Economics of unrest

The recent spate of killings in Karachi that polarised ethnic groups after a long period of relative peace, with ripples felt deeply in provincial as well as national politics, has had severe negative implications on the economy of the country as well.
Eruption of law and order issues, the country has learnt much to its chagrin, leads to an economic morass, with severe repercussion on not only the government's capacity to collect taxes, considered of critical importance for Pakistan's economy today, with the International Monetary Fund (IMF) urging the government to raise tax to Gross Domestic Product ratio as a means to stabilise key macroeconomic variables and reduce its heavy dependence on foreign assistance and domestic borrowing, but also on the livelihood of hundreds of thousands of wage earners.
Karachi is the financial hub of Pakistan and law and order issues in that city have invariably been accompanied by the city and the country paying a heavier economic cost, relative to law and order problems in other parts of the country. Karachi remains the largest contributor to customs and sales tax collections, by dint of being a port city and the disruption of productive activities in Karachi, as a consequence of lawlessness has implications for the government's ability to meet its tax targets.
Also negatively affected is the sentiment on the country's largest stock market located in Karachi, which is employed by foreign portfolio investors as an economic barometer that determines whether they opt to enter the market or defer entry. Thus it stands to reason that tax collections have been effected not only in the aftermath of the Ashura blast and the subsequent wilful destruction of commercial enterprises, but also due to the recent spate of killings in Karachi that continues to account for several deaths per day. Additionally, portfolio investment must also have declined.
In this context, it is gratifying that the recent talks between the PPP and the MQM leadership have led to an agreement to work together in defusing tensions between ethnic groups. Rehman Malik, the Interior Minister, who was present in the meeting called by the Sindh Governor Ishratul Ebad, stated that those elements that were misusing their links to PPP, or MQM, to drive a wedge between the two coalition partners would be dealt with sternly irrespective of their political affiliations.