SHAH ABDUL LATIF UNIVERSITY

KHAIRPUR

ASSIGNMENT TOPIC:
“BALANCE OF PAYMENTS AND
BALANCE OF PAYMENTS PROBLEMS IN
PAKISTAN”

Submitted by:
Ahtisham Rajput-107
Ibrar Ahmed Qazi-136
Zain-ul-Abdin Shaikh-196

CLASS: BBA III (Morning)

 DEPARTMENT OF BUSINESS
ADMINISTRATION
ACKNOWLEDGEMENT

It is a report on the topic

“Balance of payments and
balance of payments problem in
Pakistan”.

Thanks to ALMIGHTY ALLAH

who supported us in our every
way and it is ALLAH blessing
that we have completed this
report

Secondly we would like to

thanks our parents who really
supported us in our hard and
fast time and it is their blessing
that we were able to write.

We are grateful to our respected

teacher Sir Mohammad Saleh
Memon for providing us the
opportunity to share our ideas in
the shape of report and for
facilitating us in our difficulties.
In last we would like to
appreciate the efforts of our
friends, Faraz Sheikh, Javed Iqbal
Rajput and Sadil Sardar khan
while preparing this report.
 DEDICATION

We dedicate this report to Ahtisham’s uncle LATE IMRAN RAJPUT

who recently passed away from this mortal world. May Almighty
Allah rest his soul in the heaven. Ameen.

CHAPTER NO: CONTENTS

PAGENO:

1.0 Introduction To Balance Of Payments

1

1.1 Balance Of Payments

1
 1.2 Pakistan’s Balance Of Payments Performance
1
1.3 Reasons Of Surplus In The Above Years
1

2.0 Terminology Of Balance Of Payments

2

2.1 Current Account

2
2.2 Position Of Pakistan’s Current Account
2
2.3 Capital And Financial Account
3
2.4 Position Of Pakistan’s Capital and Financial
Account
3
2.5 Foreign Reserves
4
2.6 Position Of Pakistan’s Foreign Reserves
4
2.7 Current Bop Position
4-5
2.8 Balance Of Payment-Future Expectations
5

3.0 History Of Pakistan’s Export Performance

Exports From 1947 To 1971
6

3.1 Pakistan’s Export Performance After

Separation Of Bangladesh
6-7
3.2 Exports Of Pakistan
7
3.3 Major Exports Of Pakistan
8
3.4 Composition Of Pakistan’s Exports
8
3.5 Direction Of Pakistan’s Exports
9
 3.6 Current Position Of Export Of Pakistan
9
3.7 Imports Of Pakistan
10
3.8 Composition Of Pakistan’s Imports
10
3.9 Major Sources Of Pakistan’s Imports
10-11
3.10 Recent Trend Of Imports
11
3.11 Summary Of Imports And Exports
11

4.0 Problems Of Pakistan Balance Of Payment

12

4.1 Dependence On Textile

12
4.2 Import Oriented Industry
12
4.3 Tough Competition In International Market
12
4.4 Political Uncertainty
12
4.5 Increase In Prices Of Inputs
12
CHAPTER NO: CONTENTS
PAGENO:

4.6 Fiscal Policy

12
4.7 Exports Of Primary Goods And Imports
13
Of Finished Goods
4.8 Energy Crisis
13
4.9 Dependence On Foreign Assistance
13
4.10 Natural Disasters
13
4.11 Shortage Of Availability Of Credit To
 Private Sector
13
4.12 Limited Countries Exports
13-14
4.13 Strikes And Processions
14
4.14 Rise In Freight Rates
14
4.15 Consumption Oriented Society
14
5.0 Impacts Of Balance Of Payment Deficit On Economy
15

5.1 Foreign Reserves Of Country Shrink

15
5.2 It Leads Us To Borrow Money From
Other Financial Institutions
15
5.3 Foreign Earning Will Decrease
15
5.4 Country’s Currency Value May Depreciate
16

6.0 Suggestions To Overcome Balance Of Payment

Deficit 17

6.1 Improve The Technology

17
6.2 Exploration Of New Markets
17
6.3 Ban On Strikes And Processions
17
6.4 Law And Order
17
6.5 Brand Oriented Marketing
17
6.6 Cost Of Doing Business
18
6.7 Dependence On Textile Sector Exports
18
 6.8 Minimize Expenditure On Importing Services
18
6.9 Export Of Finished Goods Rather Than
Primary Goods
18
6.10 Resolution Of Energy Problem
18
6.11 Improved Fiscal Policy
18
6.12 Improved Infrastructure
18

