The Economy During War

[Ra'ad]

In the last 13 years, the direct and indirect losses incurred by Pakistan due to terrorism amount to Rs 8,264.4 billion. While it is very well to play house with the US, increase military expenditure year by year and have a major military operation ongoing, but what does it all mean for the economy? Even with the governments overtures that Pakistan’s economic situation is stable, that growth is good and investment is back, the Karachi Stock Exchange has been losing points almost daily with the various incidents that have been plaguing Pakistan. We must remember that part of the fallout from the military operation in North Waziristan will be seen in the economy.

Investment is going to slow down and the pro-business agenda of the PML-N budget is going to suffer. Inflation will rise due to this, and we can safely look forward to even greater taxes next year. What the government needs to make sure is that development projects and allocations are well managed and profitable. That might be the only safety net for the economy. It is sometimes said that war is good for business, and this is due to the fact that as a country prepares for and deals with war, production increases help increase employment. The government creates a spiral of economic activity. However, in a country like Pakistan, where there is little domestic demand for local goods, and we import our arms and borrow our way out of crises, the outlook is not good.

Looking outside at the international economic situation, energy prices are going to rise if the Islamic State of Iraq and Syria (ISIS) keeps gaining momentum. We may be looking at very expensive barrels of crude oil. While our gas pipeline deal with Iran keeps going sour and has not reaped any economic benefits, and we already owe money on the project, Russia would like interest in its a pipeline from Turkmenistan to India. Russia for one clearly realizes the importance of stability in the Indian subcontinent and as long as Russia acts as a guarantor in the pipeline, there is very little chance that Pakistan will interrupt supplies to India. Nobody wants an Iraq type situation unfolding in Afghanistan or Pakistan. Not the US, not India, not Russia. Like China that has a far from ideal relationship with most of its neighbours, India is trying to rise above the pettiness of regional politics and refuses to be defined by them. We must look towards regional integration, and better ties with India. Pakistani policy makers need to keep an eye on the regional and local situation, and try to minimize the damage to the economy.

The Economy During War
June 21, 2014