Pakistan Balance of Payment, Current and Capital Accounts

Kamran Tabish (15770)

Ghulam Abbas (14087)

Faizan Khan (15568)

Nehreeza Aklaq (15082)

Nida Tariq (7009)

Distribute Topic in Group 1. Faizan Khan Balance of Payment (BOP) History of Balance of Payment Balance of Trade Difference between BOP & BOT

2. Nehreeza Akhlaq Terminologies of Balance of Payment

5. Nida Tariq Measures to Remove deficit Balance of Payment. BOP Balance of payment Future Expectations.

3. Kamran Tabish Major Exports & Imports of Pakistan

4. Ghulam Abbas Problems of balance of Payment in

Pakistan. Factors responsible for Deficit Balance

of payment

Outline/Contents Balance of Payment (BOP) History of Balance of Payment Balance of Trade Difference between BOP & BOT Terminologies of Balance of Payment Major Exports & Imports of Pakistan Problems of Balance of Payment in Pakistan Factors responsible for Deficit Balance of payment Causes of Adverse or Remove deficit BOP of Pakistan Balance of Payment Future Expectations Suggestions Conclusion.

Balance of Payment (BOP)

Balance of payments is a statistical statement designed to provide for a specific period of time a systematic record of an economy’s transactions with the rest of the world.

It is a record of economic transactions between resident of one country and the rest of the world during the course of one year.

Its major components are the Current Account and the Financial Account.

BOP (cont’d)

All trades conducted by both the private and public sectors are accounted for in the BOP in order to determine how much money is coming in and going out from a country

BOP (cont’d)

The balance of payment like all balance sheets must balance.

The items which lead to an inflow of foreign earnings are placed on the credit side of the balance sheet

The items which give rise to an outflow of foreign currency are placed on the debit side of the balance sheet

Surplus & Deficit of BOP Surplus/Favorable BOP:

Payments < Receipts

Balanced/Equilibrium of BOP

Payments = Receipts

Deficit/Unfavorable BOP:

Payments > Receipts

History of BOP

Pakistan’s BOP situation has not been satisfactory since independence. The country with the exception of five years has been running a persistent deficit in her BOP on current account

Years of Surplus in BOP of Pakistan

These years are as follows:1950-511954-551955-561958-591959-602002-04

After the surplus years, Pakistan has been facing a deficit in its BOP

1996-97 ($3.82 billion) 1997-98 ($1.92 billion) 1999-2000 ($ 1.14 billion) 2006-07 ($6.878 billion) 2007-08 ($13.735 billion) 2008-09 ($8.549 billion)

Deficit in Pakistan BOP

Balance of Trade

BOT is the difference between the value of exports and imports of physical items (goods) of a country during a given period of time

Surplus & Deficit of BOT Surplus/Favorable BOT:

Value of exports > Value of imports

Balanced/Equilibrium of BOT:

Value of exports = Value of imports

Deficit/Unfavorable BOT:

Value of exports < Value of imports

Difference Between BOP & BOT

BOPBOP refers to the sum of both the balance on ‘visible transactions’ as well as ‘invisible items’. It also includes capital and financial accounts

BOTBOT refers only to the merchandise balance or balance on ‘visible transactions’ alone

Terminologies of BOP

The terminologies of BOP are divided into following three categories:

The Current Account

The Capital Account

The Official Account/Reserve

The Current Account

Consist of four main components Trade balance – Net Services Balance – Net Income Balance – Current Transfer –

Current Account (cont’d)

Comparison of Pakistan current account with others countries.2010

Country Current Account Balance U.S ($)

Pakistan -1,640,999,936

China 272,499,998,720

Japan 166,500,007,936

Kuwait 38,200,000,512

Denmark 14,350,000,128

The Capital Account

In capital account, international monetary flows related to investment in business, real estate, bonds and stocks are documented

The capital account is the net result of public and private international investments flowing in and out of a country.

The Net Capital Account in Pakistan

Reported Years Net Capital Account U.S ($)

2008 148,000,000.00

2009 484,000,000.00

2010 132,000,000.00

Comparison of Pakistan Capital Account with Others Countries 2010

Country

Pakistan 132,000,000.00

China 5,207,525,000.00

United Kingdom 5,182,095,000.00

Canada 4,620,237,000.00

Kuwait 2,158,031,000.00

The Official Reserve Assets Account

Official Reserve transactions consist of movements of international reserves by governments and official agencies to accommodate imbalances arising from the current and capital accounts

End Period Net Reserve with SBP

Net Reserve with Bank

Total Liquid Ex Reserve

2007-2008 8,577.0 2,821.7 11,398.7

2008-2009 9,117.9 3,307.3 12,425.2

2009-2010 12,958.2 3,792.2 16,750.4

Major Exports and Imports of Pakistan

Exports

Exports mean selling of goods and services to other countries to earn foreign exchange

Export for the fiscal year 2010-11 are estimated to be around $ 24.6 billion, against the Annual Plane 2010-11 target of $19.9 billion.