CONCLUSION
19

REFERENCES
20

TABLE OF TABLES

Table Page
TABLE NAME
number number

2.1 Current Account 3

2.2 Capital And Financial Account 3

2.3 Foreign Reserves 4

3.1 Exports Promotion Schemes 6

3.2 Pakistan’s Exports 7

3.3 Pakistan’s Major Exports 8

3.4 Composition Of Exports 8

 3.5 Major Exports Markets 9

3.6 Structure Of Imports 10

3.7 Composition Of Imports 10

3.8 Major Sources Of Imports 11

5.1 Pakistan’s Currency Rate 16

1.0 INTRODUCTION TO BALANCE OF PAYMENTS

There is no country in this world which produces every thing that it needs. So
every country therefore, tries to produce those commodities in which it has
competitive advantage then countries exchange their commodities produced b the
other countries e.g. as Pakistan export cotton, rice etc in other countries and in
return it import those goods which it cannot produce or don’t have competitive
advantage as Capital goods, edible oil etc. so as we maintain our personal business
record similarly a country also maintain its record in the shape of balance of
payment.

1.1 BALANCE OF PAYMENTS: “It is a record of economic transactions

between residents of one country and the rest of the world during the course of one
year. The balance of payments 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, whereas the items which give rise to an outflow of foreign currency
are placed on the debit side”1.

1.2 PAKISTAN’S BALANCE OF PAYMENTS

PERFORMANCE: Pakistan balance of payment situation has not been
satisfactory since independence. The country with2 the exceptions of 5 years i.e.
(1950-51, 1954-55, 1955-56, 1958-59, and 1959-60) has been running a constant
deficit in his balance of payment n current account. The deficit in current account

1
Economics of Pakistan by Professor M. Saeed Nasir chapter International trade page 183.
2
Economics of Pakistan by M. Seed Nasir edition 2009-10, chapter international trade page
number 184.
is being met by short and long term loans from the other countries or from
institutes as International Monitory Fund (IMF).

1.3 REASONS OF SURPLUS IN THE ABOVE YEARS:

• The surplus of Rs: 578 crore in 1950-51 in BOP was mainly due to the
Korean War.
• The favorable BOP in the year 1954-55 amounting to Rs: 9.9 crore was
marginal. However, the surplus on current account was due to devaluation
of rupee and greater trade restrictions on imports.
• While in 1958 to 1960 BOP was in surplus due to introduction of Bonus
vouchers.
Excluding the five years stated above, Pakistan has been facing a deficit in its
BOP.
“The current account deficit in BOP for the year 1996-97 was $3.28 billion. It has
been down to $ 1.92 Billion during 1997-98 and $1.14 billion in 1999-2000.
Pakistan’s current account balance was favorable in 2002 to 2004. However it
slipped again into danger zone in 2004-05 and 2006-07 due to higher imports of
oil and machinery. BOP deficit increased to $ 13.735 billion during 2007-08
against $ 6.878 billion in 2006-07. During 2008-09 (July- April) the deficit
reduced to $ 8.549 billion against $11.173 billion in the corresponding year period
last year but in 2009-10 this deficit reduced to $3.6 billion”1 and now “currently
we have a trade surplus of 26 million in our current account which is a good
sign”3.

3
Kawish Newspaper, 20 January 2011 page number 3.
 2.0 TERMINOLOGY OF BALANCE OF PAYMENTS

In balance of payment the credit is Exports, while debit is Imports.

• If the Exports exceed imports we call it trade surplus.

• If the imports exceed exports we call it trade deficit.
• If the exports equal to imports we call it trade balance/ equilibrium.

The main items which are included in the balance of payments are given below”:

• CURRENT ACCOUNT
• CAPITAL ACCOUNT
• OFFICIAL RESERVE

Now each segment of balance of payment is explained below:

2.1 CURRENT ACCOUNT: consists of four main components it

summarizes the
• Trade Balance – Sum of exports and imports of merchandise goods.
• Net Services Balance – Sum of receipts and payments on export and
imports of services such as travel, freight, insurance, transportation, etc.
• Net Income Balance – Sum of all receipts and payments on interest on
loans, profits, dividends, royalties, etc.
• Current Transfers – Sum of all private and official transfers such as
workers’ remittances through banks, receipts through Exchange
Companies, foreign currency deposits of residents.

2.2 POSITION OF PAKISTAN’S CURRENT ACCOUNT: Our

current account has shown improvement as in 2007-8 trade deficit was $13.8
billion and in 2009-10 it reduces to $3.06 billion and recently “it now turns
into a surplus of 26 million which is a good sign”.

