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Emerging Markets

Security costs hamper Pakistan recovery

The mounting costs of Pakistan’s fight against armed extremists threaten its economic recovery plans, the country’s finance chief has said

The mounting costs of Pakistan’s fight against armed extremists threaten its economic recovery plans, the country’s finance chief has said.

“If we do not improve security, we are losing about $8.5 billion a year in the cost of the war on terror”, Shaukat Tarin, Pakistan’s de facto finance minister, told Emerging Markets.

“The cost to foreign direct investment, and the cost to local investment, is going to be horrendous if we do not fix the security situation.”

Pakistan relies on international aid to pay for its battle with Taliban and Al-Qaeda militants, but the financial crisis has also put some of its sources of funding in doubt.

US defence secretary Robert Gates told American parliamentarians last week that money to reimburse Pakistan for its operations against extremists along the border with Afghanistan will run out in mid-May.

A bill to increase funding to Pakistan is expected to go to the US Senate this week, but is not assured of success.

Tarin, adviser to the prime minister on finance emphasised that he believes that Pakistan will solve its security problems – and that by giving impetus to domestic investment, and investment by Pakistanis based overseas, the country can turn the corner economically too. “The government has tried to talk to moderate, non militant Islamist parties, but then others, the militants, took some advantage,” he said. “I think [the threat of] army action moved them back.”

Tarin said claims that the integrity of the state is threatened are “a little overblown” – but did not believe that the discussion in the US of Pakistan as a “failed state” had complicated the government’s efforts to stabilize the country. “The US focus gives us more ammunition, to have more focus on these things”, he said. “It’s necessary that the whole world should be looking at these things and helping us.”

Leaders of both Pakistan and Afghanistan meet US President Barack Obama on Wednesday, and both Washington and Kabul are expected to admonish Pakistan for its much-criticized deal with the Taliban that authorizes Islamic law in the northwest of the country, bordering Afghanistan.

In mid-April, the Taliban and the government of the North-West Frontier Province (NWFP), with Islamabad’s backing, brokered a ceasefire in the Swat valley district to end the Taliban militancy in return for the introduction of Islamic law.

However, in subsequent weeks, Taliban militants advanced to other districts, culminating in the capture of Buner valley and a fierce battle with the Pakistan military. The army yesterday killed 13 militants in the Mohmand region, bordering Afghanistan’s Kunar province.

In the run-up to this week’s tripartite meeting, an Afghan presidential candidate has called for closer cooperation between Afghanistan and Pakistan to fight the Taliban insurgency.

Ashraf Ghani, a contender in the national vote in August, told Emerging Markets: “Confidence-building steps are needed to highlight the mutual interest and strengths of each country ... that is a pre-condition to achieving peace in the region.”

Omar Zakhilwal, Afghanistan’s finance minister, told Emerging Markets that the events in north-west Pakistan show Islamabad’s “weakness”. By striking a deal with the militants, it had “created militant safe havens to plan attacks on US forces across the border.”

Afghanistan has blamed Pakistan for the strength of the militancy while Pakistan cites the weakness of Afghan government and failure of US security policy.

Ghani said that cooperation was the only viable solution over the long term: “You need small steps to start with, like cooperating on energy policy, water management and trade.” From there the two sides could move to border security issues.

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