MACROECONOMICS TERM REPORT

BALANCE OF PAYMENTS AND ITS ASSOCIATED FACTORS

IN LIGHT OF PAKISTAN ECONOMY

Submitted by:

Abdul-Rab Ahmad IqbalID: 2007-3-35-7336

Submitted to:

Mr. Najam AltafDated: 23 August 2008

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LETTER OF ACKNOWLEDGEMENT

Mr. Najam AltafFaculty MemberMacroeconomicsInstitute of Business ManagementKarachi

23 August 2008

Dear Sir,

It is acknowledged that this report on ‘Balance Of Payments And Its Associated Factors In Light Of Pakistan Economy’ is compiled under the guidance of Mr. Najam Altaf who imparted upon us the basic understanding of the subject and its minor intricacies which are the basis for the compilation of this report.

Furthermore, the assistance provided by the State Bank of Pakistan website is also a great source for the authenticity of the data compilation for analysis.

Sincerely

Abdul-Rab Ahmad IqbalID# 7336

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LETTER OF TRANSMITTAL

Mr. Najam AltafFaculty MemberMacroeconomicsInstitute of Business ManagementKarachi

23 August 2008

Dear Sir,

It is submitted that this report on ‘Balance of Payments And Its Associated Factors In Light Of Pakistan Economy’ is compiled as per the instructions of our teacher Mr. Najam Altaf as a term report.

The report is hereby submitted for perusal.

Sincerely

Abdul-Rab Ahmad IqbalID# 7336

ii

Macroeconomics Term ReportBalance of Payments and its Associated Factors in light of Pakistan Economy

Table of ContentsExecutive Summary..................................................................................................iv1. Balance of payments............................................................................................1

1.1 IMF definition................................................................................................12. Components of BOP............................................................................................12.1 Current account...................................................................................................1

2.1.1 Components of Current Account....................................................................22.1.1.1 Balance of Trade......................................................................................22.1.1.2 Income Account.......................................................................................22.1.1.3 Unilateral Transfers.................................................................................2

2.1.2 Reducing current account deficits..................................................................32.2 Capital account....................................................................................................32.3 Financial account.................................................................................................43. Balance of Payment Equilibrium.......................................................................44. Balance of trade...................................................................................................5

4.1 Factors affecting Balance of Trade.................................................................55. Exchange rate......................................................................................................6

5.1 Free or pegged Exchange rate........................................................................65.2 Relationship With Balance of Payments........................................................6

6. Foreign Exchange Reserves................................................................................66.1 Relationship with exchange rate.....................................................................7

7. Pakistan’s Balance of Payments.........................................................................77.1 Current Account Situation of Pakistan...........................................................7

7.1.1 Balance of Trade......................................................................................87.1.2 Net Factor Income from Abroad.............................................................8

7.2 Capital Account Situation of Pakistan............................................................97.3 Performance of Other Factors related to BOP of Pakistan...........................10

7.3.1 Exchange Rate..............................................................................................107.3.1.1 Affect of exchange rate on Exports/Imports.........................................107.3.1.2 Conclusion of Analysis..........................................................................11

8. Comparison of Pakistan’s BOP with India and China..................................128.1 China:...........................................................................................................128.2 India:.............................................................................................................138.3 Pakistan:.......................................................................................................13

9. Conclusion..........................................................................................................13

Institute of Business Management iii

Macroeconomics Term ReportBalance of Payments and its Associated Factors in light of Pakistan Economy

Executive Summary

In this report we will discuss the concept of balance of payments in detail. The contributing factors of balance of payments such as Current Account, Capital Account, Trade Balance, Exchange Rate, Foreign Exchange Reserves, Foreign Investments etc. will also be discussed in details.

An analysis of the existing state of Pakistan’s Balance of payments will be done in order to find out the current situation of Pakistan’s balance of payments problems and its associated factors.

The source of data in this report are the websites of State Bank of Pakistan, IMF, Wikipedia, Reserve Bank of India, Central Bank of China and the BOP manual of IMF.

We will also analyze the relation of Pakistan’s growth and exchange rate with its balance of payments by analyzing the data of last three years.

A comparison with two of the regional economies i.e. China and India will also be drawn to find out the gap that is existing between the economy of Pakistan and the economies of these two countries.

In the end we conclude the report with the salient points being analyzed about the Pakistan’s balance of payments along with some suggestions.

Institute of Business Management iv

Comparison & Analysis of Economic Indicators

1. Balance of payments

In economics, the balance of payments, (or BOP) measures the payments that flow between any individual country and all other countries. It is used to summarize all international economic transactions for that country during a specific time period, usually a year. The BOP is determined by the country's exports and imports of goods, services, and financial capital, as well as financial transfers. It reflects all payments and liabilities to foreigners (debits) and all payments and obligations received from foreigners (credits). Balance of payments is one of the major indicators of a country's status in international trade, with net capital outflow.

The balance, like other accounting statements, is prepared in a single currency, usually the domestic. Foreign assets and flows are valued at the exchange rate of the time of transaction.

1.1 IMF definition

The IMF definition: "The balance of payments is a statistical statement that summarizes transactions between residents and nonresidents during a period."[1] The balance of payments comprises the current account, the capital account, and the financial account. "Together, these accounts balance in the sense the sum of the entries is conceptually zero."[1]

The current account consists of the goods and services account, the primary income account and the secondary income account. The financial account records transactions that involve financial assets and liabilities and that take place between residents and nonresidents. The capital account in the international accounts shows (1) capital transfers receivable and payable; and (2) the acquisition and disposal of nonproduced nonfinancial assets.

2. Components of BOP

The Balance of Payments for a country is the sum of the current account, the capital account, the financial account.

2.1 Current account

In economics, the current account is one of the two primary components of the balance of payments, the other being the capital account. It is the sum of the balance of trade (exports minus imports of goods and services), net factor income (such as interest and dividends) and net transfer payments (such as foreign aid).

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Comparison & Analysis of Economic Indicators

The current account balance is one of two major metrics of the nature of a country's foreign trade (the other being the net capital outflow). A current account surplus increases a country's net foreign assets by the corresponding amount, and a current account deficit does the reverse. Both government and private payments are included in the calculation.

2.1.1 Components of Current Account

2.1.1.1 Balance of Trade

The balance of trade is typically the most important part of the current account. This means that changes in the patterns of trade are key drivers in the current accounts of most of the world's economies. However, for the few countries with substantial overseas assets or liabilities, net factor payments may be significant.

Positive net sales to abroad generally contributes to a current account surplus; negative net sales to abroad generally contributes to a current account deficit. Because exports generate positive net sales, and because the trade balance is typically the largest component of the current account, a current account surplus is usually associated with positive net exports. The net factor income or income account, a sub-account of the current account, is usually presented under the headings income payments as outflows, and income receipts as inflows. Income refers not only to the money received from investments made abroad (note: investments are recorded in the capital account but income from investments is recorded in the current account) but also to the money sent by individuals working abroad, known as remittances, to their families back home. If the income account is negative, the country is paying more than it is taking in interest, dividends, etc. For example, the United States' net income has been declining exponentially since it has allowed the dollar's price relative to other currencies to be determined by the market to a point where income payments and receipts are roughly equal. The difference between Canada's income payments and receipts have been declining exponentially as well since its central bank in 1998 began its strict policy not to intervene in the Canadian Dollar's foreign exchange. The various subcategories in the income account are linked to specific respective subcategories in the capital account, as income is often composed of factor payments from the ownership of capital (assets) or the negative capital (debts) abroad. From the capital account, economists and central banks determine implied rates of return on the different types of capital. The United States, for example, gleans a substantially larger rate of return from foreign capital than foreigners do from owning United States capital.

2.1.1.2 Income Account

The income account accounts mostly for investment income from dividends and interest on credit and payments on foreign taxes.

Strangely, the net of the income account of the United States has been negligible as a percentage of total debits or credits for decades, an extremely outlying instance.

2.1.1.3 Unilateral Transfers

Unilateral transfers are usually conducted between private parties. For example, Mexico has a large surplus of remittances from the United States sent by emigrant workers to loved ones back home. India has the world's largest surplus of remittances.

