Impact of Conflicts on Economic Growth in Pakistan

Pakistan has experienced numerous conflicts throughout its history, both internal and external, which have severely impacted its economic development. These conflicts have manifested in various forms, from domestic terrorism to border tensions, internal political instability, and geopolitical struggles. In its latest report, the World Risk Index 2024 ranked Pakistan as the third most conflict-exposed country globally. These continuous conflicts have hampered foreign direct investment (FDI), trade, agricultural productivity, the labor force, and the overall economic growth of the country.

Historical Context of Conflicts in Pakistan

Since its independence in 1947, Pakistan has faced a series of conflicts that have consistently derailed its economic growth. One of the earliest and most persistent of these is the Kashmir dispute with neighboring India. This territorial conflict has not only led to military engagements but also drained valuable economic resources that could otherwise have been invested in development projects. The need for constant defense preparedness has diverted Pakistan’s limited budgetary resources away from critical sectors such as health, education, and infrastructure development.

In addition, Pakistan’s involvement in the Afghan war from the early 1970s, hosted about 2 million refugees during 1980sand the same time its subsequent role in the global "war on terror" have had far-reaching consequences on its economic stability. The rise of militant groups like the Taliban and other terrorist networks has caused escalating violence, particularly in the northwest regions and major urban centers. This violence, compounded by the country's internal political instability, has further complicated Pakistan’s economic trajectory, making long-term planning and economic reforms difficult to implement.

Human Capital Losses Due to Terrorism and Conflict

The human cost of these conflicts has been devastating. Over the last two decades, Pakistan has lost an estimated 83,000 lives, including civilians, militants, and law enforcement officers. This significant loss of life has drastically reduced the country’s labor force, thereby negatively impacting its overall economic productivity. Human capital is a key driver of economic growth, and the loss of skilled workers and professionals has severely constrained Pakistan's ability to sustain economic development.

According to the Global Terrorism Index 2024, Pakistan is ranked as the fourth most terrorism-affected country in the world. The report estimates that terrorism and related conflicts have cost Pakistan around $150 billion in economic losses. These losses are not only direct, in terms of destroyed infrastructure and reduced productivity, but also indirect, as they discourage investment and disrupt key sectors such as education, healthcare, and commerce.

Destruction of Infrastructure

In addition to human capital losses, conflicts have inflicted severe damage on Pakistan's infrastructure. The provinces of Khyber Pakhtunkhwa (KP) and the Federally Administered Tribal Areas (FATA) have been particularly affected, where terrorism and military operations have resulted in the destruction of key infrastructure such as roads, bridges, schools, and hospitals. This destruction has hindered trade routes, reduced access to education and healthcare, and isolated communities from economic opportunities.

For instance, the destruction of transport routes has disrupted the supply chains for essential goods, raising costs and reducing the efficiency of trade. Similarly, the loss of schools and hospitals has created long-term challenges in human development, as communities are deprived of education and healthcare services necessary for a productive workforce. The rebuilding of this infrastructure will require significant investment, diverting resources from other critical areas of economic development.

Financial Strain on the National Budget

The ongoing conflicts and security challenges have forced Pakistan to allocate a substantial portion of its national budget to defense and security needs. According to the Ministry of Finance, in fiscal year 2024, Pakistan allocated Rs 2.12 trillion ($6.15 billion) to its defense budget. This amount was primarily used for counter-terrorism operations, rehabilitation efforts, and defense against external threats.

This heavy allocation of funds to the defense sector comes at the expense of other vital areas such as healthcare, education, and infrastructure development. For a developing country like Pakistan, long-term economic growth requires significant investment in these sectors to improve the standard of living and build a more productive workforce. The diversion of resources to defense has left Pakistan’s economy vulnerable to stagnation, with limited progress in areas that could contribute to sustainable growth.

Decline in Foreign Direct Investment

Pakistan’s security situation has also had a significant impact on foreign direct investment (FDI), which is crucial for economic growth. Investors are often reluctant to invest in countries with unstable political and security environments, fearing that their investments will be at risk. As a result, Pakistan has seen a steady decline in FDI over the years.

