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This document is a student assignment on the effects of terrorism on Pakistan's economy. It discusses how terrorism has adversely impacted Pakistan's economic growth, international trade, foreign direct investment, and domestic investment. It also examines how terrorism increases government spending on security at the cost of social spending. The conclusion recommends that the government allocate funds for socio-economic development in affected areas and end external conflicts to reduce the root causes of terrorism in Pakistan.

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Romaz Riaz
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28 views

Assignment: Submitted To: Submitted By: Topic

This document is a student assignment on the effects of terrorism on Pakistan's economy. It discusses how terrorism has adversely impacted Pakistan's economic growth, international trade, foreign direct investment, and domestic investment. It also examines how terrorism increases government spending on security at the cost of social spending. The conclusion recommends that the government allocate funds for socio-economic development in affected areas and end external conflicts to reduce the root causes of terrorism in Pakistan.

Uploaded by

Romaz Riaz
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Assignment

(Pakistan Studies)

Submitted to:
Zoonia Naseeb

Submitted by:
Farva Rana (F20170650200)

Topic:
“Effects of Terrorism on Pakistan Economy”

Section: C14

School of Systems and Technology (SST)


Department of Software Engineering
Introduction:
Terrorism is, in the broadest sense, the use of intentional violence for political
or religious purposes. It is used in this regard primarily to refer to violence during
peacetime or in the context of war against non-combatants (mostly civilians and
neutral military personnel).
Terrorism in Pakistan according to Ministry of Interior, poses a significant
threat to the people of Pakistan. The current wave of terrorism is believed to have
started in 2000 and peaked during 2009. Since then it has drastically declined as
result of military operations conducted by the Pakistan Army. According to South
Asian Terrorism Portal Index (SATP), terrorism in Pakistan has declined by 89% in
2017 since 2009.

Effect on Economic Cost:


The roots of terrorism in Pakistan can be traced back to 1979 when Soviet
Union had occupied Afghanistan. Terrorism in Pakistan originated after Pakistan
supported the Afghan mujahidin during the Soviet–Afghan War, and the subsequent
civil war that erupted in Afghanistan. The mujahidin fighters were trained by
Pakistan's military, American CIA and other western intelligence agencies who
continued operations in the area after the war officially ended.
These terrorism activities after the event of 9/11 have adversely affected the
economy of Pakistan. First, Pakistan observed an immediate flood of Afghan
refugees, which spilled terrorism into Pakistan. Second, the Indian insurgency in
Pakistan, particularly in Baluchistan province, through Afghanistan has also increased
terrorist activities because terrorists obtain financial and military support from India.
Terrorism activities have adversely affected economic growth in Pakistan. When
terrorism is low, economic growth is high, and when terrorism is high, economic
growth is low.
Terrorism has also adversely affected Pakistan’s international trade. As a
result, Pakistan has lost its market share and therefore remains unable to achieve its
targeted growth rates. Foreign investment, tax collection and exports have been
badly affected due to terrorism. Other than financial and economic losses, Pakistan
has also suffered human capital loss.

Effect on Foreign Direct Investment:


Terrorism affects FDI in many ways. Terrorism increases insecurity and
uncertainty in the country, which causes a loss of confidence in foreign investors,
causing them to divert their resources from the host country to other, peaceful
countries.
Terrorism also makes foreign investors more concerned about their expected
returns from their investment. If foreign investors do not see any increase in their
expected returns in the presence of high levels of terrorism, then they will shift their
resources from the host country to other, safe countries. An uncertain environment
makes an investor to deem it an unproductive investment since costly security
measures decrease the returns on FDI. Terrorism also damages local infrastructure
such as roads, bridges, and telecommunications. It discourages foreign investment by
increasing the cost of doing business.

Effect on Domestic Investment:


Similar to foreign investment, terrorism also decreases domestic investment
because it becomes difficult for domestic investors to invest in a terror-stricken
environment. Further, public investment is also severely damaged because
government projects such as the construction of roads, highways, canals, dams,
bridges, highway, hospitals, and schools are also brought to an end in the presence
of terrorist activities.

Effect on government spending:


Terrorism increases government expenditure because the government must
spend more on security issues to maintain law and order in the country. This
reallocation of government resources decreases expenditure on social sector
development such as health and education. It will decrease economic growth. In
turn, high government expenditure on security offsets terrorism by improving the
law and order situation, which will increase both domestic and foreign investments.
It will increase economic growth.

Conclusion:
The government is taking military action against terrorists in the country to
remove internal conflict; however, the government should allocate some budgetary
funds for socio-economic development in war-affected areas to remove the root
causes of terrorism such as poverty, illiteracy, income inequality, unemployment,
and injustice. Doing so will decrease terrorism by increasing the opportunity cost of
terrorism. The government should also formulate foreign policy to end external
conflict with neighbouring countries. Further, the government should take
appropriate steps at international levels to remove foreign-funded terrorism in
Pakistan from neighbouring countries. Not only is terrorism adversely affecting
Pakistan’s economy, but the bad image that Pakistan projects to the world is also
hurting foreign investment in the country.

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