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Comparison & Analysis of Economic Indicators

2.1.2 Reducing current account deficits

Action to reduce a substantial current account deficit usually involves increasing exports or decreasing imports. This is generally accomplished directly through import restrictions, quotas, or duties (though these may indirectly limit exports as well), or subsidizing exports. Influencing the exchange rate to make exports cheaper for foreign buyers will indirectly increase the balance of payments. This can be accomplished by increasing domestic inflation (e.g. by cutting interest rates), loosening monetary policy (making more money available), or adjusting government spending to favor domestic suppliers.

Less obvious but more effective methods to reduce a current account deficit include measures that increase domestic savings (or reduced domestic borrowing), including a reduction in borrowing by the national government.

2.2 Capital account

In economics, the capital account is one of two primary components of the balance of payments, the other being the current account. The capital account is referred to as the financial account in the IMF's definition; the IMF has a different definition of the term capital account.

The capital account records all transactions between a domestic and foreign resident that involves a change of ownership of an asset. It is the net result of public and private international investment flowing in and out of a country. This includes foreign direct investment, portfolio investment (such as changes in holdings of stocks and bonds) and other investments (such as changes in holdings in loans, bank accounts, and currencies).

From a domestic point of view, a foreign investor acquiring a domestic asset is considered a capital inflow, while a domestic resident acquiring a foreign asset is considered a capital outflow.

Along with transactions pertaining to non-financial and non-produced assets, the capital account may also include debt forgiveness, the transfer of goods and financial assets by migrants leaving or entering a country, the transfer of ownership on fixed assets, the transfer of funds received to the sale or acquisition of fixed assets, gift and inheritance taxes, death levies, patents, copyrights, royalties, and uninsured damage to fixed assets. (http://www.investopedia.com/articles/03/070203.asp).

Countries can impose capital controls to control the flows into and out of their capital accounts. Countries without capital controls are said to have full capital account convertibility.

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Comparison & Analysis of Economic Indicators

2.3 Financial account

According to the IMF's definition, the financial account is the net change in foreign ownership of investment assets. In economics, the term capital account has historically been used to refer to the IMF's definition of the capital and financial accounts.

The accounting entries in the financial account record the purchase and sale of domestic and foreign investment assets. These assets are divided into categories such as foreign direct investment (FDI), portfolio investment (which includes trade in stocks and bonds), and other investment (which includes transactions in currency and bank deposits).

If foreign ownership of domestic financial assets has increased more quickly than domestic ownership of foreign assets in a given year, then the domestic country has a financial account surplus. On the other hand, if domestic ownership of foreign financial assets has increased more quickly than foreign ownership of domestic assets, then the domestic country has a financial account deficit.

The United States persistently has the largest capital (and financial) surplus in the world.

The United States receives roughly twice the rate of return on all foreign investment than domestic investment by foreigners.

3. Balance of Payment Equilibrium

A balance of payments equilibrium is defined as a condition where the sum of debits and credits from the current account and the capital and financial accounts equal to zero; in other words, equilibrium is where

This is a condition where there are no changes in Official Reserves. When there is no change in Official Reserves, the balance of payments may also be stated as follows:

or:

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Comparison & Analysis of Economic Indicators

Canada's Balance of Payments currently satisfies this criterion. It is the only large monetary authority with no Changes in Reserves.

4. Balance of trade

The balance of trade forms part of the current account, which also includes other transactions such as income from the international investment position as well as international aid. If the current account is in surplus, the country's net international asset position increases correspondingly. Equally, a deficit decreases the net international asset position.

The trade balance is identical to the difference between a country's output and its domestic demand (the difference between what goods a country produces and how many goods it buys from abroad; this does not include money re-spent on foreign stocks, nor does it factor the concept of importing goods to produce for the domestic market).

Measuring the balance of payments can be problematic because of problems with recording and collecting data. As an illustration of this problem, when official data for all the world's countries are added up, exports exceed imports by a few percent; it appears the world is running a positive balance of trade with itself. This cannot be true, because all transactions involve an equal credit or debit in the account of each nation. The discrepancy is widely believed to be explained by transactions intended to launder money or evade taxes, smuggling and other visibility problems. However, especially for developed countries, accuracy is likely.

4.1 Factors affecting Balance of Trade

Factors that can affect the balance of trade figures include:

Prices of goods manufactured at home (influenced by the responsiveness of supply) Exchange rates Trade agreements or barriers Other tax, tariff and trade measures Business cycle at home or abroad.

The balance of trade is likely to differ across the business cycle. In export led growth (such as oil and early industrial goods), the balance of trade will improve during an economic expansion. However, with domestic demand led growth (as in the United States and Australia) the trade balance will worsen at the same stage in the business cycle.

Strong GDP growth economies such as the United States, the United Kingdom, Australia and Hong Kong run consistent trade deficits, as well as poorer countries also experiencing a lot of investment.

Developed nations such as Canada, Japan, and Germany typically run trade surpluses. China also has a trade surplus. A higher savings rate generally corresponds with a trade surplus. Correspondingly, the United States with its negative savings rate consistently has high trade deficits.

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Comparison & Analysis of Economic Indicators

5. Exchange rate

In finance, the exchange rates (also known as the foreign-exchange rate, forex rate or FX rate) between two currencies specifies how much one currency is worth in terms of the other. For example an exchange rate of 102 Japanese yen (JPY, ¥) to the United States dollar (USD, $) means that JPY 102 is worth the same as USD 1. The foreign exchange market is one of the largest markets in the world. By some estimates, about 2 trillion USD worth of currency changes hands every day.

The spot exchange rate refers to the current exchange rate. The forward exchange rate refers to an exchange rate that is quoted and traded today but for delivery and payment on a specific future date.

5.1 Free or pegged Exchange rate

If a currency is free-floating, its exchange rate is allowed to vary against that of other currencies and is determined by the market forces of supply and demand. Exchange rates for such currencies are likely to change almost constantly as quoted on financial markets, mainly by banks, around the world. A movable or adjustable peg system is a system of fixed exchange rates, but with a provision for the devaluation of a currency. For example, between 1994 and 2005, the Chinese yuan renminbi (RMB) was pegged to the United States dollar at RMB 8.2768 to $1. China was not the only country to do this; from the end of World War II until 1966, Western European countries all maintained fixed exchange rates with the US dollar based on the Bretton Woods system.

5.2 Relationship With Balance of Payments

The foreign exchange rate must be at its equilibrium level - the rate which produces a stable current account balance. A nation with a trade deficit will experience reduction in its foreign exchange reserves which ultimately lowers (depreciates) the value of its currency. The cheaper currency renders the nation's goods (exports) more affordable in the global market place while making imports more expensive. After an intermediate period, imports are forced down and exports rise, thus stabilizing the trade balance and the currency towards equilibrium.

6. Foreign Exchange Reserves

Foreign exchange reserves (also called Forex reserves) in a strict sense are only the foreign currency deposits held by central banks and monetary authorities. However, the term in popular usage commonly includes foreign exchange and gold, SDRs and IMF reserve positions. This broader figure is more readily available, but it is more accurately termed official reserves or international reserves. These are assets of the central bank held in different reserve currencies, such as the dollar, euro and yen, and used to back its liabilities, e.g. the local currency issued, and the various bank reserves deposited with the central bank, by the government or financial institutions.

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Comparison & Analysis of Economic Indicators

6.1 Relationship with exchange rate

In a non fixed exchange rate system, reserves allow a central bank to purchase the issued currency, exchanging its assets to reduce its liability. The purpose of reserves is to allow central banks an additional means to stabilise the issued currency from excessive volatility, and protect the monetary system from shock, such as from currency traders engaged in flipping. Large reserves are often seen as a strength, as it indicates the backing a currency has. Low or falling reserves may be indicative of an imminent bank run on the currency or default, such as in a currency crisis. Central banks sometimes claim that holding large reserves is a security measure. This is true to the extent that a central bank can prop up its own currency by spending reserves.

A central bank that implements a fixed exchange rate policy may face a situation where supply and demand would tend to push the value of the currency lower or higher (an increase in demand for the currency would tend to push its value higher, and a decrease lower). In a fixed exchange rate regime, these operations occur automatically, with the central bank clearing any excess demand or supply by purchasing or selling the foreign currency. Mixed exchange rate regimes ('dirty floats', target bands or similar variations) may require the use of foreign exchange operations (sterilized or unspecialized) to maintain the targeted exchange rate within the prescribed limits.

