The $43 billion war-fare

Pakistans economy is one that hops and skips from one crisis to the next, from 2005, to 2006 and the longest one so far, the one in 2008. Weak infrastructure, short sighted policy making and a general lack of political will to steam up the economy has been the bane of the domestic economy in recent years.
While pundits point to weakening exports, sticky inflation, heavy reliance on imports, few question Pakistans role in the War on Terror.
In just the last five years, direct costs to the economy, according to the Pakistan Economic Survey 2010, have been $8.3 billion. And total costs, including the indirect impact of the war add up to almost $43 billion.
Pakistan has been the most important strategic partner in Americas War in Afghanistan. It has not only provided logistical support to its allies, the countrys soldiers have fought alongside in heavy numbers.
Since 2001, the US has disbursed $7.2 billion to compensate for war costs. In recent months, disbursals have been a point of contention between Islamabad and Washington. Even after the release of two support payments this year, $544 million still remains hung on accounting hold ups.
The alliance has cost the economy dearly.
GDP grew at a five year average of 6.6 percent up to 2008. However, the growth slowed to an anaemic 1.2 percent in the last year. Almost 2.5 percent was shed due to the energy crisis, as the real sector was found wanting for basic utilities. In 2009, LSM production posted negative growth of 8.2 percent.
"The export sector, with a contribution of 12 percent to GDP, and a substantial employment base, has
faced the brunt of the fall out" according to the survey. Not only have exports from Pakistan found themselves deep in the red, the investment climate in the country has also suffered tremendously.
PM Gilani has often mentioned the burden of the war costs, but one wonders whether crying foul about alliances is really the way to go about resolving such problems.
On the flip side, China has recently announced its intention to invest in Pakistans hydro electric potential. According to media reports, the two proposed projects could produce up to 19,000 MW of much needed power for the economy.
Now, that is a strategic relationship. Thankfully, the president is currently at the right place.

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Estimated Loss to Economy

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Rs bn          FY05   FY06   FY07   FY08   FY09   FY10   Cumulative

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Direct Cost      67     78     83    109    114    262          714

Indirect Co     192    223    278    376    564    707         2340

Total           259    301    361    484    678    969         3052

$ bn            4.4    5.0    6.0    7.7    8.6   11.5         43.0

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Source: Pakistan Economic Survey FY10

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