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Last Updated : Feb 27, 2019 05:29 PM IST | Source: Moneycontrol.com

Opinion | Pakistan has paid a heavy price for supporting terrorists

The economic cost to Pakistan for fanning the flames of religious extremism has been very high.

Manas Chakravarty @moneycontrolcom

Manas Chakravarty

In 1990, Pakistan's per capita income, according to the International Monetary Fund, was 1.6 times India’s. In 2000, it was 1.3 times. But in 2010, India’s per capita income crossed that of Pakistan for the first time (see chart below).

chart 3

Last year, the IMF estimates India’s per capita income was 1.4 times Pakistan’s. The data illustrates how Pakistan's wrong policies, including its policy of trying to extract political mileage by fanning religious passions, have affected its economy.

To be sure, there are many reasons why Pakistan has lost out, including political instability, faulty economic policies and widespread corruption, but religious fanaticism and the Army's pernicious doctrine of a covert war through proxy terror outfits against India as well as Afghanistan has taken a toll on the economy. For example, a 2015 research paper from Pakistan universities titled 'Impact of Terrorism on Economic Development of Pakistan' comes to the conclusion that, over the period 1981-2012, 'terrorism has negatively affected the economic growth in Pakistan. Among the various variables that were used, terrorism is most significant and major contributor in reducing the economic growth.' That's apart from the huge cost in terms of human lives lost and blighted.

The policy of supporting terrorists has boomeranged badly, with bomb attacks a dime a dozen within Pakistan. This has scared away investment in general and foreign investment in particular. Pakistan’s economic survey estimated that the cost of 'fighting militancy' since 9/11 was as high as $123 billion.' The chart below, taken from the IMF database, shows how India's investment to GDP ratio has improved over the decades, while Pakistan's has deteriorated.

chart 2

A research paper from universities in Lahore titled 'Extremist and Religious Violence: An Economic Overview of Pakistan', says 'terrorism and violent extremism has created a bad name for the country thereby disturbing the investment climate adversely. Increased defense expenditure has reduced public and private investment and areas afflicted with extremism have faced downward spiral in economic activity.' Pakistan's military expenditure, according to the World Bank, was 3.5 per cent of the country’s gross domestic product in 2017, compared to India’s 2.5 per cent.

The State Bank of Pakistan has said of extremist violence in the country: 'apart from causing immeasurable human suffering, including casualties and mass displacement, the war had helped drive away foreign investment, stall domestic investment, freeze exports, and slow down trade.'

What has kept Pakistan afloat is aid from its friends. They have been more than generous, particularly when they needed Pakistan to support them in Afghanistan. Official development assistance amounted to 2.7 per cent of Pakistan's GDP in 1990 and that has since gone down to 0.7 per cent by 2017. Compare that with development assistance to India at 0.4 per cent of GDP in 1990 and a mere 0.1 per cent of GDP in 2017. The numbers are sourced from World Bank data (see chart).

chart 1

Pakistan has long been a basket case, but they are feeling the full brunt of their wrong-headed policies only now, with the flow of funds being squeezed.

Fanning the flames of religious extremism has cost Pakistan dear. Their experience is a lesson and a warning for other countries.
First Published on Feb 27, 2019 04:10 pm
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