7. Pakistan’s Balance of PaymentsIn this section we will analyze the situation of Pakistan’s Balance of Payments for the last 3 years. The source of data used is SBP website.

The formula for the balance of payments equilibrium is given by:

Current Account + Capital Account = 0

Where,

Current Account = Balance of Trade + Net Factor Income from Abroad + Net unilateral Transfersfrom Abroad.

Capital Account = Foreign Direct Investment + Portfolio Investment + Other Investments

7.1 Current Account Situation of PakistanThe current account situation of Pakistan for the last three years is appended below:

2005-06 (US $ 4990 million)2006-07 (US $ 6878 million)2007-08 (Jan-Mar) (US $ 9782 milion)

This clearly shows that Pakistan is having a consistent current account deficit. Now we will look at the performance of factors affecting this imbalance.

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Comparison & Analysis of Economic Indicators

7.1.1 Balance of Trade

The balance of trade for Pakistan is one of the main factor for the current account imbalance. The same is appended below:

Exports of Goods and Services

Imports of Goods and Services

Balance of trade

2005-06 US $ 20322 million US $ 33193 million (US $ 12871 million)2006-07 US $ 21418 million US $ 35299 million (US $ 13881 million)2007-08 US $ 23715 US $ 45303 million (US $ 21588 million)

The above table clearly shows that the exports of Pakistan are not increased at a pace comparable to its imports. Therefore, the imbalance of trade has rapidly increased in the last 3 years where the last year is the worst for the balance of trade. This has a very severe impact on the current account.

This situation requires the govt. to take actions to improve exports and reduce the exports to curtail this increasing trend in trade imbalance.

7.1.2 Net Factor Income from Abroad

Now we analyze the trend of Net Factor Income from Abroad which is the main source to stabilize the current account. This include income from direct investments as well as income from portfolio investments:

Income of Pakistan from Abroad

Income of Abroad from Pakistan

Net Factor Income

2005-06 US $ 784 million US $ 3451 million (US $ 2667 million)2006-07 US $ 940 million US $ 4522 million (US $ 3582 million)2007-08 (Jul – Mar)

(US $ 2669 million)

Although the figures of Q4 of 07-08 are not available but still we can easily say that the deficit in Net Factor Income from Abroad is not going to be less than the previous year. This shows that The income foreign firms are getting from their investments (both Direct and Portfolio) in Pakistan are much higher then the Pakistani firms get from their investments abroad.

This also indicates the flight of capital from Pakistan through these multinationals and investors. The stock market crisis of 2005 is also one such example.

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Comparison & Analysis of Economic Indicators

7.1.3 Current Transfers

The remittances from expatriates is a major component of current transfers which is the major source of stabilization of current account of Pakistan. Following is the status of the same for the last three years:

Current Transfers Inflow

Current transfers Outflow

Net Share of Remittances

2005-06 US $ 10,655 million US $ 107 million US $ 10,548 million 43.6%2006-07 US $ 10,658 million US $ 73 million US $ 10,585 million 51.9%2007-08 (Jul – Mar)

US $ 8761 million 53.9%

This indicates that it is the only stabilizing sector for the current account balance. The trend also shows that the remittance are increasing which is very helpful for the country’s economy.

7.2 Capital Account Situation of Pakistan

The capital account situation of Pakistan for the last three years is appended below:

2005-06 US $ 4792 million2006-07 US $ 6619 million2007-08 (Jan-Mar) US $ 9329 milion

7.2.1 Foreign Direct Investments

This is a major factor for the current account of a country. FDI have played a major role in the economy of Pakistan. The trend of FDI for the last three years is appended below:

FDI Inflow FDI Outflow Net 2005-06 US $ 3521 million US $ 71 million US $ 3450 million2006-07 US $ 5142 million US $ 116 million US $ 5026 million2007-08 (Jul – Mar)

US $ 3010 million

The above table clearly shows that the FDI for the 07-08 will be less than that of the previous year because of the poor law and order situation of Pakistan which is a caution sign for Pakistan’s economy.

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Comparison & Analysis of Economic Indicators

7.2.2 Portfolio Investments

This is also a major component of capital account but it is not good for the economy because it is not long term and can fly very rapidly. The trend of last three years is appended below:

FDI Inflow FDI Outflow Net 2005-06 US $ 986 million US $ - million US $ 986 million2006-07 US $ 3301 million US $ 18 million US $ 3283 million2007-08 (Jul – Mar)

(US $ 55 million)

The table clearly shows that the portfolio investment can be very un-predictable. It can be flown out very easily. The reason for the lower value of 05-06 is the stock market crisis of 2005. The performance of portfolio investments for the year 07-08 is negative because of volatile law and order and political uncertainty.

7.3 Performance of Other Factors related to BOP of Pakistan

7.3.1 Exchange Rate

The trend of exchange rate for last 5 years of Pak Rupee to US $ is appended below:

Year 2004-05 2005-06 2006-07 2007-08Exchange Rate 59.52 60.07 60.66 66.17

The above mentioned table clearly shows that there is a gradual decline in the value of Pak Rupee.

7.3.1.1 Affect of exchange rate on Exports/Imports

Now we analyze that whether the decline in the exchange rate has any affect on the imports and exports of Pakistan.

As a rule it should have a negative impact on imports and a positive impact on exports. We will analyze the trend of exports and imports of the last four years. The same are appended below:

Exports

Year 2004-05 2005-06 2006-07 2007-08Exports US $ million

14,482 16,553 17,278 20,125

Imports

Year 2004-05 2005-06 2006-07 2007-08Exports US $ million

18,996 24,994 26,989 35,412

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Comparison & Analysis of Economic Indicators

The above data indicates that the trend of both the imports and exports is that of increasing. Whereas the imports are increasing more rapidly than exports.

7.3.1.2 Conclusion of Analysis

In order to conclude on any statement regarding the affect of exchange rate reduction on the balance of payment we must have to see the base of Pakistan’s imports and exports.

Export Base

The export base of Pakistan can be easily divided into three broad categories:

a. Textile Products includes raw cotton, cotton yarn, nit wear, bead wear etc.b. Agriculture include rice, sugar, fruits, vegetables, dairy products etc.c. Manufacturing includes sports goods, leather goods, surgical goods etc.

The contribution of each category for the last three years is appended below:

Textile Agriculture Manufacturing2005-06 55.22% 10.91% 23.04%2006-07 57.94% 11.45% 21.35%2007-08 51.45% 12.85% 23.5%

Import Base

The major categories of import base are as follows:

a. Petroleum Productsb. Food items includes tea, pulses, palm oil, spices etc.c. Machinery includes power plants, textile machinery, CNC machines etc.d. Motor Vehicles includes cars, buses, ships, air crafts and their spares etc.e. Agro-chemicals includes fertilizers, insecticides etc.f. Metals includes iron/steel products, Aluminum sheets etc.

The contribution of these products for the last three years is appended below:

Petroleum Foods Machinery Vehicles Chemicals Metals2005-06 23.8% 9.9% 18.8% 4.7% 16.18% 8.2%2006-07 27.2% 8.9% 18.8% 4.1% 15.2% 7.3%2007-08 29.64% 9.95% 16.23% 3.38% 14.43% 6.53% From the above figures we can easily conclude that the export base of Pakistan is highly dependent on agriculture and manufacturing sectors whose inputs are petroleum, machinery, chemicals, metals.

Therefore, if the exchange rate of Pakistan was decreased that will also increase the cost of imported raw materials which will indirectly increase the cost of output products. So the impact on exports in case of decrease in exchange rate is minimal.

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Comparison & Analysis of Economic Indicators

Furthermore, we can see that more than 80% of Pakistan’s exports are of essential goods which are directly or indirectly related to the production. If the exchange rate is decreased than in that case the prices of essential goods like petroleum, chemicals, edible oil etc. will increase which will not only affect the growth but also affect the export goods indirectly.

