The corresponding rise in the activities of Tehrik-i-Taliban Pakistan (TTP) has created turmoil in important economic zones resulting in a crippling economy. The instability is causing lower exports, wage pressure from rising costs of victim compensation and displacement as well as infrastructure damages, making foreign investments more expensive. The economic consequences also include a decreased tax revenue, sluggish industrial production, and overall increased uncertainty hurting Pakistan’s economy over the long term impairing it from reaching its full potential as scarce resources are being diverted away from much-needed development projects towards security expenditure. Hence, terrorism has been a major challenge to the economy of Pakistan leading to an obstruction in growth and progress.
Besides this, the insurgency has not only deterred foreign investment because of the increased security risks but also has put a burden on Pakistan’s resources in defence spending, which means the funds are being used for crucial development projects. The impact of terrorism on both local and Chinese investors in 2022 is evident in the figures of terrorist attacks, highlighting the severity of the situation. Pakistan’s standing in the Global Terrorism Index for 2023 further highlights the challenges posed by terrorism. These incidents have not only disrupted the economic aspects of CPEC but have also negatively impacted Pakistan’s global reputation and image. The main economic effect is a loop of decreasing economic potential and higher security expenditure, which keeps on taxing the national economy.
As stated by the Pakistan Institute for Peace Studies (PIPS), the interaction of Pakistan in the war on terror following the 9/11 terrorist attack caused the government to estimate the total economic damages to be $126.79bn up to the year 2017 due to terrorism. Some of the most affected have been educational institutions, with many schools, colleges, and universities being attacked. With regard to the direct costs of terrorism to education, the world was shocked by the Peshawar school attack in which 132 children were massacred in 2014. The losses are not only the loss of people’s lives and property but also fear and security that resulted in lower school attendance rates, teacher shortages, and a decrease in educational quality that hinders human capital development and sustained economic growth.
On the other hand, the TTP’s presence, operating strictly within the borders of Pakistan poses a threat to the FDI where large-scale projects include the China-Pak Economic Corridor (CPEC). Pakistan’s police and the media have linked the most recent attack on Chinese nationals in Pakistan to a Taliban-sanctioned terror group. These attacks have resulted in many instances of delays and additional costs. For instance, even a big project like Gwadar Port also suffered certain reverses after a terrorist attack in May 2016; the earlier accomplishment of the port which was first attempted around December 2016 was also disrupted. Similarly, the work on the Gwadar International Airport and the Sukkur-Multan motorway remained much slower than expected because of security issues. These security issues have, therefore, increased the costs of the project and resulted in reduced foreign investment hence affecting the relations between Pakistan and China.
Nevertheless, it has still garnered over $25 billion in Chinese investment which is expected to rise to $62 billion by 2030 and generated over 350,000 Pakistani jobs. Consequently, the TTP’s presence is significant in all spheres of Pakistani socio-economic activity and, therefore, an understanding of this intricate relationship is necessary for the formation of the correct policy and the adoption of effective sustainable development initiatives.
In addition to this, the process of analysing the TTP economy indicates that its primary source of revenue and expansion funding is through illegal business activities such as drug trafficking, extortion, kidnapping, and tax evasion, with possible support from various regional actors. This results in the organisation being very tightly connected to the black market and Pakistan’s economy. Additionally, the shadow economy also exists which is the reason why the authorities cannot effectively govern. By making huge efforts on the AML/CFT framework, Pakistan was taken out from the Financial Action Task Force (FATF) grey list in 2022, but more efforts are needed to stop the Taliban’s growing operations, which threaten CPEC security and impact global trade.
Dr Hassan Daud Butt, who was the former CPEC Project Director, stressed the importance of the DI Khan Haqla Road motorway in Pakistan’s economic growth at a recent CASS Lahore seminar. The issue of China’s security is urgent and thus needs to be addressed as a matter of priority in order to achieve its goals. He also pointed out the importance of effective policies to enhance the benefits of the CPEC and suggested some economic measures like impeding exports to Afghanistan and applying tariffs to the Taliban and the TTP to pressure them and neutralise their support. The most important measures are to improve investor security, to interrupt the funding of TTP, and to promote economic diversification. Making cross-border cooperation and infrastructure investments is the way to curb illicit flows and boost the growth in the regions that are affected, preventing economic problems, and creating sustainable development in Pakistan.
In a nutshell, the complex and intricate connection between insurgency and economics in Pakistan, mostly with the Tehrik-i-Taliban Pakistan (TTP), requires a well-rounded strategy. The economic impact of terrorism has been significant, causing the resources to be used up and delaying the development, which for instance, has affected the China-Pakistan Economic Corridor (CPEC). Thus, this problem should be solved by a combination of military, security, and economic means. Pakistan is determined to work with Afghanistan in counterterrorism, cementing bilateral relations, and creating regional stability, at the same time, using initiatives like CPEC to its full advantage, while also dealing with the structural issues for instance economic disparities within the region.
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