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Rare, Systemic Risks and the Need for Global Preparedness

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In an increasingly uncertain global investment environment, where “1 in 100” year simultaneous events such as major hurricanes, cyber-attacks, viruses, financial and economic crisis, business model failures, etc, are occurring with increased frequency, having an understanding of these risks, their complex empirical relationships and interactions and their associated complex negative consequences is becoming more important for international investors who structure their investments based on a balance between an accepted level(s) of exposure to a certain type(s) of risk(s) and an associated level of expected target rate of return.   For instance, pandemics such as Coronavirus (Covid-19) and extreme weather events driven by a changing climate such as storms, floods, heat waves, droughts, wildfires, and cyclones are characterized as “systemic” in nature, because they have the potential to cause a system-wide breakdown or significant disruption to man-made economic, financial, and security systems supporting our way of life.  Similarly, each of these events is called an “extreme” risk event because they are “rare”, i.e., events that are generally seen as deadly surprises, happening outside everyday experience, and their likelihood are difficult to estimate. These events are capable of causing a huge change in everyday life, at least locally, and they do have the momentum to turn society upside-down in a few months, day’s, perhaps even minutes by causing massive destruction to human life and property. 

According to Swiss Re 2020 Sigma report, the year 2019 was the second warmest year, and the decade from 2010-2019 was the warmest on record.  In 2019 there were 317 global catastrophes due to extreme weather events, claiming the lives of 11,497 individuals worldwide with total global economic losses exceeding USD 146 billion.  Further, according to a 2012 report by the Centre for Climate Security, research shows that drought conditions in Russia and China, and subsequent global wheat shortages, contributed to higher food prices in Northern Africa and may have helped catalyse and broaden the appeal of the Egyptian uprisings in 2011, causing Egypt to suffer its worst economic crisis since 1930’s.  Similarly, African swine fever wiped out over one-quarter of the world’s pig population last year, causing food prices in China to increase by 16-22% so far in 2020.  Again, the worst colossal armies of locusts are systematically wiping out crops across much of Africa, the Middle East and Asia, and fear of Covid-19 is greatly disrupting global food supply.  The simultaneous interaction of two extreme and complex risks (Covid-19 and extreme weather) is amplifying the risk of a worldwide disruption to global food supply chains leading to a potential significant upward jump in food prices worldwide.  This, in turn, could trigger crises in many countries and as a result potential food riots might ensue.  In consequence, it erodes social cohesion and leads to an increase in the likelihood of social instability at the regional and global levels.

Furthermore, according to this new study , it provides observational evidence that the odds of major hurricanes around the world with Category 3, 4 and 5 storms is on the rise.  Further, the severity of economic losses associated with the rise in the number of extreme weather events such as intensification of storms, increase in heavy precipitation, more frequent and intense temperature extremes, more severe droughts, longer wildfire seasons, accelerating sea-level rise, desertification, and ocean acidification is also projected to rise in the near future.

Equally important, on March 11 the World Health Organization (WHO) declared the Covid-19 outbreak a “pandemic”.  Since it was first diagnosed earlier this year, it has spread to over 190 countries, infecting over 5 million people and claiming the lives of thousands worldwide.  The pandemic has caused an unprecedented worldwide economic shutdown.  More than 80 countries have closed their borders to incoming travel from infected countries, ordered businesses to close, and applied a range of policy instruments to contain the spread of the virus such as self-quarantine and social distancing measures.   According to some estimates , they indicate the virus could reduce global economic growth by 4% in 2020, and raised the likelihood of a global economic recession similar in severity to that experienced during the Great Depression of the 1930s.  Moreover, according to the World Trade Organization (WTO), Covid-19 represents an unprecedented disruption to the global economy and world trade, as production and consumption collapse across the globe with global trade in 2020 expected to fall by 13% to 32%, depending on the depth and extent of the global economic downturn.