• Our export and imports has shown improvement as our exports of goods
has increased while imports of goods has decreased and due to this our
trade deficit
reduced from $11.1 billion to $9.9 billion See (Table 2.1).

• Our servicing account also shown improvement as its deficit was $3.21
billion and it reduces to $1.98 billion in 2009-10 See (Table 2.1).

• Our income account although did not show improvement as it showed

constant decline from 2007-08 See (table 2.1).
 • Our remittances has also shown increment as in 2008-09 it contribute to
$635 billion while in 2009-10 it reached to $ 7.30 billion See (table 2.1) .

Source: Table 2.1 Pakistan economic survey 2009-10, chapter balance of payment page number
101, and table number: 7.11.

So over all our current account has shown improvement as it can be seen with the
improvement that takes place in these two to three years.

2.3 CAPITAL AND FINANCIAL ACCOUNT: Capital and Financial

Account Consists of the sum of all foreign direct and portfolio investment, foreign
long, medium and short term loan repayments of principal and disbursements of
loans, foreign currency account of non residents.

2.4 POSITION OF PAKISTAN’S CAPITAL AND FINANCIAL

ACCOUNT: Our capital account has shown improvement as compare to 2008-
09 but this improvement is not satisfactory. Our financial account has not shown
any improvement what so ever and it is constantly declining See (table 2.2).

• Pakistan has invested $11 million I 2009-10 in other countries which is a

good sign but on the other hand foreign investment is constantly declining
from 2007-08 to 2009-10 and behind decline in foreign investment major
reason are law and order situation and bad governance.
Source Table 2.2: Pakistan economic survey 2009-10, chapter balance of payment page number
101, table number: 7.11.

2.5 FOREIGN RESERVES:

2.6 POSITION OF PAKISTAN’S FOREIGN RESERVES: Our

foreign reserves has increased incredibly after 11 September 2001 incidence
and they cross $15 billion which was the highest foreign reserves in the history
that were held by Pakistan in 2006-07 and soon after one year we loss our
foreign reserves because of high import of oil and other commodity. Recently
according to SBP report we liquid foreign reserve of $17.4 billion See (table
2.3).

Source Table 2.3: http://www.sbp.org.pk/ecodata/forex.pdf

Although our foreign reserves right now are the highest in the history of Pakistan
but there is major contribution of IMF- International Monitory Fund borrowed
money and when in the month of June 2011 Pakistan will pay the loan to IMF its
foreign reserves will shrink and the condition of borrowing will become again.

2.7 CURRENT BOPs POSITION: Pakistan’s Current Account Deficit

(CAD) narrowed down by 65.9 percent as a result CAD declined to $ 3.06 billion
in July-April 2009-10 as against $ 8.98 billion last year (see Table.1.0). This
decline in CAD during July-April 2010 was contributed by the improvement in
trade, services, income & current transfers during the period. Specifically, decline
in imports and a strong increase in current transfers played a fundamental role in
bringing down the current account deficit. Decline in trade deficit is due mainly to
a fall in imports complimented by overall improvement in exports during July-
April 2009-10. The trade deficit improved by 18.3 percent during this period.
Improvement in services and income account also played vital role in bringing
deficit minimal.
The improvement in income account is based on a decline in investment income
outflows & fall in net interest payments. Income account deficit declined by 29.9
percent during July-April 2009-10 over the same period last year. The deficit in
services trade shrank by 39.9 percent during July-April 2009-10. The increase in
services exports is mainly led by communication, financial, government and other
business services. Among these four groups, communication services exports
exhibited significant growth of 80.2 percent during July-April 2009-10 over the
corresponding period last year. This growth in communication services exports
was mainly owed to step taken by Pakistan Telecom Authority (PTA) to curb
illegal traffic in the country. While transportation and travel remained major
categories among the all groups of services export, and these sectors registered
negative growth during July-April 2009-10 because of high oil prices.

2.7BALANCE OF PAYMENT-FUTURE EXPECTATIONS: few

future BOP expectations are given below:

• 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.

• Pakistan’s B.O.P is relying on foreign element and support. If this

dependence diminishes than B.O.P deficit would decrease otherwise its
future looks bleak.

• Our Prime Minister Promised that energy crisis will come to an end in the
Month of March, 2011 if this happen it will have a good impact on
Pakistan’s BOP.
 • Our exports may increase and BOP may show good results because of
natural disasters in Australia, Japan etc. so the demand and prices of our
raw material will increase and than Pakistan can earn substantial profit
from there and can its BOP.

• “Fruits exports from Balochistan, Pakistan can bring foreign earning as

there is strong demand of Pakistani fruits in the countries like Hong Kong,
Netherlands, India, Srilanka, Kenya, Malaysia; Japan etc. by selling this
thing Pakistan can improve its BOP”4.

