Impacts of law and order situation on economy
By  Arbab Tehmas Khan

Economy always follows politics and politics remains the byproduct of law and order situation prevails in a country.

If law and order situation runs smoothly, the politics play smoothly and therefore the stable economy of the country - universal truth.

The law and order situation arises when there is insecurity, threat of violence or violence arising due to a host of factors disturbing the ordinary conduct of life and businesses in a society.

It may be a product of one or more of the following:
Factors/components:
External aggression
Internal upheavals
Religious/sectarian extremism
Labor unions\' strikes, boycotts, lock outs, and similar activities
Ethnic/racial/linguistic cleavages
Economy fact sheet

Pakistan: Decades of internal political disputes and low levels of foreign investment have led to slow growth and underdevelopment in Pakistan. (CIA Facts Sheets-Pakistan)

Agriculture accounts for more than one-fifth of output and two-fifths of employment. Textiles account for most of Pakistan\'s export earnings, and Pakistan\'s failure to expand a viable export base for other manufactures has left the country vulnerable to shifts in world demand.

Official unemployment is 6%, but this fails to capture the true picture, because much of the economy is informal and underemployment remains high.

Over the past few years, low growth and high inflation, led by a spurt in food prices, have increased the amount of poverty -

The UN Human Development Report estimated poverty in 2011 at almost 50% of the population. Inflation has worsened the situation, climbing from 7.7% in 2007 to more than 13% for 2011, before declining to 9.3% at year-end. As a result of political and economic instability, the Pakistani rupee has depreciated more than 40% since 2007. (UN Human Development Report, 2011)
The government agreed to an International Monetary Fund Standby Arrangement in November 2008 in response to a balance of payments crisis. (International Monetary Fund, 2008).

Economic growth and recommendations: Selective macroeconomic indicators to determine the state and growth of economy like GDP growth rate, poverty incidence, and per capita income growth rate over a specific period of time, and level and nature of investment.

To control rise of inflation, the administration should take initiatives for enabling consumers to form their effective consumer associations supplementing already in place monitoring mechanisms.

Despite very high inflation, the possibility of reducing the discount rate by further 1-2 percentage point may be explored at operational so that the costs of borrowing from the banks are reduced.

During the period of economic problems, the government should take the lead and start more public investments to provide a jump start to the economic activities.

Primarily, it is the domestic investors who have to be encouraged and motivated to take the lead for the investment. The administration of governmental incentives to them should be more business-friendly. Once, domestic investors start flourishing, it will encourage foreigners to invest in Pakistan as well.

There is a need to improve business environment in the country, including the availability of educated and skilled manpower, ancillary industries and utility services. Continuous rise in the prices of petroleum products, electricity, gas and other utilities are also adversely affecting the business environment..

We need to improve our infrastructure facilitations to make the Business environment more conducive to foreign and local investments.

Power shortage has already resulted in closure of many units which is deplorable and needs to be rectified at the earliest.
The main stake of our economy is agriculture and facilitation and incentives to develop the cottage industry need special attention. In order to boost up investment particularly in livestock, poultry, fisheries, and associated value added production facilities like financing, development of services infrastructure, and manpower development should be part of government plans and programs.

So far, most of FDI has been in the services sectors which are non-tradable and adversely affects the balance of payment. Taking into account the unfavorable balance of payments problems of the country, we need to prefer further FDI in the foreign-exchange-earning sectors in future.

Pakistan has a record of economic growth in sixties as well as in the recent past. However, the aphorism, and poor implementation of policies have been distorting the system. In order to stimulate investment and revitalize our economy, we have to ensure continuity of economic policies coupled with political stability.

In order to boost up further investment in the home grown manufacturing like textile industry the system of one-door operation need to be activated and extended. (Head Fast, 2011)

Organized crime and terrorism are usually viewed as two different forms of crime, increase of which directly deteriorates law and order. Organized crime is generally held to focus mainly on economic profit (but not always limited to it), while terrorism is said to be motivated chiefly by ideological aims and by a desire for political change.

Factors instrumental to private and foreign investors:
Risks of doing business and; Expected returns of the investment.
Four major challenges to Pakistan\'s socio-economic growth including:
Regaining macroeconomic stability; poverty reduction; fiscal retrenchment and; Weaknesses in the external account.
The ongoing war on terror has cost billions of rupees to Pakistani economy.
The soft image indeed is a pre-requisite for attracting high ratios of foreign high investments
Brightens the possibilities of joint ventures;
Political instability, law and order to hit economy: Besides, the global financial crisis dented foreign investor\'s confidence and forced our economy to pass on the impacts of increase in global oil and food commodity prices to consumers.

There is no second opinion that the government met all such challenges to some extent with the help of external financing and macroeconomic stabilization program, initiated under an IMF-stand-By Arrangement.

However, the fresh spell of political instability and poor law & order situation would not only reverse the course of economic recovery and growth, but would also hurt the short to medium term outlook of the real sector in 2010, which is already under severe crisis due to unabated power outages.

Law and order situation Vs. Pakistan economy: After 9/11, the US/NATO forces invaded and bombard the Afghan nation, sometimes indiscriminately, which led to the desired goal of destruction of Taliban rule in Afghanistan, but in addition, gave rise to a lot of internal and external problems for Pakistan: (Pakistan society of criminology) The economy, internal security environment and social tranquility jolted badly due to such problems.

An overview of Pakistan\'s economy 2008-09 by Ministry of Finance has reported that the macroeconomic environment of the country is affected by intensification of war on terror and deepening of the global financial crisis which penetrated into domestic economy through the route of substantial decline in Pakistan\'s exports and a visible slowdown in foreign direct inflows.

Pakistan\'s participation in the international campaign has led to an excessive increase in the country\'s credit risk. Due to which recently, the World Bank has lowered our credit rating further. Pakistan\'s economy continues to remain exposed to the vagaries of international developments as well as internal security environment.

Pakistan not only lost precious lives and infrastructure but a very conserve\\Active estimate has placed economic cost of this war for Pakistan at around US$ 35 billion since 2001-02. Rehabilitation of IDPs and their livelihood will require more than $ 5 billion in Malakand and FATA alone. All this expenditure is not going favorably for Pakistan as they are the unsustainable burden on the meager resources of Pakistan.

Terrorism is a great hurdle in our socio-economic prosperity, political stability, geo-strategic sustainability and energy security. Development activities are halt in these areas.

The rule of ignorance, stagnation, fanaticism, and destruction is spreading like a wild fire especially in NWFP and FATA.

The government should initiate three-pronged policy i.e. dialogue, development and deterrence. Let us hope that our soil will be freed from the terrorism and there will be no more bloodshed in the days to come.
 

October, 2013

Source:  Frontier Post