According to some authors, State sovereignty in the modern sense of the word is built upon the States’ output and input legitimacy.  A States’ output legitimacy is directly linked to its ability to meet its citizen’s demands for basic resources or prosperity such as health services, food, water, energy, and employment.  While a States’ input legitimacy is defined as its ability to offer its citizens a say in the way they are governed through voting and legal recourse.  The rise in the number and associated negative economic, social, health, and security  implications of extreme weather events and also of the emergence of new viruses and the spread of existing or new disease vectors, in addition to the central assumption that past history is no longer a robust gauge of future developments of extreme risks exacerbate stressors on the critical resources underpinning State sovereignty and national security, these risks compromise a State’s ability to provide basic resources to its citizenry and can significantly erode the States’ output legitimacy.  Therefore, they contribute to a wide range of destabilizing trends such as population displacement, migration, and political unrest.  The erosion of the States’ output legitimacy can contribute to State fragility, internal conflict, and potentially State collapse, and could exacerbate geopolitical risk by activating dormant or active geopolitical intersections around the globe.

Certainly, the presence of geopolitical intersections-which are a direct consequence of the existence of irredentist or secessionist movements as a result of historically evolved geopolitical risk factors driven by territorial disputes, which manifest on the current global geopolitical map as geopolitical intersections- is at the core of geopolitical instability; ergo, geopolitical risk.  Further, these intersections have been a prominent cause of armed conflict and war in the modern era that causes ethnic groups to seek independence from or unification with another State.  The threats to State stability arising from the rise in the frequency and severity of either extreme weather events, or the spread of infectious disease, or even a simultaneous manifestation of both risks at the same time across the globe comes from the complex interactions of those risks with the existing security landscape and the ability of governments to effectively manage the immediate, short term and long term economic, social, and security consequences that arise as a result of these extreme events, which could amplify existing geopolitical risks by  weakening social cohesion, and exacerbating social unrest across the world due to increased pressure on public health supply chains and local health systems , increased likelihood of  interstate and intra-state conflicts over scarce resources,  prolonged periods of lockdowns, tighter restrictions on the cross-border movement of people and goods, affecting the global supply chain for food, energy, drugs, and medical devices, and   forced migration of climate refugees.  These risks and their impacts are expected to become more severe as changes in the climate intensify, and pandemics like Covid-19 occur more frequently.  According to these authors,  they warn that 1.7 million unidentified viruses known to infect people are estimated to exist in mammals and water birds. The transmission of any one of these viruses to humans may be more disruptive and lethal than Covid-19

Finally, the complex interaction between both extreme events (climate change and pandemics) in shaping risk introduces a new set of risk drivers when scanning the global investment horizon for opportunities.  For this reason, in order to be successful at managing the risks that arise from extreme events, strategic investors must think outside the box and focus on examining target countries vulnerabilities and risks associated with global, regional, and localized effects of extreme risk events by including the envelope of high-end,  unprecedented possibilities instead of assessing middle of- the-road probabilities on the basis of “historic “experience and they should not downplay the extreme possibilities at the high-end of the uncertainty range.  Further they should build prudent risk management frameworks that are not malleable to the” learn from failure” models that drive conventional risk management by constructing their frameworks with a deep, objective look at the risks they face and have methodology’s in place to adequately deal with low probability, high consequence outcomes, which can dominate calculations of total risk.  In any case, these are some current core ideas addressing how to think about extreme risks such as extreme weather events, pandemics, and particularly paying a closer attention to the consequences of a “perfect storm” scenario where manifestation of the complex interactions shaping these risks occurs simultaneously, negatively impacting social cohesion, State stability, strategic equations and the strategic equilibrium.   For if you are not aware of these rare and often socially damaging surprises and their potential to cause severe disruptions to human-made health, economic, financial , and security systems then certainly you could be caught off guard

Lawrence Habahbeh is a geopolitical expert based in Amman, Jordan. He holds an MSc in Actuarial Science from Heriot-Watt University in Edinburgh, and an executive certificate in geopolitical analysis from the Geneva institute of geopolitical studies (GISP). He chairs the resource and environment (R&E) member interest group at the Institute and Faculty of Actuaries (IFoA) and he is also a member of the COVID-19 action taskforce (ICAT) on investment impact for Life and Annuity insurers’ and enterprise risk management work streams at the IFoA, London, U.K.

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The role of maritime power

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The maritime environment is both a means of transport and a resource. The first aspect is obviously expressed through what is transported by ship: containers, oil, minerals, many objects and many resources of our daily life have passed through the sea before we use them. Data also crosses the sea, since submarine cables are the heart of the Internet, constituting the “real” face of the “virtual” world. For the second aspect, that of resources, it is either food, with mainly fishing, energy, fossil with oil and gas, or renewable with wind turbines and tide turbines, or minerals, starting from sand, whose exploitation is little known, but essential for many activities including construction.