8. Comparison of Pakistan’s BOP with India and China

The comparison for the last five years is appended below:

 Current account   USD bn   2004    2005    2006    2007    2008China   68.70 160.80 249.90 375.00 400.00India   -2.50 -9.90 -9.70 -11.50 -31.50Pakistan   1.81 -5.62 -7.36 -6.85 -12.07

 Current account   % GDP   2004    2005    2006    2007    2008China   3.50 7.00 9.00 10.90 9.40India   -0.40 -1.20 -1.10 -1.00 -2.90Pakistan   1.80 -1.40 -3.90 -4.90 -6.90

              FDI (net)   USD bn   2004    2005    2006    2007    2008

China    54.9   60.3   69.5   82.7   88.5 India    3.7   3.8   9.1   25.0   36.0 Pakistan   0.75 1.16 4.49 8.42 5.19

              Intern. reserves (excl. gold)   USD bn   2004    2005    2006    2007    2008China   618.20 825.70 1072.60 1530.30 1959.50

India   136.50 145.90 192.40 299.60 358.40Pakistan   10.60 9.80 10.80 13.30 10.16

8.1 China: China's current accounts surplus is nearly 10% of GDP. This surplus is entirely due to its trade surplus of $281 billion. It is argued by many, that the Chinese Yuan is undervalued making Chinese exports relatively more

competitive and cheaper. This is a significant factor in making the terms of trade favor a surplus. China's elastic supply of labor has enabled wage rates to remain low, giving China an advantage in

the producing goods at a low cost. Despite the high rates of Chinese growth. The Chinese economy has a very high savings rate of

40%.

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Current Account (% of GDP)

China

India

Pakistan

-13.00-11.00-9.00-7.00-5.00-3.00-1.001.003.005.007.009.0011.00

 2004    2005    2006    2007    2008

China

India

Pakistan

Foreign Reserve (USD Bn)

China

IndiaPakistan-10.00

190.00390.00590.00790.00990.00

1190.00

 200

4  

 200

5  

 200

6  

 200

7  

 200

8

China

India

Pakistan

Comparison & Analysis of Economic Indicators

This means consumers are saving rather than spending on foreign imports. Rather than buy consumer goods, the Chinese prefer to invest in foreign securities. E.g. buy US securities and bonds.

This outflow of Capital has financed the US current account deficit; in the process China has built up an impressive amount of external assets.

China finance more than 50% of USA $ 800 billion current account deficit (6.2% of GDP)

8.2 India:

Since independence, India's balance of payments on its current account has been negative. Since liberalization in the 1990s (precipitated by a balance of payment crisis), India's exports have

been consistently rising, covering 80.3% of its imports in 2002–03, up from 66.2% in 1990–91. Although India is still a net importer, since 1996–97, its overall balance of payments (i.e., including

the capital account balance), has been positive, largely on account of increased foreign direct investment and deposits from non-resident Indians.

As a result, India's foreign currency reserves stood at $360 billion in 2008, which can be used in infrastructural development of the country if used effectively.

8.3 Pakistan:

Unprecedented rise in the prices of oil and food items have contributed to the widening of both trade and current account deficits.

The current account deficit during the fiscal year amounted to $ 12 billion – up by 78 percent over period last year.

The impact of the rising current account deficit on the country’s overall balance of payments was further compounded due to a decline in financial and capital account flows on account of a drop in net portfolio investment, delays in the planned floatation of a sovereign bond and Global Depository receipts (GDRs) and putting on hold the floatation of an Exchangeable Bond.

These developments, along with imports of wheat and fertilizer, worsened the trade deficit as well as current account deficit.

Accordingly, the overall balance of payments is in deficit which is partly financed through reserves draw-down.

Even when compared to the size of the economy, the current account deficit was substantially high at 6.9 percent of GDP during Jul-April FY08 as against 4.6 percent for the same period last year.

9. Conclusion

From the above mentioned analysis following points can be concluded about the balance of payment problems of Pakistan:

a. Pakistan’s current account is under severe imbalance and government has to take measures to stabilize it. These measures includes:

Focus on increasing the exports through widening the exports base, exploring the new markets, reducing production costs, encouraging self-reliance, promoting country’s products etc.

Focus on regulating the imports of non-developmental, luxurious gods.

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Comparison & Analysis of Economic Indicators

Exploring the Thar Coal, hydal, solar, wind and other alternates as an alternative of petroleum for energy consumption which will reduce the high petroleum prices.

Focus on value addition of products and cost effective production to lower the cost of export products.

b. The remittances from expatriates is a major source for balancing of current account. Government has to encourage people to send their money through legal channels instead of ‘Hundi’ system.

c. Pakistan is currently not an attractive place for foreign direct investments (FDI) due to obvious reasons of law and order, security risks, political turmoil etc. This needs to be addressed very seriously to attract FDI.

d. Pakistan’s stock market is also not consistent due to above mentioned reasons. Therefore, Portfolio Investment in Pakistan is also very fluctuating and flight of capital from stock market is not impossible.

e. The exchange rate is very loosely elastic due to following reasons:

Export base is very thin and mainly dependant upon the raw materials which are imported such as machinery, fertilizers, chemicals, petroleum etc. Therefore, the decrease in exchange rate will increase the cost of imported raw materials which will indirectly affect the exports.

Imports are more than 80% of essential items whose cost will increase upon the decline of exchange rate. That will affect the production as well as inflation negatively.

f. The balance of payments is partially been covered through foreign reserves which is depleting the reserves.

Page 14 of 16

Annex A – Pakistan’s Balance of Payments

Pakistan's Balance of Payments

(Million US Dollars)

I T E M2005-06 2006-07

Credit Debit Net Credit Debit Net

1.Current Account 31,761 36,751 -4,990 33,016 39,894 -6,878 A. Goods and services 20,322 33,193 -12,871 21,418 35,299 -13,881 a. Goods 16,553 24,994 -8,441 17,278 26,989 -9,711  1. General merchandise 16,388 24,624 -8,236 17,119 26,614 -9,495  2. Goods for processing - - - - - -

 3. Repairs on goods 1 101 -100 0 116 -116  4. Goods procured in ports by carriers 164 269 -105 159 259 -100  5. Nonmonetary gold - - - - - -

b. Services 3,769 8,199 -4,430 4,140 8,310 -4,170  1. Transportation 1,080 2,863 -1,783 1,102 3,177 -2,075      1.1 Passenger 656 453 203 646 521 125      1.2 Freight 124 2,083 -1,959 127 2,224 -2,097      1.3 Other 300 327 -27 329 432 -103  2. Travel 216 1,411 -1,195 277 1,625 -1,348    2.1 Business 8 57 -49 15 62 -47    2.2 Personal 208 1,354 -1,146 262 1,563 -1,301   3. Communications services 198 101 97 123 98 25   4. Construction services 16 143 -127 74 60 14   5. Insurance services 29 131 -102 30 126 -96   6. Financial services 70 133 -63 74 135 -61   7. Computer and information services 72 44 28 104 90 14   8. Royalties and license fees 33 99 -66 41 115 -74   9. Other business services 391 2,953 -2,562 459 2,557 -2,098   10. Personal, cultural, and recreational services 1 6 -5 2 - 2   11. Government services, n.i.e. 1,663 315 1,348 1,854 327 1,527 B. Income 784 3,451 -2,667 940 4,522 -3,582  1. Compensation of employees 6 1 5 7 1 6   2. Investment income 778 3,450 -2,672 933 4,521 -3,588    2.1 Direct investment 39 2,115 -2,076 30 2,839 -2,809     2.1.1 Income on equity 39 2,115 -2,076 30 2,839 -2,809     2.1.2 Income on debt (interest) - - - - - -

   2.2 Portfolio investment 357 450 -93 348 607 -259      2.2.1 Income on equity (dividends) 2 88 -86 6 266 -260     2.2.2 Income on debt (interest) 355 362 -7 342 341 1    2.3 Other investment 382 885 -503 555 1,075 -520 2.3.1. Monetary Authority 268 50 218 412 50 362 2.3.2. General Government - 652 -652 27 701 -674 2.3.3. Banks 60 50 10 92 80 12 2.3.4. Other investment income 54 133 -79 24 244 -220 C. Current transfers 10,655 107 10,548 10,658 73 10,585   1. General government 715 34 681 548 23 525   2. Other sectors 9,940 73 9,867 10,110 50 10,060

Of which Workers` Remittances 4,600 3 4,597 5,494 - 5,494

2.Capital and Financial Account 8,486 3,694 4,792 14,249 7,630 6,619 A. Capital account 250 9 241 309 5 304   1. Capital transfers 243 9 234 291 5 286     1.1 General government 201 7 194 267 5 262        1.1.1 Debt forgiveness - - - - - -

