war against terrorism that becomes cause of terrorism in Pakistan to destabilize American ally by Al-Qaeda and its allies Tehrik-i-Taliban.

Impact of Terrorism on Pakistans Economy Decline in Foreign Investments Internal Displaced People (IDP) Increase in Unemployment Stock exchange Suffered Decline Rise in Smuggling Agriculture Manufacturing Tourism Sports Other Economic dimensions

Decline in Foreign Investments Terrorism has greatly affected the foreign investment in Pakistan. Foreign investment is decline to $ 910.20 Million from $1.4 Billion in Fy 08-09. Dye to decline in investment poverty and unemployment rises. Poverty have reached to 41.4% from 37.5% in 2008-09. Due to unstoppable terrorism acts in Pakistan world bank has blocked two lending key loans of worth $820 Million till the conditions ameliorate to the paradigm. A survey by Asian development bank learned that in nearly every instance, acts of terrorism in Pakistan were directed at government and/or military targets, and that commercial loss (if any) was nearly always the result of collateral damage. If one bomb goes off in our country, investment of millions of dollars flies away. Suicide bombing has become a norm now. The security threats in the country hinders foreign direct investment and people/corporations are reluctant to invest in the country on a large extent. The following graph shows the trend of foreign investments for this decade that clearly indicates the decline in FDI inflows after we as a country declared the war on terror and the security situation of the country deteriorated to a large extent.

Foreign Direct Investment Inflows (in Million 6000 5000 4000 3000 2000 1000 0 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2010-11 2008-09 2009-10

Source: Economywatch.com

Internal displacement of people Terrorism has caused hundreds of thousands of people in districts of Swat, Malakand and FATA areas to move to other parts of the country. Losses of income and employment opportunities in these areas have caused greater damage to the economy.

The war on terror has proved to be counter-productive. About 2 million people had to flee from conflict zones of Swat valley in 2009 to safer places in the country.

2000000 1000000 0

Pakistan Internal displacement trend 2001-10

Source: Federal Bureau of Statistics The above data clearly shows the rising numbers of IDPs within Pakistan. The numbers reached about 1.75 million in the year 2010. Soaring unemployment It is related to the decrease in investment in public development in the areas being used for war on terror. A major victim is the frontier province. With the increase in cost of war on terror, the development projects all over the country have slowed down, due to which unemployment level has increased.

Rate of unemployment
10 5 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Rate of unemployment

Source: Economywatch.com Stock Market Decline Stock market had closed at a height of 14127 points in Dec 2007. However, following the declaration of war on terror and a massive increase in suicide attacks, the index dissolved to 4,675 points and Rs. 2.99 trillion worth of securities were sold off in less than one year. It was in 2008 that suicide bombings were on their peak and the stock market couldnt perform well the whole year due to news coming about bomb blasts almost every week. This graph shows how the stock market crashed starting from the year 2008.

KSE-30 Index
20000 15000 10000 5000 0

Index points 2002

2003 2004 2005 2006 2007 2008 2009 2010

Source: KSI Annual Report 2010 Rise in smuggling Terrorism also promoted smuggling in Pakistan, due to porous border between Pakistan and Afghanistan smuggling becomes the source of culprits and expedients for terrorists to wash their hands from it to meet their financial needs. According to US-Pak business council report (2009), Pakistan is prime victim of Afghanistans instability and due to which Pakistan economy has so far suffered directly or indirectly huge loss of $35 Billion. It basically resulted in: Reduction in legal imports. Reduction in revenues from duties and levies by the government. Thousands of industrial units have been rendered sick, due to the availability of smuggled goods in open markets. Reduction in tax revenue for the government.

Agriculture Agriculture is the main source of revenue in most of the terrorism-affected areas, including FATA and NWFP. People in these areas rely predominantly on agriculture as their main economic activity. The districts of Swat, Buner, Shangla and Lower Dir, along with the Malakand Agency, in the troubled region, 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-forth 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.

Manufacturing The manufacturing sector has been hard hit by political instability and frequent incidents of terrorism and has created an uncertain environment resulting into low level of economic growth. The manufacturing sector is witnessing the lowest-ever share of 18.2 per cent in the GDP over the last five years. In addition, the small and medium-size enterprises are a key area of manufacturing activity in Pakistan, particularly in the war-affected areas. Power looms, precious and semi-precious stone mining, wood and marble work, and small units of consumer items are affected across the country because of power shortages and frequent terrorist attacks. As a result, the mining and quarry sector has shown the lowest-ever growth in almost a decade and grew by only 1.3 per cent in 2008-2009, as compared to 4.4 per cent in the year before, and a target of 5.0 per cent. The contribution of this sector to the GDP has remained low at around 2.5 per cent.