According to the State Bank of Pakistan, in April 2023, FDI fell by 29% year-on-year to $121.6 million, while the first 10 months of the fiscal year saw a 23% decline. The reduction in FDI has far-reaching consequences for Pakistan’s economy, particularly given the country’s young and growing population. Without sufficient investment to create jobs and improve infrastructure, Pakistan faces high unemployment rates and low economic productivity, especially among its youth.

Agricultural Sector Impact

Conflicts have also taken a heavy toll on Pakistan’s agricultural sector, which is a cornerstone of its economy. The provinces of Balochistan and Khyber Pakhtunkhwa have seen agricultural productivity decline due to ongoing conflicts and militant activity. Farmers in these areas face difficulties accessing their land, obtaining inputs such as seeds and fertilizers, and transporting their produce to markets. This has led to reduced crop yields and lower incomes for farmers, exacerbating poverty in rural areas.

In Sindh, conflicts often arise from disputes over the distribution of irrigation water, with landlords and feudal elites misusing resources and marginalizing small farmers. These water conflicts, coupled with political instability, have led to a decrease in agricultural productivity, which is particularly concerning given that agriculture accounts for a significant portion of Pakistan’s GDP. The inability to resolve these conflicts and manage water resources efficiently has put further strain on an already struggling sector.

Regional Conflicts and Economic Disparities

One of the less discussed but equally significant impacts of conflict on Pakistan’s economy is the widening of regional disparities. The northern and western regions of Pakistan, particularly Balochistan and Khyber Pakhtunkhwa, have experienced more intense conflicts, resulting in slower economic development compared to other regions. The destruction of infrastructure, reduced agricultural productivity, and lower levels of investment have left these regions lagging behind in terms of economic growth.

These regional disparities have led to increased migration from rural conflict-affected areas to urban centers, such as Karachi and Lahore. While urbanization can sometimes stimulate economic growth, in Pakistan, it has resulted in overcrowded cities, strained public services, and increased pressure on urban infrastructure. The growing gap between rural and urban areas has also exacerbated social inequalities, with poverty and unemployment rates higher in conflict-affected regions.

The Role of Governance in Addressing Conflict and Economic Growth

The impact of conflict on Pakistan’s economy cannot be addressed without examining the role of governance. Weak governance structures, lack of accountability, and corruption have all contributed to the persistence of conflict and the resulting economic challenges. Pakistan’s political instability, characterized by frequent changes in government, military interventions, and inadequate policies, has made it difficult to implement long-term solutions to the country’s security and economic problems.

To address the economic challenges posed by conflict, Pakistan needs strong governance and effective policy implementation. This includes ensuring political stability, improving security conditions, and creating an environment conducive to investment. Additionally, addressing corruption and ensuring transparency in government processes will be critical in attracting foreign investment and fostering sustainable economic growth.

Solutions for Long-Term Growth Amidst Conflict

To move forward, Pakistan must prioritize both short-term stability and long-term development. The government needs to allocate resources not just for defense but also for education, healthcare, and infrastructure, which are critical for improving the country’s productivity and human capital. This could include public-private partnerships to rebuild infrastructure in conflict-affected areas and create jobs for the local population.

Moreover, conflict resolution mechanisms should be strengthened, particularly in regions such as Balochistan and Khyber Pakhtunkhwa. Addressing water disputes in Sindh and improving the management of natural resources will also help reduce tensions and improve agricultural productivity. By focusing on economic development in conflict-affected regions, Pakistan can begin to bridge regional disparities and create a more balanced economic landscape.

Conclusion

The impact of conflicts on Pakistan’s economic growth is profound and multifaceted, affecting everything from human capital to infrastructure, investment, and agriculture. The losses in human lives and capital, coupled with the destruction of infrastructure, have left deep scars on the economy. Without significant governance reforms, effective conflict resolution, and investment in critical sectors, Pakistan’s economic growth will remain stunted. Addressing these issues is essential not only for economic development but also for improving the quality of life for millions of Pakistanis. Only through comprehensive governance reforms and conflict resolution efforts can Pakistan hope to achieve sustainable economic growth and stability in the long term.

Please note that the views expressed in this article are of the author and do not necessarily reflect the views or policies of any organization.

Farahnaz Gilal was a Post-graduate student at the Department of Agricultural Economics, Sindh Agricultural University, Tandojam, Pakistan

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