      1.1.2 Other 201 7 194 267 5 262     1.2 Other sectors 42 2 40 24 - 24   2. Acquisitions/disposal of non-

produced nonfinancial assets 7 - 7 18 - 18 B. Financial account 8,236 3,685 4,551 13,940 7,625 6,315   1. Direct investment 3,521 71 3,450 5,142 116 5,026     1.1 Abroad - 71 -71 2 116 -114    1.2 In reporting economy 3,521 - 3,521 5,140 - 5,140

Page 15 of 16

Annex A – Pakistan’s Balance of Payments

Page 16 of 16

Annex A – Pakistan’s Balance of Payments

Pakistan's Balance of Payments

(Million US Dollars)

I T E M2005-06 2006-07

Credit Debit Net Credit Debit Net

   2. Portfolio investment 986 - 986 3,301 18 3,283     2.1 Assets 22 - 22 13 18 -5     2.2 Liabilities 964 - 964 3,288 - 3,288  3. Other investment 3,717 2,466 1,251 4,628 2,912 1,716     3.1 Assets 512 364 148 306 891 -585       3.1.1 Trade credits - 283 -283 - 281 -281       3.1.2 Loans - - - - - - 3.1.2.1. Long-term - - - - - -

       3.1.2.2. Short-term - - - - - -

3.1.3 Currency and deposits 511 - 511 214 530 -316 3.1.3.1. Monetary authority - - - - - -

3.1.3.2. General Govt. - - - - 2 -2 3.1.3.3. Banks. 461 - 461 55 528 -473 3.1.3.4. Other sectors. 50 - 50 159 - 159        3.1.4 Other assets 1 81 -80 92 80 12 3.1.4.1. Monetary authority - - - - - -

3.1.4.2. General Govt. 1 - 1 2 - 2 3.1.4.3. Banks. - 81 -81 90 80 10 3.1.4.4. Other sectors. - - - - - -

    3.2 Liabilities 3,205 2,102 1,103 4,322 2,021 2,301       3.2.1 Trade credits - - - - - -

      3.2.2 Loans 2,789 1,909 880 3,530 1,861 1,669           3.2.2.1 Use of Fund credit and loans from the Fund - 143 -143 - 120 -120           3.2.2.2 General Govt. 2,238 1,446 792 2,669 1,339 1,330 3.2.2.2.1. Long-term 2,069 1,059 1,010 2,444 1,031 1,413            3.2.2.2.2. Short-term 169 387 -218 225 308 -83           3.2.2.3. Banks. - - - - - -

3.2.2.3.1. Long-term - - - - - -

3.2.2.3.2. Short-term - - - - - -

          3.2.2.4. Other sectors 551 320 231 861 402 459 3.2.2.4.1. Long-term 551 320 231 861 402 459 3.2.2.4.2. Short-term - - - - - -

      3.2.3 Currency and deposits 317 1 316 335 10 325         3.2.3.1 Monetary authorities - - - - 1 -1         3.2.3.2 General Govt. - 1 -1 - - -

        3.2.3.3 Banks 2 - 2 45 9 36 3.2.3.4 Other sector 315 - 315 290 0 290

      3.2.4 Other liabilities 99 192 -93 457 150 307           3.2.4.1 Monetary authority - - - - - -

3.2.4.1.1. Long-term - - - - - -

3.2.4.1.2. Short-term - - - - - -

          3.2.4.2. General Govt. - 22 -22 - 22 -22 3.2.4.2.1. Long-term - 22 -22 - 22 -22 3.2.4.2.2. Short-term - - - - - -

          3.2.4.3. Banks 21 25 -4 160 44 116 3.2.4.3.1. Long-term 21 - 21 36 14 22 3.2.4.3.2. Short-term - 25 -25 124 30 94           3.2.4.4. Other sectors 78 145 -67 297 84 213 3.2.4.4.1. Long-term 78 - 78 98 84 14 3.2.4.4.2. Short-term - 145 -145 199 - 199   4. Official reserve assets 12 1,148 -1,136 869 4,579 -3,710     4.1 Monetary gold - - - - - -

    4.2 SDRs 12 - 12 11 - 11     4.3 Reserve position in the Fund - - - - - -

    4.4 Foreign currency reserves (in convertible currencies) - 791 -791 579 4,127 -3,548 4.5. Other claims ( DMB ) - 357 -357 279 452 -1733. Errors And Omissions 253 - 253 610 451 1594. Exceptional Financing - 55 -55 100 - 100

Page 17 of 16

Annex A – Pakistan’s Balance of Payments

Pakistan's Balance of Payments

(Million US Dollars)

I T E M

2006-07p 2007-08 p

Jan.-Mar. Jul.-Sep. Oct.-Dec.. Jan.-Mar

Net Net Net Credit Debit Net

1.Current Account -1,534 -2,227 -3,783 9,831 13,603 -3,772 A. Goods and services -3,326 -3,963 -5,570 6,086 12,407 -6,321 a. Goods -2,312 -2,369 -3,868 5,079 9,853 -4,774  1. General merchandise -2,256 -2,336 -3,811 5,019 9,747 -4,728  2. Goods for processing - - - - - -

 3. Repairs on goods -34 -26 -48 1 29 -28  4. Goods procured in ports by carriers -22 -7 -9 59 77 -18  5. Non-monetary gold - - - b. Services -1,014 -1,594 -1,702 1,007 2,554 -1,547  1. Transportation -473 -539 -634 250 948 -698      1.1 Passenger 60 45 24 154 116 38      1.2 Freight -502 -537 -685 28 762 -734      1.3 Other -31 -47 27 68 70 -2  2. Travel -370 -275 -404 72 382 -310    2.1 Business -13 -7 -6 7 8 -1    2.2 Personal -357 -268 -398 65 374 -309   3. Communications services - 13 16 23 34 -11   4. Construction services 18 -3 -6 9 10 -1   5. Insurance services -24 -47 -28 15 29 -14   6. Financial services -2 -13 -36 10 56 -46   7. Computer and information services 5 - -3 38 25 13   8. Royalties and license fees -18 -27 -12 17 31 -14   9. Other business services -538 -705 -702 105 960 -855   10. Personal, cultural, and recreational services - - - 1 - 1   11. Government services, n.i.e. 388 2 107 467 79 388 B. Income -804 -908 -1,012 434 1,183 -749  1. Compensation of employees 2 1 2 3 - 3   2. Investment income -806 -909 -1,014 431 1,183 -752    2.1 Direct investment -653 -755 -852 6 667 -661     2.1.1 Income on equity -653 -755 -852 6 667 -661     2.1.2 Income on debt (interest) - - - - - -

   2.2 Portfolio investment -55 -80 -25 244 252 -8      2.2.1 Income on equity (dividends) -19 -27 -79 7 36 -29     2.2.2 Income on debt (interest) -36 -53 54 237 216 21    2.3 Other investment -98 -74 -137 181 264 -83 2.3.1. Monetary Authority 85 109 154 149 11 138 2.3.2. General Government -110 -130 -244 0 138 -138 2.3.3. Banks 9 1 21 28 25 3 2.3 4. Other investment income -82 -54 -68 4 90 -86 C. Current transfers 2,596 2,644 2,799 3,311 13 3,298   1. General government 54 14 18 377 2 375   2. Other sectors 2,542 2,630 2,781 2,934 11 2,923

Of which Workers` Remittances 3,369 1,499 1,565 1,662 - 1,662

2.Capital and Financial Account 1,985 2,466 3,177 4,681 995 3,686 A. Capital account 71 - 46 16 - 16   1. Capital transfers 71 2 47 16 - 16     1.1 General government 66 3 46 15 - 15        1.1.1 Debt forgiveness - - - - - -

      1.1.2 Other 66 3 46 15 - 15     1.2 Other sectors 5 -1 1 1 - 1   2. Acquisitions/disposal of non- - - - - - -

produced non-financial assets - -2 -1 - - -

B. Financial account 1,914 2,466 3,131 4,665 995 3,670   1. Direct investment 1,955 1,006 1,026 983 5 978     1.1 Abroad -31 -8 -26 - 5 -5    1.2 In reporting economy 1,986 1,014 1,052 983 - 983