It was from the fifteenth century, which corresponded to the beginning of the great discoveries, that the control of the seas became an important topic. At that time, the British Sir Walter Raleigh theorized its importance: “Whoever owns the sea holds the trade of the world; whoever holds the trade holds the wealth; whoever holds the wealth of the world owns the world itself ”. Gradually, the United Kingdom becomes the maritime superpower par excellence, supplanting a Spain and Portugal soon exhausted by the colonization of a South America too big for them and unable to compete with a France that is too terrestrial. At the end of the 19th century, Britain controlled major sea routes and her empire was vast, with the great outdoors of Australia and Canada and the British Indies.

But the entry into the twentieth century coincided with the arrival of a new actor in the oceans, the United States. The theorist in charge here is Alfred Mahan, who has updated Raleigh’s theory by specifying that control of the sea passes through that of sea routes and that in this matter everything is played at the level of the straits. The pivotal year in this sense is undoubtedly 1914: it corresponds to the inauguration of the Panama Canal, a maritime passage controlled by Uncle Sam, but also to the beginning of the First World War, which at the same time weakens the United Kingdom, due to of the energy spent in the conflict that does not compensate for territorial gains in Africa, the Middle East and the Pacific. The turning point that completes the transformation of the United States into the great maritime power of the second half of the 20th century is World War II. Europeans, including those belonging to the victorious camp, are too weakened to maintain their historical prerogatives, especially when colonial empires become complicated to maintain for political as well as demographic reasons.

The United States emerged from the war with a colossal military and merchant fleet (thanks, among other things, to the Liberty ships), and was able to reconstitute those of its new allies in the Western camp. Moreover, this aid does not prevent the Americans from making their own interests prevail over those of their allies, as with the Suez crisis where they countered the Franco-British intervention that had militarily managed to regain control of this strategic channel with diplomatic means. This domination of the seas was hardly contested by the Russians, reduced to an asymmetrical confrontation, symbolized by submarines. It is important to stress that Russia does not have direct access to the oceans, a resource of the United States.

In 1990, the Soviet Union collapsed, but a phantom threat already hovered over the almighty awakening of America, that of China. Under the impact of Deng Xiao Ping’s reforms, its economy was starting to become competitive and the country was using its huge pool of cheap labor to become “the factory of the world”. This economy is export-oriented and generates colossal shipping traffic, to which the Dragon is adding its touch: rapidly, Chinese shipping companies and shipbuilding are becoming key players in their respective sectors. From a military point of view, the Middle Kingdom had an almost insignificant navy in the late 1980s, but today it is second in the world behind the United States, even if the latter maintain a good advantage.

On land, the Chinese strategy consists first of all in controlling the space contained within a first chain of islands corresponding to the East China Sea and the South China Sea, even if in the latter it means not respecting the rights of other coastal states. or even intimidate Taiwan, the “rebel province”. The next step is to dominate the space within a second chain of islands located further offshore, which would put China in direct contact with US possessions, with the risk of confrontation that this entails. The so-called “pearl necklace” strategy, consisting in the development of Chinese infrastructures in the Indian Ocean, also connects the Middle Kingdom with another competitor, India, which wishes to assert its rights in this space that India considers its courtyard. Finally, China inaugurated its first overseas naval base in Djibouti in 2018, and others may follow in the years to come, such as Walvis Bay in Namibia. This expansion solidifies China’s rank as a world power, while Russia has lost most of its network of naval bases around the world with the collapse of the USSR.

The power of the sea is composite, made up of elements that multiply each other more than they add up. The first of these is access to the sea, without which nothing is possible. Therefore, the United Kingdom, an island country, is naturally predisposed to the projection of maritime power. The United States, bordered by two large maritime spaces, is also favored. For Russia, things are less obvious, as for China; in fact, the goal of the pearl necklace strategy is both to allow access to the sea from peripheral regions such as Xinjiang and to control sea routes. Moreover, in its time, Russia had tried to develop its access to the sea with “the race for warm seas”.

