Balance Of Trade &

Balance Of Payment Of Pakistan

Balance Of Trade

The balance of trade is the difference between the monetary value of exports and imports

of output in an economy over a certain period. It is the relationship between a

nation's imports and exports.

BOT - Cont;

• trade surplus.

• trade deficit or a trade gap.

• The trade balance is identical to the difference between a country's output and its domestic demand.

Factors effecting BOT

• Cost of production.• Raw materials intermediate goods and

other inputs.• Exchange rate movements.• taxes or restrictions on trade.• Non-tariff barriers. • adequate foreign exchange.

Comparative study of (BOT) with last two decades

1) Since 1950;• Imports > exports • BOT deficit each year; FY 1973 through FY 2008

2) Pakistan’s dependability on foreign donors and creditors.• foreign debts $44.5 billion --- $52 billion US with the

addition of $7.6 billions of IMF loan.

Comparative study of (BOT) with last two decades- Cont;

3) Inflation rate 25%• 25% of the population of 169 million is living below the poverty

line of $1 a day.

• ‘cheap’ imports

• Trade deficit• 1996-97 $ 3.52 billion • 2004-2005 $6.183 billion• 2005-06 $12.011 billion • 2006-07 $13.563 billion • 2007-2008 $20.75 billion

Disappointing facts

• Standard & Poor’s, rated Pakistan to a position superior only to the Seychelles that had already defaulted

• Slump in rupee price upto 30% against US$

• share prices have crashed by 40 percent

• remittances

Disappointing facts

• October 2008, Pakistan was at the verge of bankruptcy.

i. political instability ii. global financial crisis

• No help from friend countries

• IMF $3.1 billion

War on terror

War on terror and Pakistan Army’s stepped up operation on the ever widening front has cost

Pakistan over 21 trillion Rupees

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Anomalies of Pakistan’s Trade Deficit

• Worsening Energy Crisis • Surging Imports• High Level of Consumption• Workers Remittance • Flaws in Agriculture Productivity • Rupee devaluation

Balancing the Trade Deficit

• Revitalizing Agriculture Base

• Diversifying the Export Base

• Cost Competitiveness

• Cauterization of Industry

• Technical Skills

Current position of Pakistan’s Balance of

Trade

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BALANCE OF PAYMENT

Balance of payment of a country is the annual record of economic relations of the country with the rest of the world

Balance of payment = Balance of visible items + balance of invisible items.

BALANCE OF PAYMENT

(i) Current Account

(ii) Capital Account

(iii) Official settlement account

Comparative study• The B0P position witnessed a significant improvement during first tenures

of both Ms. Benazir Bhutto (1988-89 to 1990-91) and Mohammad Nawaz Sharif (1991-92 to 1993-94). The deficit in B0T decreased to $2728 million on an average between 1988-89 to 1990-91 and to $2501million on an average between 1991-92 to 1993-94.

• Pakistan's external balance of payment deteriorated in the second tenure of

Ms. Benazir (1994-95 to 1996-97). The deficit in B0T and current account deficit in B0P increased to $3128 million and $3635 million on an average between 1994-95 and 1996-97 respectively.

• The overall balance of payment position during the second tenure of Nawaz Sharif (1997-98 to 1999-00) witnessed a significant improvement despite the adverse external environment .

Comparative study• The deficit in the balance of trade decreased to $1788 million

while current account in the B0P decreased to $1833 million during 1997-98 and 1999-00

• The Performance of Musharaf's government is much better

than the previous governments.

• During 2002-03 the cotton group alone contributed around 63.3 per cent of total exports, followed by leather (6.2 per cent) and synthetic textiles (5.1 per cent) and rice (5.0 per cent). Such a high degree of concentration of exports in few items has led to instability in export earnings.

Comparative study

Pakistan’s balance of payments showed a deficit of $ 6,878 million in its current account balance during 2006-07 as against a deficit of $ 4,990 million during 2005-06.

Pakistan’s balance of payments came under severe pressure during fiscal 2007-08 and in the first four months (July-October) of the current fiscal year owing, to the unprecedented rise in oil, food and other commodity prices.

Pakistan approached the IMF for balance-of-payments support and received a $7.6-billion package spreading over seven quarters, ending in June 2010.

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Current Situation of Balance of Payment

Current account balance during July 2010: 1.5% and recorded a deficit of US$ 0.63 billion versus US$ 0.64 billion during July 2009.

Exports during this period increased by 5.9% while imports by 3.7% over the corresponding

• period last year.

Current Situation of Balance of Payment

The current account deficit during fiscal year 2009-10 declined by 62% as compared to the deficit in 2009.

Workers’ remittances during July 2010 stood at US$ 791.18 million, up by 6.2% as compared to the previous year’s US$ 744.85 million.

Current Situation of Balance of Payment

• In 2009-10, FDI fell by 40.7% to $2.2 billion with major recipients being oil and gas exploration projects, telecommunication and financial business.

Causes of Disequilibrium in BOP

• Limited export capacity

• Unrestricted export needs

Limited Export Capacity

• Few export items• Export of Primary Commodities or semi

manufactured goods• Consumption Oriented Society• Unfavorable Terms of Trade • Unfavorable Attitude of Developed Countries• Inflation

Unrestricted Import Needs

• Pakistan has a Developing Economy• Import Oriented Industries• Oil Bill• Huge Import of Invisible Goods • Debt Servicing

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Measures to correct disequilibrium

• To correct adverse balance of payments, three ways are suggested.

• The foreign earnings should be increased by more exports.

• The imports should be reduced.• The unnecessary expenditure on invisible items be

decreased.

a) More Exports

1. Labor Intensive Industries2. Manufactured Goods3. Reduction in export duties4. Quality product 5. Export marketing6. Immortal practices

b) Less Imports

Only Essential Items Only such items should be imported which are needed for our industrial production. Import of luxuries

should be banned. People should be educated to come out of the complex of foreign goods.

c)Reduction in Invisible Items of Import:

• Reduce expenditure on freight• Fewer people should go abroad • Foreign diplomatic mission’s expense• Foreign trips of ministers and higher officials

d) Other Measure:

• Control Consumption• Rupee Depreciation• Control on Smuggling• Population Control • Liberal Trade Policies• International Cooperation for Market Access

Impact on federal budget

• In the budget 2010-11 the government has targeted;

4.5 % GDP growth rate Fixed Trade deficit Marginal growth of exports Projected increase in imports Remittances Current account deficit

Impact on federal budget (Cont;)

Agriculture growth

Manufacturing & services sector

Credit to farmers

Production targets

Conclusion