Exports (cont’d)

Pakistan exports were worth 2034 Million USD in February of 2012.

Pakistan exports rice, furniture, cotton fiber, cement, tiles, marble, textiles, clothing, leather goods, sports goods, surgical instruments, electrical appliances, software, carpets and rugs and food products.

Pakistan now is being very well recognized for producing and exporting cements in Asia and Mid-East.

Main exports partners are European Union (UK), United States, UAE, and Afghanistan.

Exports of Pakistan

Imports

Imports mean buying of goods and services from other countries to fulfill the domestic needs

Pakistan’s imports during July-March 2010-11 increase by 15.1% to $25.9 billion over the corresponding period of previous year $22.5 billion.

Imports (cont’d) Pakistan import was worth 3649 Million USD in

February of 2012. Pakistan imports mainly petroleum, petroleum

product, machinery, plastics, transportation equipment, edible oils, paper and paperboard, iron and steel and tea.

Its major import partners are: European Union, China, Saudi Arabia, United Arab Emirates and United States.

Imports of Pakistan

Problems of Balance of Payment in Pakistan

Pakistan's balance of payments situation has not been satisfactory since Independence. The main factors contributing adverse balanced of payments in Pakistan is due to: Import of capital goods like machinery, new technology etc. for rapid industrialization has adversely affected the balance of payments in Pakistan. Rising in oil prices has adversely affected the balance of payments in Pakistan.

(cont’d)

Increase in import payments for fertilizer, machinery, edible oil etc. Pakistan's society is consumption oriented and most of the consumer goods are important from abroad.Import of industrial Raw material and machinery. Higher import unit values than export unit values. Higher payments for freight, insurance, transports and trade by Pakistan. Political instability, floods, droughts, strikes etc. cause reduction in industrial production

Factors of Deficit Balance of Payment Substitutes Increase in Population Revenue Oriented Tariffs Trade Restrictions Import of Capital Good Inflation Political Uncertainty Import of Oil and Fertilizer Repayment of Debt and Interest Huge Import of Invisible Goods Technological Change in Method of Production Change Country Nation Income

Measures to Correct/Remove deficit balance of payment

Following are the measures to remove deficit BOP of Pakistan:

Export Led Growth:1. Export plays an important role in the growth of the economy

2. Promotion of labor Intensive Industries

3. Diversification of Export

4. Decrease in Consumption

5. High Quality Goods

6. Price of Goods

7. Packing

8. Creation of export agency

9. Joint Venture

Measures to Correct/Remove deficit balance of payment (Contd.)

Reduction in Imports

Reduction in Invisible Import

Balance of Payment Future Expectations

Foreign Direct Investment (FDI) may increase if there is political stability and continuation of policies.

If the IMF , World Bank and Asian Development Bank release their loans for Pakistan as promised , than our B.O.P may show some improvement.

Friends of Pakistan has promised significant monetary support. If it realizes than it will have a positive effect.

Balance of Payment Future Expectations

Our Export may increase and BOP may show good result because of natural disasters in Australia, Japan etc. so the demand prices of our raw material will increase and than Pakistan can earn substantial profit from there and can its BOP.

Chine’s investors are still showing confidence in investing Pakistan’s economy. If this remains constants in upcoming year our BOP will improve

In short f our government will pay proper attention in boosting exports our BOP will show positive results in future.

Pakistan must increase its production so that Surplus can be exported.

Pakistan don’t need to enter IMF & World Bank Programs.

New Water Reservoirs need to be made.

Pro Active Export Policy and better marketing of Surplus goods.

Electricity crises needs to be solved urgently so that open mills and factories give more production and closed units open again.

Pakistan needs a leadership with competence, very strong nerves, clear understanding of the issues and psyche of the other side of the table, ability understanding of the issues and psyche of the other side of the table, ability to negotiate with the super powers and come out with a most suitable to negotiate with the super powers and come out with a most suitable package.

SUGGESTIONS

“MAY ALMIGHTY ALLAH BLESS OUR COUNTRY PAKISTAN”

AMEEN