This paper aims, through the study of economic reports, surveys, and annotations of economists and historians that terrorism posed serious challenges to various aspects/sectors of Pakistan’s economy such as trade, Foreign Direct Investment (FDI), and remittances. It also attempts to study foreign aid/loans based unsustainable growth of Pakistan’s economy without any notable trickledown effect. The period between 2001 and 2008 is very much relevant to study the impact of terrorism on Pakistan’s economy. Terrorism is a plague which has produced many socio- economic problems for the already dwindling economy of Pakistan. It has circumscribed not only Pakistan’s politics and civility, but also its economy. Terrorism has a sort of multiplier effect and many other repercussions which accelerated many unbridled social problems such as poverty and unemployment in Pakistan.