Page 18 of 16

Annex A – Pakistan’s Balance of Payments

1 Pakistan's Balance of Payments

(Million US Dollars)

I T E M

2006-07p 2007-08 p

Jan.-Mar. Jul.-Sep. Oct.-Dec.. Jan.-Mar

Net Net Net Credit Debit Net

   2. Portfolio investment 392 19 81 1 156 -155     2.1 Assets 2 -6 2 1 - 1     2.2 Liabilities 390 25 79 - 156 -156  3. Other investment 59 1,204 504 1,218 834 384     3.1 Assets -317 267 177 365 290 75       3.1.1 Trade credits -27 22 -189 - 290 -290       3.1.2 Loans - - - - - - 3.1.2.1. Long-term - - - - - -        3.1.2.2. Short-term - - - - - - 3.1.3 Currency and deposits -294 231 302 344 - 344 3.1.3.1. Monetary authority - - - - - - 3.1.3.2. General Govt. -1 5 1 2 - 2 3.1.3.3. Banks. -336 179 280 310 - 310 3.1.3.4. Other sectors. 43 47 21 32 - 32        3.1.4 Other assets 4 14 64 21 - 21 3.1.4.1. Monetary authority - - - - - - 3.1.4.2. General Govt. - - - - - - 3.1.4.3. Banks. 4 14 64 21 - 21 3.1.4.4. Other sectors. - - - - - -     3.2 Liabilities 376 937 327 853 544 309       3.2.1 Trade credits - - - - - -       3.2.2 Loans 243 673 368 722 429 293           3.2.2.1 Use of Fund credit and loans from the Fund -10 -8 -75 - 22 -22           3.2.2.2 General Govt. 61 563 439 453 286 167 3.2.2.2.1. Long-term 61 426 109 453 286 167            3.2.2.2.2. Short-term - 137 330 - - -           3.2.2.3. Banks. - - - - - - 3.2.2.3.1. Long-term - - - - - - 3.2.2.3.2. Short-term - - - - - -           3.2.2.4. Other sectors 192 118 4 269 121 148 3.2.2.4.1. Long-term 192 118 4 269 121 148 3.2.2.4.2. Short-term - - - - - -       3.2.3 Currency and deposits 213 149 85 130 - 130         3.2.3.1 Monetary authorities - - - - - -         3.2.3.2 General Govt. - - - - - -         3.2.3.3 Banks 32 -6 17 54 - 54

3.2.3.4 Other sector 181 155 68 76 - 76       3.2.4 Other liabilities -80 115 -126 1 115 -114           3.2.4.1 Monetary authority - - -10 - - - 3.2.4.1.1. Long-term - - -10 - - - 3.2.4.1.2. Short-term - - - - - -           3.2.4.2. General Govt. - -22 - 1 - 1 3.2.4.2.1. Long-term 0 -22 - - - - 3.2.4.2.2. Short-term - - - 1 - 1           3.2.4.3. Banks -13 -7 91 - 44 -44 3.2.4.3.1. Long-term 0  -1  39  - 16 -16 3.2.4.3.2. Short-term -13  -6  52  - 28 -28           3.2.4.4. Other sectors -67 144 -207 - 71 -71 3.2.4.4.1. Long-term -79 80 20 - 10 -10 3.2.4.4.2. Short-term 12 64 -227 - 61 -61   4. Official reserve assets -492 237 1,520 2,463 - 2,463     4.1 Monetary gold - - - - - -     4.2 SDRs 2 1 - 1 - 1     4.3 Reserve position in the Fund - - - - - -     4.4 Foreign currency reserves (in convertible currencies) -673 42 1,215 2,290 - 2,290 4.5. Other claims ( DMB ) 179 194 305 172 - 1723. Errors And Omissions -451 -139 506 86 - 864. Exceptional Financing - -100 100 - - -

Page 19 of 16

Annex B – Pakistan’s Reserves

Gold and Foreign Exchange Reserves

(Million U.S. Dollars )

Foreign Exchange

PERIOD Gold With SBP With Banks2 TOTAL

SDRs Nostro1

2003 Dec. 725 246 10,279 1,314 12,564

2004 Jun. 831 238 10,326 1,760 13,155Dec. 831 243 8,939 2,959 12,972

2005 Jun. 917 227 9,578 2,616 13,338Dec. 917 216 9,010 2,481 12,624

2006 Jun. 1,288 216 10,549 2,537 14,590Dec. 1,288 215 10,424 2,565 14,492

2007 Jun. 1,366 212 13,133 3,213 17,924Dec. 1,760 214 13,158 1,892 17,024

2008 Jun. P 1,957 217 8,360 2,741 13,275

2007 Jun. 1,366 212 13,133 3,213 17,924

Jul. 1,398 212 13,096 3,033 17,739Aug. 1,411 212 13,597 2,693 17,913Sep. 1,560 216 13,660 2,854 18,290

Oct. 1,661 218 14,032 2,460 18,371Nov. 1,648 220 13,326 2,242 17,436Dec. 1,760 214 13,158 1,892 17,024

2008 Jan. 1,942 212 12,329 1,686 16,169Feb. 2,044 213 11,719 1,623 15,599Mar. 1,964 217 10,868 1,727 14,776

Apr. 1,832 221 9,853 1,585 13,491May. 1,863 220 8,472 1,745 12,300Jun. P 1,957 217 8,360 2,741 13,275

1. Excluding FE.13/CRR and Includes Indian Pending Transfers. 2. Including new FCA and Trade Nostro upto Nov. 2002 and excluding Trade Financing w.e.f. Dec. 2002 & over. From Mar. 2007,It includes placement abroad (other than FE-25) and excludes FE-25 placement in Pakistan and other (swaps)

Page 20 of 16

Annex C – Pakistan’s Workers Remittances

4.9 Workers’ Remittances

  (Million US Dollar)

Country 2003- 04 2004-05 2005-06 2006-07 2007-08June

2007 2008

I. Cash 3,826.16 4,152.29 4,588.03 5,490.97 6,448.84 505.44 547.37

USA 1,225.09 1,294.08 1,242.49 1,459.64 1,762.03 140.17 143.57

UK 333.94 371.86 438.65 430.04 458.87 37.45 38.08

Saudi Arabia 565.29 627.19 750.44 1,023.56 1,251.32 96.47 123.67

UAE 597.48 712.61 716.30 866.49 1,090.30 95.39 88.29

Dubai 447.49 532.93 540.24 635.60 761.24 70.27 61.42

Abu Dhabi 114.92 152.51 147.89 200.40 298.80 22.29 24.96

Sharjah 34.61 26.17 26.87 28.86 28.58 2.70 1.91

Other 0.46 1.00 1.30 1.63 1.68 0.13 0.00

Other GCC Countries 451.54 512.14 596.46 757.33 983.39 68.16 90.98

Bahrain 80.55 91.22 100.57 136.28 140.51 11.33 11.41

Kuwait 177.01 214.78 246.75 288.71 384.58 27.67 36.99

Qatar 88.69 86.86 118.69 170.65 233.36 15.97 20.92

Oman 105.29 119.28 130.45 161.69 224.94 13.19 21.66

EU Countries 74.51 101.51 119.62 149.00 176.64 12.47 13.98

Germany 46.52 53.84 59.03 76.87 73.33 6.12 5.01

France 3.64 4.11 8.14 8.94 9.87 0.62 0.87

Netherlands 5.65 8.80 7.00 7.17 9.07 0.64 0.67

Spain 0.78 4.59 3.44 7.58 17.84 1.05 1.45

Italy 2.21 6.74 12.49 12.10 14.03 0.88 1.19

Greece 0.26 1.24 2.76 2.83 5.39 0.29 0.49

Sweden 2.06 2.75 3.60 3.69 5.36 0.27 0.48

Denmark 8.11 10.55 10.87 16.24 19.46 1.38 1.23

Ireland 1.26 3.31 6.70 5.59 15.72 0.44 2.23

Belgium 4.02 5.58 5.59 7.99 6.57 0.78 0.36

Norway 10.22 18.30 16.82 22.04 28.78 2.74 2.60

Switzerland 29.11 22.71 20.50 18.06 22.72 1.29 1.42

Australia 13.66 19.64 25.10 31.24 39.03 2.97 2.92

Canada 22.90 48.49 81.71 87.20 100.62 8.64 8.04

Japan 5.28 6.51 6.63 4.26 4.75 0.28 0.23

Other Countries 497.14 417.25 573.31 642.11 530.39 39.41 33.59

II. Encashment and Profit in Pak. Rs. of FEBCs & FCBCs 45.42 16.50 12.09 2.68 2.40 0.11 0.04

Total (I+II) 3,871.58 4,168.79 4,600.12 5,493.65 6,451.24 505.55 547.41

Page 21 of 16

Annex D – Pakistan’s FDI

4.13 Foreign Direct Investment Classified by

Economic Groups (Million US Dollar)