Once you have mastered access to the sea, it is necessary to be able to move, thanks to the sea routes and more particularly to the strategic passages. Today, the Americans retain control of it, although the Middle Kingdom tries to weave its web. For example, instead of wanting to get its hands on the Panama Canal, China is supporting a competing canal project in Nicaragua, even if the latter is stopped for the moment. Traffic also requires a merchant fleet, and China is among the champions of shipping and also shipbuilding, where Americans are largely left behind, held back by a protectionist Jones Act that maintains a significant merchant fleet, but marginalized in the globalization.

In general, where terrestrial space is largely controlled by our human societies, the sea escapes this phenomenon much more, to the point that it is still a space to be conquered in many ways. The polar regions, especially the icy Arctic Ocean, but also the seas surrounding the Antarctic continent, constitute a new frontier for humans. The seabed and its mineral resources are also often less known than terrestrial space.

Finally, one last consideration: the Italy  – with the exception of the maritime republics – has not been able to exploit its projection of maritime power. And this is one of the reasons, certainly not the only one, that has prevented – and prevents – Italy from having a credible, authoritative foreign policy and above all capable of stopping Turkish hegemonic ambitions.

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Indian Chronicle: Exposing the Indian Hybrid warfare against Pakistan

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In recent years Indian hybrid warfare against Pakistan has intensified manifold to malign Pakistan Internationally through disinformation and propaganda tactics. Hybrid warfare has mainly been described as achieving war-like objectives with the help of fake news, disinformation, and propaganda. The Objectives of Hybrid warfare are mostly to secure long term victory against the opponent. Similarly, India has launched massive hybrid warfare against Pakistan, which was uncovered by EU DisinfoLab in its report called “Indian Chronicle”.

EU DisinfoLab is an independent organization working to expose and tackle disinformation campaigns targeting the European Union and its member states. The organization has claimed that the disinformation campaign against Pakistan has been active since 2005, “a massive online and offline 15-year ongoing influence operation supporting Indian interests and discrediting Pakistan internationally”.

In a recent investigation EU DisinfoLab has exposed a malicious Indian campaign against Pakistan. In the report, “Indian Chronicle” EU DisinfoLab has exposed the dubious use of media outlets, NGOs, and fake personnel by India to malign Pakistan. The disinformation campaign mainly targeted the United Nations and the European Union through more than 750 fake media outlets and 10 fake NGOs. According to the report, “uncovered an entire network of coordinated UN-accredited NGOs promoting Indian interests and criticizing Pakistan repeatedly. We could tie at least 10 of them directly to the Srivastava family, with several other dubious NGOs pushing the same messages.”

According to the report the disinformation campaign is supported by the Srivastava group. The Srivastava group has helped in “resurrected dead NGOs” to spread fake news. The report says that “Our investigation led to the finding of 10 UN-accredited NGOs directly controlled by the Srivastava Group, which our full report introduces at length. Their common trait? The fact that they all rose from the ashes of real NGOs. Indian Chronicles effectively benefited from the track record of these organizations while pursuing their agenda: discrediting Pakistan and promoting Indian interests at UN conferences and hearings,”.

Moreover, Asian News International (ANI), a major news agency in India has provided a platform for suck fake news campaigns. The aim of the Srivastava group and ANI media outlet is “to reinforce pro-Indian and anti-Pakistan (and anti-Chinese) feelings” in India, and “internationally, to consolidate the power and improve the perception of India, to damage the reputation of other countries and ultimately benefit from more support from international institutions such as the EU and the UN”.

The report claim that the organizations funded by the Srivastava group-sponsored trips for European Parliament members to Kashmir. “The organizations created by the Srivastava Group in Brussels organized trips for Members of the European Parliament (MEPs) to Kashmir, Bangladesh, and the Maldives. Some of these trips led to much institutional controversy, as the delegations of MEPs were often presented as official EU delegations when they were in fact not traveling on behalf of the Parliament,”. Such sponsored trips aimed to build a positive image of India, while spreading disinformation about the alleged claims of Pakistan-sponsored terrorism in Kashmir.

Moreover, India has been actively involved in portraying Pakistan as a terrorist-sponsored state through its disinformation and fake news technique. For instance, India is lobbying strongly at FATF to put Pakistan on the blacklist.

