The cost of war on terror

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The Economic Survey 2010-11 has two special sections in it this year. One is on the cost of the war on terror for the Pakistan economy and the other is on the flood impact assessment. Both of these are two-pagers that have been added in to, I guess, explain the extra costs that the economy has had to bear in the last few years (and in the case of floods) and will have to face for the next few as well. These costs have had an impact on the performance of the economy and they will have a role to play in determining our growth performance in the near future as well. Thus it makes sense to have these two reports in the Economic Survey.

The flood impact assessment reported in the Survey is based on the National Flood Reconstruction Plan 2010 of the Planning Commission, available on the website of the Planning Commission. With 20 million people affected by the floods, 1700 killed by it, 20 percent of Pakistan’s land area affected by it, the cost imposed on the society and economy is bound to be significant. And it is. Apart from what was spent on relief, the rehabilitation and reconstruction costs are estimated to be around Rs 600 billion. The methodology for estimating losses is fairly standard, and though there might be some errors in it, the figure, within bounds of error, is fine. Rs 600 billion is, roughly, what we are planning to spend on the military this year. Clearly not a small allocation by any means.

Since there is little or no money coming from outside for rehabilitation and reconstruction now, the reconstruction will have to be done with our own funds. And given the state of the economy, it is very unlikely that the government is going to give reconstruction the priority that it deserves. The preliminary reading of the budget 2011-12 has confirmed that. Reconstruction will probably happen in two or three different ways. A lot of people will reconstruct their own houses with resources that they can muster. The same will probably happen with rehabilitating land for agriculture. While government will repair/reconstruct some of the larger infrastructure (waterways, roads, schools, and hospitals/clinics) but in due course and over time.

But the purpose of giving the special section on flood in the Economic Survey seems to have been a specific one. The government wanted to show the difficulties our economy had faced in the last year and wanted to explain the poor economic performance, partly, through theses difficulties. To an extent that is right. The floods were a major disruption and imposed a heavy cost. It did have a large impact on the agricultural production and agricultural cycle. It would have been better if the government had also used the impact assessment to refocus its development plan accordingly. But the realities of our political economy preclude prioritisation of expenditure on the poor and vulnerable. Instead the needs of the middle and upper classes continue to win out.

The other special section is on the cost of war on terror. We have been ‘fighting’ the war on terror for a decade now. The government estimates that the cumulative cost of the war on terror, adding 2010-11 to it, is almost $68 billion. This is roughly what our total foreign debt is. The cost was $2.67 billion in 2001-02 and government estimates for this year are for almost $18 billion; the costs have escalated significantly over the decade. We have lost more than 35,000 people to the war on terror. Clearly the war on terror is costing us, but it is not clear what the methodology used for estimating this cost has been.

The two-pager in the Survey does not give us any details. Estimating damages is easier but estimating the cost of fighting an insurgency is not as easy. Take an example. The government figures that the ‘cost of uncertainty’ is $2.9 billion this year. How is this calculated? What was the base level of uncertainty that was taken? Was it a situation of no insurgency or no war? Or was it some mid level of risk? The Survey does not give any details at all. And it does not refer to any underlying document that one could go to for the purpose. Instead all it says is that the Ministry of Foreign Affairs constituted an inter-ministerial group, with the key ministries and other relevant departments and representatives of the two provinces bordering with Afghanistan: ‘After few sessions and valuable inputs from all sides, the committee estimated the cost of War on Terror and its impact on Pakistan’s economy and society.’ ‘Few’ sessions!

Similarly, there is a $1.1 billion cost on account of privatisation. Again the assumption seems to be that due to the war on terror we have not been able to privatise some of the SOEs that we wanted to privatise. Were we assuming that a lot more investors would have been available had the war on terror not been going on? But again, what was the baseline based on?

It is interesting that the direct military cost of the war is not mentioned in the table. Isn’t that a cost to the economy too? But are we assuming that we are being compensated for that cost in some way? That should also be clarified.

If the attempt of the section on the cost of the war on terror was to show that we are paying heavily, it did not need this two-pager. Every citizen of the country is well aware of the costs of the war on terror to our economy and society. But if the attempt was to get to some rigorous figures that would: a) clarify what the costs were and how were they incurred, b) how they limited the economic performance and would limit it in the future, and c) what could become a basis of negotiation and discussion with lenders, donors and friends, the two-pager, with no background material and no details, is definitely not enough. The Survey, supposed to be a document that gives details on the performance of the economy, should have had a lot more in it if we are saying that something has cost us $68 billion over 10 years.

 

The writer is an Associate Professor of Economics at LUMS (currently on leave) and a Senior Advisor at Open Society Foundation (OSF). He can be reached at [email protected]