Source: Economywatch.com Sports Cricket is Pakistans most played and watched game. It suffered a great loss on the hands of terrorism at the time when Sri Lankan cricket team had come to Pakistan to play cricket and they were attacked by terrorists on their way to the cricket ground at Liberty Market round about Lahore. This incident proved to be lethal for Pakistani cricket as from there on no international team courage to play in the insecure arena of Pakistan. PCB suffered a loss of 51.22 million dollars due to stadiums being vacant and no investment and sponsorships taking place for cricket tournaments. Tourism Tourism has suffered great loss due to terrorism and this industry has nearly got dead by now due to major military operations being executed in the northern areas of our country like Swat, Malakand and others. This has prevented foreign and local tourists to visit these areas due to security concerns. Tourism industry suffered a loss of 44 million dollars. Economic growth. It has been negative, and sometimes falls dramatically. Exports. Negative, due to (i) production fall; (ii) shift to domestic sales; (iii) disruptions in international markets.

Sectoral distribution Shift from tradable to non-tradable sectors, due to, e.g., the undermining of banks and failure of transport system. Consumption Negative, in spite of reduced domestic savings and increased foreign borrowing and aid. Investment. Sharp fall in government capital formation and private investment, due to budgetary restrictions and increased uncertainty. Budget deficit. Increase, due to increased spending, while revenues do not always fall. Distribution of government spending. Increased share allocated to the military, making it difficult to sustain social and economic expenditure. Civic entitlements. NGO efforts to provide food and services could in some cases partially compensate for lost public entitlements, while in other cases, NGOs are able to do little, as communities disintegrate. Human costs. Heavy human costs: increased infant mortality rates, deteriorating nutrition, health and educational standards, as a result of falling entitlements and war-induced famines. Development costs. Heavy development costs due to destruction of capital and reduced investment.
Current political scenario: We all are familiar that Pakistan is in critical situation. It is facing different threats like terrorism, inflation, energy crises etc. There is increase in poverty, there is injustice, government setup is improper that government rid is being challenged, unemployment is increasing and there is lack of education to which these problems are further rising.

Current Political Scenario

Currently we can see that Pakistan is messed up in middle of nowhere. In one side we cannot leave support of America and on the other hand we are against the drone attacks. But still Pakistan failed to convince America to stop drone attacks. Pakistan has suffered a lot in its war against terrorism. There has been a huge loss of lives of people. Not only this it also resulted negative to Pakistan economy. Foreign exchange has declined, unemployment has increased, stock exchange has suffered a lot, there has been an increase recorded in internal displaced people and smuggling.

Recommendations
1. Employment opportunities: Government needs to take certain steps to provide employment. It should give free and fair quota to each province so that people from FATA and NWFP are given equal opportunity and therefore they can have a proper channel to earn for their family and avoid any negative activity. 2. Justice: As Pakistan is ranking 42nd in providing justice, it needs to be improved. If justice is provided to people and corruption is eliminated, it can solve many problems of Pakistan. The people who feel that they are not given justice, they then follow the path of terrorist. For everyone, there should be equal law. No one should be superior to law. 3. Proper government setup: There needs to be proper government setup. Areas such as FATA and NWFP lack in government setup so there are many illegal activities going on. They need to learn lesson from separation of East Pakistan i.e. Bangladesh. 4. Establishing educational institutions: There are only 51 universities in Pakistan and that are mainly in urban areas. In areas such as FATA and NWFP, even the system for primary education is poor. The government has also not balanced the state education and Islamic education. So in this way many Madrasas has been established without evaluation so the children are going in the way of Taliban just for education purpose. 5. Say NO to foreign aid: Foreign aid is referred as the only way to which Pakistan is growing its economy. Receiving aid has now become our habit that we are not considering to do something of our own that aid can be avoided. The attacks such as drone attacks, we cannot even stop them if we say no to foreign aid. The aid for our

government means that we need to be silent what ever is happening to our country. One drone attack is developing three more suicide bombers of 1 family to take revenge. So we need to immediately reject foreign aid. 6. Introducing different schemes: As Pakistan population between 35% to 50% is living below poverty line. This also enables people to adopt negative means to earn for their family. The program like Benazir income support program is not enough. Many similar programs need to be launched to help people who live in poverty.