Pakistan's burden in fight against terror

WILL the world disappoint Pakistan again?

Having survived a balance of payments crisis in November last year thanks to an International Monetary Fund (IMF) emergency loan, Pakistani Prime Minister Yousuf Raza Gilani is now hoping for an additional US$5 billion ($7.3 billion) from other sources. Pledged by donors at a meeting in Tokyo in April, the money is needed to shore up the country's ailing finances and to fight terrorism. Will Pakistan get it?

Economic planners in Islamabad are not so sure. Last month, the government announced that it had asked the IMF for a US$4 billion standby loan as insurance if the promised assistance didn't arrive. The cautious approach is well- advised. On June 4, the United Nations announced that it had received only US$119 million of the US$543 million it appealed for in May to help care for refugees displaced by the fighting in the North-West Frontier Province.

Such a lackadaisical attitude on the part of the international community is perhaps to be expected as countries around the world struggle with their own financial problems in the wake of the global economic downturn. But Pakistan's claim is strong, and it would be a pity if it was not recognised.

Since 2001, Pakistan has suffered more than most countries as a result of the war against terror. One of the first effects of its status as a 'front line' state was a substantial increase in the cost of international trade as a result of higher insurance charges. Foreign investor interest also plunged in response to the increased political risk. The cost of the war against terror to the Pakistani economy, including lost economic opportunities and damage to physical infrastructure, has been officially estimated at US$35 billion.

The commodity price shocks of 2007 to last year made matters worse, leading to a significant deterioration in macroeconomic conditions as the current account deficit widened. By last August, inflation had reached 25.3 per cent — a three-decade high — and by last October the country's foreign exchange reserves were barely enough to cover nine weeks of imports. The IMF stepped in with a much-needed loan, but its insistence on high interest rates to tame inflation overestimated the impact of higher borrowing costs on economic growth. As a result, the economic slowdown was much sharper than expected. And this, together with Islamabad's decision to bow to international pressure by launching a major offensive against Taleban insurgents in the Swat Valley in April, has produced a new set of economic problems.

The offensive has so far created more than two million refugees, producing what a Standard Chartered report has described as a 'devastating impact' on the resource-rich region. The North-West Frontier Province, where the fighting is concentrated, includes major mining areas and accounts for about 10 per cent of the nation's gross domestic product. Officials said that the government needs to spend more than US$1 billion to reconstruct buildings, roads and bridges in cities damaged by the ongoing military operations. Little wonder that the economy is virtually stagnant. Real growth for the fiscal year ending last month is officially estimated at around two per cent, well below the official target of 5.5 per cent.

With more than a third of Pakistanis living in poverty and an annual population growth of two per cent, such an economic growth figure is tantamount to a recession. Other countries that stand to gain from the successful prosecution of the war against terror should consider following suit. The burden needs to be shared.

The Straits Times/ANN