India has also supported and sponsored Baloch separatist leaders and spread disinformation through their fake media outlets as mentioned in the EU DisinfoLab report.“These UN-accredited NGOs work in coordination with non-accredited think-tanks and minority-rights NGOs in Brussels and Geneva. Several of them – like the European Organization for Pakistani Minorities (EOPM), Baluchistan House, and the South Asia Democratic Forum (SADF) – were directly but opaquely created by the Srivastava group,”one of the examples is Kulbhushan Jadhav, an Indian spy who was captured in Pakistan.

The Indian Chronicle report has exposed the dubious face of India and the administrative structure of the United Nations and the European Union. Indian involvement in the spread of disinformation and resurrection of dead people and NGOs has exposed its long-standing for Human rights and democracy. Meanwhile, the reports have also exposed the administrative structure of the UN and EU, as they failed to notice the activities of fake UN-accredited NGOs and spread of disinformation through their affiliated NGOs.

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Hybrid Warfare: Threats to Pakistani Security

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‘Victory smiles upon those who anticipate the changes in the character of war’-Giulio Douhet

Hybrid threats are becoming a norm in Pakistan and if we want to move forward in this age of technological advancements, cybercrimes, and the use of social media, we must have a wholesome response mechanism.

Hybrid warfare is a military strategy that employs not only conventional forms of warfare but irregular with it as well. It involves propaganda, cyber-attacks, state-sponsored terrorism, electoral intervention, and many more means of multi-dimensional approaches towards war which are used by militarized non-state actors. The term ‘Hybrid’ came into use around 2005-2006 due to the Israel-Hezbollah war (“Lessons from Lebanon: Hezbollah and Hybrid Wars – Foreign Policy Research Institute” 2016) and became a hot-topic in 2014 after the annexation of Crimea. Using non-confrontational means can lead to internal struggles and crumbling of the target. What direct force won’t get you can be easily achieved by infiltration and multi-faceted resources. It’s neither character of war nor its outcome that defines it as a hybrid war, but the changing tactics (“State and Non-State Hybrid Warfare” 2018). In a world where everyone, from wealthy states to those caught in throes of hunger, is armed to the teeth, there are ways to achieve socio-political objectives through the use of violent and non-violent non-state actors.

Pakistan – A Target

Pakistan has risen to incredible heights despite it being a relatively young nation and this is only proved further by the interest international players have in its internal workings. Several factors contribute to the important stature Pakistan holds in the international community such as the Pak-China alliance, its geostrategic location, military aptitude, Russian interests in the Indian Ocean, Deep Sea Gwadar Port (One Belt One Road Project), neighbor to Afghanistan (a country existing as a battleground for proxies), etc. All these reasons make sure to keep Pakistan on the radar.

Though it may be secure militarily, Pakistan is still vulnerable to hybrid threats due to internal dynamics, numerous conflicting interests of nations in state-affairs, and increasing non-state actors. South Asian nuclearization has all but guaranteed that a full-fledged war between Pakistan and India is unlikely therefore the latter uses hybrid warfare to weaken Pakistan from within.

Evolutionary Nature of War

There was truth to Heraclites’s words when he claimed that change is the only constant in our world. The social theory of evolutionary change tells us that individuals, communities, societies, and states are always in a state of motion, continuously evolving according to the era. War is born from man, it is only fair that if a man changes, so shall war. It has become more complex; the stakes have raised from territorial boundaries to the maintenance of world order and preservation of state sovereignty. Wars are no longer fought on the borders, skirmishes aside, the real destruction takes place within. Due to the paradigm shift after the Cold War (Ball 2018), there rose a need for legal, economical, socio-political, and informational means of warfare. It is used as a way to undermine other nation-states in pursuit of national power; the international system is not only a race but also a way to tear others down.

Threats to Pakistani Security

To secure Pakistan from all sides, we must first analyze the threats it faces from all sides. Conventional Warfare used to be seen as one dimensional and it only perceived assault to be done through the land, air, or sea channels. However, now it is fought in various intangible zones.

·         External

India

India is a budding regional hegemon due to its political and economic growth including hidden agendas. Pakistan is perceived to be a direct threat to India especially after the launch of the CPEC project, perceived to be undermining its hold over the region, which is why it is employing stratagems of hybrid warfare to internally weaken Pakistan. Till now India has used State-Sponsored terrorism, funded insurgencies, operated terror cells, and even sent fighter jets into Pakistani Airspace as an attempt to ruin its reputation in the international community.