ECONOMIC GROUPS 2005-06 2006-07 2007-08June

2007 2008 P

Food and Food Packing 53.3 37.5 49.6 19.6 4.0Beverages 6.2 88.8 -1.7 0.1 -0.2

Tobacco & Cigarettes 2.5 389.5 9.2 0.6 0.8

Sugar 5.1 16.2 9.4 0.1 0.0

Textiles 47.0 59.4 30.1 3.4 3.6

Rubber & Rubber Products 4.7 4.3 3.7 0.1 0.1

Paper & Pulp 0.1 1.2 1.1 0.0 0.0

Leather & Leather Products 3.5 3.0 1.8 0.1 0.3

Chemicals 62.9 46.2 78.0 9.1 0.2

Petro Chemicals 9.5 6.3 27.4 0.2 0.4

Petroleum Refining 31.2 155.2 74.5 20.2 5.9

Mining & Quarrying 7.1 23.7 42.3 0.5 9.7

Oil & Gas Explorations 312.7 545.1 634.8 64.4 83.9

Pharmaceuticals & OTC Products 34.5 38.4 45.6 5.3 2.6

Fertilizer - 107.6 3.9 0.0 0.3 0.0

Cosmetics 0.8 0.5 0.1 0.2 0.0

Cement 39.0 33.7 102.5 15.7 3.5

Ceramics 0.4 0.4 1.2 0.0 0.2

Basic Metal 3.1 5.3 1.0 0.1 0.0

Metal Products 4.0 7.8 15.2 1.0 0.0

Machinery other than Electrical 1.2 4.0 5.9 0.2 0.3

Electrical Machinery 1.7 3.4 18.3 3.3 1.9

Electronics 18.1 18.6 27.6 1.9 1.1

i) Consumer / Household 7.8 12.8 22.2 1.5 0.9

ii) Industrial 10.3 5.8 5.5 0.4 0.2

Transport Equipment(Automobiles) 33.1 50.4 111.5 4.2 23.1

i) Motorcycles 3.3 1.4 -0.1 0.0 0.0

ii) Cars 26.7 41.4 95.8 3.6 21.7

iii) Buses,Trucks,Vans & Trailers 3.2 7.7 15.7 0.6 1.4

Power 320.6 204.6 70.3 36.6 4.0

i) Thermal 319.7 201.6 61.5 35.5 2.8

ii) Hydel 0.9 3.0 8.8 1.1 1.2

Construction 89.5 157.1 88.5 8.9 6.8

Trade 118.0 173.4 175.5 26.4 23.6

Transport 18.4 30.2 73.0 5.3 2.0

Tourism 3.4 18.8 6.6 0.2 0.3

Storage Facilities 0.2 18.3 0.6 0.0 0.0

Communications 1,937.7 1,898.7 1,625.3 344.2 335.1

1) Telecommunications 1,905.1 1,824.3 1,438.6 341.4 311.7

2) Information Technology 30.2 71.9 180.7 2.5 22.4

i) Software Development 5.0 5.2 13.7 1.0 1.3

ii) Hardware Development 1.1 4.6 6.6 0.3 0.2

iii) I.T.Service 24.2 62.2 160.5 1.3 20.9

3) Postal & Courier Services 2.4 2.6 6.0 0.2 1.1

Financial Business 329.2 930.1 1,607.6 31.3 724.3

Social Services 3.1 4.3 14.1 0.3 0.0

Personal Services 61.6 84.1 92.9 6.2 4.6

Others 65.5 76.9 109.3 9.2 20.7

TOTAL 3,521.0 5,139.6 5,152.8 619.5 1,262.9

Page 22 of 16

Annex E – Exports

Exports By Selected Commodities(a) State Bank of Pakistan

            (Thousand US Dollars)

COMMODITY 

2007 2008

Nov. P Dec. P Jan. P Feb. P Mar. P Apr. P May. P Jun. P

A. Food Group 180,352 172,145 216,580 238,505 235,619 285,445 333,472 336,10601 Rice 108,650 97,949 131,145 151,868 146,762 188,286 210,909 240,423

A) Basmati 72,862 58,646 71,551 75,595 78,971 118,295 128,549 143,518B) Others 35,788 39,302 59,594 76,274 67,791 69,991 82,360 96,904

02 Fish & Fish Preparations 16,636 15,917 15,876 17,450 17,058 22,570 25,130 21,63203 Fruits 7,776 10,946 19,416 22,277 22,507 15,020 11,059 12,69904 Vegetables/Leguminous Vegetable 8,100 10,923 5,830 6,415 7,944 6,779 5,853 6,34505 Tobacco 214 957 2,111 272 240 313 254 35106 Wheat 0 0 7 206 0 0 0 007 Spices 980 1,096 942 1,074 1,247 1,187 1,478 1,58308 Oil Seeds, Nuts and Kernals 4,530 7,121 7,135 3,423 3,595 3,367 2,208 1,91309 Sugar 0 0 3,714 5,429 5,082 10,567 30,727 8,60110 Meat and Meat Preparations 4,130 2,469 2,443 7,686 5,489 5,225 6,304 6,01711 All Other Food Items 29,336 24,766 27,961 22,408 25,694 32,131 39,550 36,541

B. Textile Group 895,907 785,553 892,460 801,506 815,176 859,179 871,441 915,58612 Raw Cotton 7,495 6,848 5,095 6,792 11,696 12,494 10,158 7,03513 Cotton Yarn 120,949 98,229 99,876 84,764 86,268 87,516 84,831 89,31014 Cotton Cloth 195,537 160,419 191,711 160,375 164,105 174,089 183,938 199,66615 Cotton Carded or Combed 23,806 13,898 29,749 12,812 12,978 21,742 12,940 14,59916 Yarn Other than Cotton Yarn 7,815 7,255 5,278 6,291 4,221 4,125 4,428 7,07717 Knitwear 173,388 157,060 179,968 166,400 163,066 173,614 168,264 202,72118 Bed Wear 114,503 109,398 139,115 127,583 117,926 125,786 133,781 126,38319 Towels 35,887 39,883 32,749 36,567 38,553 38,261 47,823 36,94920 Tents,Canvas & Tarpulin 7,714 6,360 5,837 6,469 4,458 5,932 4,380 7,74321 Readymade Garments 105,723 88,457 88,286 88,611 90,446 93,664 99,809 98,24822 Art,Silk & Synthetic Textile 26,126 25,722 35,034 33,405 30,642 36,668 34,180 50,92323 Madeup Articles(incl.Other Tex 26,507 27,074 32,165 26,814 32,354 32,862 32,878 35,22124 Other Textile Materials 50,457 44,952 47,597 44,622 58,463 52,425 54,032 39,712

C- Petroleum Group 88,753 95,691 114,744 83,845 114,668 145,765 130,830 137,084

25 Petroleum Crude 5,944 11,131 12,648 9,273 2,760 14,425 16,268 25,286

26 Petroleum Products 27,133 26,898 37,018 36,601 63,442 93,283 36,645 57,101

27 Solid Fuel including Naptha 55,676 57,661 65,079 37,971 48,466 38,057 77,917 54,697

D. Other Manufacture 252,306 230,314 265,536 284,968 308,862 336,582 331,455 338,976

28 Carpets,Rugs & Mats 21,088 18,609 18,402 21,970 19,333 20,991 19,387 18,713

29.Sports Goods 33,111 30,542 31,716 29,733 35,136 40,212 39,333 46,489

30 Leather Tanned 46,416 43,275 42,881 38,031 44,372 45,980 48,175 50,827

31.Leather Manufactures 22,533 22,691 26,213 20,133 25,789 24,695 22,655 27,400

32.Footwear 6,072 7,236 10,766 11,413 9,080 9,037 9,473 6,508

33 Surgical Goods & Medical Instr 21,427 21,645 18,754 20,947 23,927 26,186 24,013 29,233

34 Cutlery 2,270 2,672 3,473 3,295 2,781 2,808 3,202 3,360

35 Onyx Manufactured 1,390 1,483 1,402 1,225 1,561 1,557 2,026 1,384

36.Chemical and Pharmaceutical Products 40,963 40,029 53,889 63,901 59,387 70,524 71,852 72,503