Afghanistan

There has been growing instability in Afghanistan which has led to mass migrations across the porous border into Pakistan, with around 1.4 million registered Afghans (United Nations High Commissioner for Refugees 2018) and 1 million unregistered (“Amnesty International” 2019). India has its claws in Afghan matters as well and will use it to exploit Pakistan’s weaknesses even after US forces leave the arena. Afghan Government’s poor administrative capability especially after the return of DAESH (Tribune 2020) and Tehrik-e-Taliban Afghanistan are threats to Pakistan as well as regional peace and are a major cause of lawlessness in the country and has a spillover effect for its neighbors.

Iran

Ideologically speaking, Iran is a sectarian threat to Pakistan and its Port Chahbahar stands to lose active traffic once CPEC is fully functional which means it stands as an instigator of hybrid warfare and it would be a risk to overlook it based on past good relations.

USA

Even after the Cold War, strategic rivalry and animosity between the powers including Russia, America, and China still exist. The emergence of China as an economic superpower is perceived as a threat to the US due to which there is a major shift in its defensive posture towards the region.

The US has shown significant interest in Pakistan due to its geo-strategic location but not all interest has yielded positive results. They carried out a surgical strike for the capture and assassination of Osama-Bin-Laden. Such a breach of sovereignty and security is a hybrid threat.

·         Internal

Sectarian

There are several lobbies in Pakistan all vying for their own cause. The Iranian lobby has sectarian undercurrents. Sectarianism has always been one of the leading factors of the divide in the Muslim civilization and is the rising trend of terrorism.Such conflict itself is volatile and is deepening the rift between different sects(Shia-Sunni) of Pakistan, causing unrest.

Economic

Rising prices of commodities such as flour and sugar can lead to social unrest and discord. Such industries and their stocks are under the thumb of a select few, the elites. With the right bribes and conditions, even they would agree to sell out society.

Non-State Actors

Non-state actors are groups or organizations that have influence in the state but work independently and have their socio-political agendas (“Towards a Typology of Non-State Actors in ‘Hybrid Warfare’: Proxy, Auxiliary, Surrogate and Affiliated Forces” 2019). They work on political opportunities and mobilized grievances. Groups like BLA (Balochistan Liberation Army), TTP (Tehrik-e-Taliban Pakistan), and Lashkar-e-Taiba (LeT) are some of the major actors. Pakistan needs to focus on curbing Jihadist Terrorism as it is keeping it from leaving the grey list of FATF.

·         Technological

Information

It refers to the spread of miscommunication. Propaganda and circulation of false news through social media are a relatively common way to cause turmoil in a community. Once a rumor is circling, there is no way to erase it. India claims that Pakistan is spreading the false narrative of ‘Islam being in danger’ to justify its actions, although untrue, is something that the Indians fully believe now. That Pakistani Intelligentsia is made solely to create narratives under which to attack India. Such beliefs further antagonize the states against each other.

Indian Chronicles are a prime example of information warfare being waged against Pakistan.

Cyber

Channels such as Cyber-Jihad and Dark Web come under the purview of cyber warfare and are a threat to the fabric of society and its security in Pakistan.

Given the above discussed bleak prevailing internal security situation, Pakistan needs to formulate a short to mid and long-term response that curbs all external and internal parties alongside proxies from infiltrating and influencing the working of the state and affecting the masses.

For a full-spectrum approach, all domains should be covered such as diplomacy, defense, internal and external security, economic, informational, cyber, and media security.

There are steps to be followed through for active and effective quelling of hybrid threats. First, a strategy must be put for, then tactical action should be taken and lastly, the implementation process should be supervised and fully followed through.

The main focus of the state should be on deterrence towards, protection from, and prevention of hybrid threats to the state.

One must not forget that Hybrid war is a mix of both unconventional and conventional warfare, therefore a nation-wide response should include the intertwined operational capabilities of armed forces alongside political actors. Pakistan sees its security being threatened both by internal factors and external hostile/proxy elements. This is hampering state development. State-building and nation-building must go hand in hand if counter and deter such threats effectively.

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