37.Engineering Goods 22,481 18,615 26,636 27,984 29,446 29,256 35,356 31,181

38 Gems 552 237 674 405 578 374 289 421

39 Jewellary 1,773 915 1,466 1,476 2,862 5,886 1,592 1,516

40 Furniture 1,272 638 949 756 1,250 777 793 708

41 Molasses 1,477 3,402 2,191 6,381 5,100 13,553 5,110 5,168

42 Handicrafts 27 1 65 50 121 6 42 7

43 Cement 26,231 15,725 23,102 35,078 44,800 40,519 44,712 40,053

44 Guar and Guar Products 3,222 2,599 2,957 2,191 3,339 4,221 3,445 3,504

E. All Others 70,174 68,196 72,682 62,576 76,941 76,605 83,665 91,373

Export Receipts (Banks) 1,487,491 1,351,900 1,562,002 1,471,401 1,551,266 1,703,576 1,750,864 1,819,126

Other Exports 42,789 168,523 71,185 140,998 281,521 158,146 208,348 170,168

Total Export BOP 1,530,280 1,520,423 1,633,187 1,612,399 1,832,787 1,861,722 1,959,212 1,989,293

Source: Statistics & Data Warehouse Department, SBP

Page 23 of 16

Annex F – Imports

4.16 Imports By Selected Commodities(a) State Bank of Pakistan

            (Thousand US Dollar)

COMMODITY 2007 2008Nov. P Dec. P Jan. P Feb. P Mar. P Apr. P May. P Jun. P

A. Food Group 244,497 259,888 436,593 348,150 429,140 412,590 256,991 248,2021.Milk And Cream Incl For Infants 4,659 3,651 7,182 6,058 7,723 4,620 4,026 5,3292.Wheat Unmilled 0 17,209 144,098 94,878 179,901 134,727 0 03.Dry Fruits 4,951 4,279 4,325 5,567 7,201 5,097 4,602 3,5704.Tea 11,287 12,438 10,921 17,358 19,303 17,714 19,085 14,7315.Spices 4,736 4,069 5,476 4,662 5,326 7,871 8,595 5,6856.Soyabean Oil 17,621 16,185 7,660 8,055 4,060 0 520 07.Palm Oil 123,077 132,421 164,819 126,398 113,440 145,013 146,243 99,8328.Sugar 945 618 256 476 1,090 879 861 4849.Pulses 12,045 10,737 13,245 10,482 14,049 19,545 16,332 19,20410.All Others Food Items 65,177 58,280 78,611 74,216 77,047 77,124 56,727 99,366

B. Machinery Group 519,864 448,016 510,896 422,624 501,408 523,505 484,959 587,98211.Power Generating Machinery 125,879 100,260 96,835 60,688 81,869 84,525 113,285 116,65512.Office Mach.Incl.Data Pros. Equp. 23,200 26,248 21,861 16,346 19,468 19,357 27,341 21,10613.Textile Machinery 30,012 35,281 24,968 36,687 46,759 43,317 37,112 34,66614.Construction & Mining Machinery 4,670 12,831 3,604 13,017 4,032 7,132 7,559 7,70615.Electrical Machinery & Apparatus 68,871 58,018 117,910 54,848 104,011 79,102 46,110 112,45516. Telecom 117,048 84,798 84,061 123,080 89,806 131,701 108,653 124,61117.Agricultural Mach. & Implement 16,621 8,483 12,016 12,891 22,275 14,393 7,927 9,43518.Other Machinery 133,563 122,097 149,642 105,067 133,188 143,978 136,972 161,347

C. Transport Group 101,640 83,595 90,757 77,757 100,293 99,955 110,856 128,40119. Road Motor Vehicles 89,626 71,856 72,840 59,418 65,555 85,024 68,247 70,648

19.1 Completely Built Unit (Cbu) 25,736 16,976 10,659 18,906 15,405 16,190 14,697 18,69719.2 Completely Knocked Down (Ckd) 55,482 44,537 51,133 33,996 43,185 59,379 46,874 42,562

19.3.Parts 6,861 9,041 6,206 5,000 4,950 7,766 5,105 5,682

19.4.Others 1,547 1,302 4,842 1,517 2,015 1,689 1,571 3,70620.Aircrafts,Ships And Boats 7,459 9,870 16,807 14,493 31,708 12,392 38,761 55,33521. Others Transport Equipments 4,555 1,869 1,110 3,846 3,030 2,539 3,849 2,418

D. Petroleum Group 939,494 936,667 808,632 819,907 797,202 1,086,402 1,458,854 1,097,58522.Petroleum Products 434,589 497,755 488,179 446,581 500,824 728,568 869,475 808,52823.Petroleum Crude 504,905 438,912 320,453 373,326 296,378 357,834 589,378 289,056

E. Textile Group 107,179 158,444 309,983 231,066 166,903 169,486 125,135 104,35824.Raw Cotton 45,242 94,265 230,824 178,719 113,667 105,537 56,155 43,17925.Synthetic Fibre 23,737 27,865 34,075 21,051 21,229 23,391 23,707 20,51826.Synthetic & Artificial Silk Yarn 23,864 21,944 26,625 17,885 17,214 23,600 26,033 22,08827.Worn Clothing 614 642 416 561 553 839 736 68328.Other Textile Items 13,720 13,728 18,042 12,849 14,240 16,119 18,505 17,890

F. Agri. & Other Chemical 501,130 339,340 462,508 384,669 504,529 493,172 386,967 437,464

29.Fertilizer Manufactured 159,420 38,449 33,378 39,689 108,963 70,814 24,737 25,370

30.Insecticides 10,270 9,591 8,256 5,059 9,536 7,940 8,788 7,21931.Plastic Materials 93,548 94,994 118,239 101,621 108,932 108,249 90,612 107,52532.Medicinal Products 30,021 22,594 29,350 31,854 29,906 32,178 29,508 38,01633.Others 207,871 173,712 273,284 206,447 247,192 273,991 233,323 259,335

G. Metal Group 168,646 171,840 206,577 203,520 161,604 213,505 240,239 212,57934.Gold 0 0 0 52 0 9 0 035.Iron And Steel Scrap 35,242 40,037 45,101 33,978 27,389 34,548 42,613 45,83836.Iron And Steel 85,600 95,686 120,272 130,708 89,977 139,506 149,803 120,60137.Aluminium Wrought & Worked 16,482 10,072 12,301 11,610 14,342 11,042 15,421 19,65438.All Other Matals & Artificials 31,322 26,044 28,903 27,172 29,895 28,401 32,402 26,485

H. Miscellanous Group 70,241 47,532 67,495 56,432 68,044 68,193 61,759 60,32139.Rubber Crude Incl.Synth/Reclaim 9,891 8,495 9,589 9,020 11,191 13,552 12,496 10,67440.Rubber Tyres & Tubes 12,961 8,560 12,449 9,880 8,800 8,668 8,396 8,74141.Wood & Cork 9,019 3,608 5,966 4,731 5,181 5,591 6,352 8,68842.Jute 4,128 1,364 4,677 3,475 6,328 7,315 714 4,33543.Paper&Paper Board & Manf. 34,242 25,506 34,814 29,326 36,545 33,067 33,800 27,883

I. All Others 301,648 224,623 301,628 335,804 275,323 228,543 271,920 295,075Import Payments (Banks) 2,954,339 2,669,945 3,195,069 2,879,928 3,004,445 3,295,353 3,397,681 3,171,967

Other Imports 27,428 280,856 157,239 71,394 544,470 110,251 -156,788 267,716

Total Import BOP 2,981,768 2,950,802 3,352,307 2,951,322 3,548,916 3,405,604 3,240,893 3,439,682

Source: Statistics & Data Warehouse Department, SBP

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