• China’s investors are still showing confidence in investing Pakistan’s

economy. If this remains constant in upcoming years our BOP will
improve.

• As recently oil prices reached $104 per barrel it will hurt our BOP because
our major import is based on oil and petroleum.

• In Short if our government will pay proper attention in boosting exports

our BOP will show positive results in future.
3.0 HISTORY OF PAKISTAN’S
EXPORT PERFORMANCE EXPORTS
FROM 1947 TO 1971:

Pakistan at the time of partition in 1947 consisted

of 2 wings East Pakistan and West Pakistan. The
economies of India and Pakistan were
complementary before independence the area
which comes to the share of Pakistan was mainly
supplying raw material like jute from East Pakistan
and cotton from West Pakistan to India and
obtained manufactured consumers goods in return.
This pattern of trade continued for sometime but
after the creation of Pakistan, India purchased
about 60% of total export of Pakistan. But there
was a trade deadlock with India in September 1949
when Pakistan refused to devaluate his currency.
The sudden refusal of India to purchase Pakistani
jute and cotton created difficulties for the
government of Pakistan. It however, accepted the
challenge and diversified its export to other
4
Pakistan and gulf economist, how to boost exports? Feb 14-20, 2011 ,Exporting fruits from
Balochistan , page number 21.
 countries like UK, Belgium, France, and Italy. The
earning from commodity exports slightly fell from
542.4 million 1948-49 to 535.1 million in 1949-50.
The exports of Pakistan’s raw material suddenly
increased due to the Korean War in June 1950. The
exports of Pakistan increased to Rs: 1342.5 million
in 1950-51 but export earning decline to Rs: 491.4
million 1954-55 partly due to fall in the prices of
the raw material in the international market. In
order to increase export government of Pakistan
devalued its currency in July, 1955. By this act of
government export increased from Rs: 491.4
million in 1954-55 to Rs: 742.40 million in 1955-
56. Then there was a continuous decline in the
exports and foreign earning to a low figure of Rs:
542.9 million in 1961-62. The government of
Pakistan launched various scheme to promote
export of raw material and manufactured goods.
The table of these various schemes is given below:

EXPORTS PROMOTION SCHEMES

Scheme Name Year
Export incentive scheme 1954
Export promotion scheme 1955
Export bonus scheme 1959
Export credit guarantee scheme 1962
Export promotion council 1964
Export market development fund 1966
Pakistan house international 1966
Source Table 3.1: Economics of Pakistan by Professor
M.Saeed Nasir, chapter International Trade page number 178,
last paragraph.

By these above given measures exports increased

from Rs: 542.9 million in 1961-62 to Rs: 1998.4
million in 1970-71.

3.1 PAKISTAN’S EXPORT

PERFORMANCE AFTER
SEPARATION OF BANGLADESH:
The separation of Bangladesh in December 1971
created problems for the people’s party led by late:
zulfiqar Ali Bhutto government took following
measures to adjust BOP.
1> Devaluated rupee to 131%, 2> Trade
agreement with Muslim countries.

Since 1977-81 there was a sustained increase in

exports, however in 1882-83 export declined by
17%. In 1984-85 exports decline by 20%.
Pakistan’s exports grew at an average rate of in the
1990’.

3.2 EXPORTS OF PAKISTAN: Exports

amounted to $ 15.9 billion in July-April 2009-10 as
against $ 14.7 billion in same period last year,
showing a growth rate of 8.0 percent compared to
the negative growth rate of 3.0 percent in same
period last year. Higher quantity export of items
like rice, fruits and raw cotton due to their
improved production in country along with
recovery of international demand and exchange
rate depreciation were major reasons for the
increase in exports during the improved export.
Source Table 3.2: Economic survey of Pakistan 2009-
10, chapter name balance of payment page 90 and table
number 7.1
3.3 MAJOR EXPORTS OF PAKISTAN:
During current fiscal year 2009-10, country’s major
exports followed previous years’ trend of being
concentrated in five items (cotton manufacturers,
leather, rice, synthetic textile and sports
goods).These five categories accounts for 70.9
percent share in the total exports during July-March
2009-10 (see Table 3.3). Intensity of concentration
further deepens when analyzed within these five
export items, as 51.3 percent contribution in the
total exports came from cotton manufacturers
during July-March 2009-10.

Source Table 3.3: Economic Survey of Pakistan 2009-

10, chapter name balance of payment page 93 and table
number 7.2

3.4 COMPOSITION OF PAKISTAN’S

EXPORTS: The share of primary, semi-
manufactured and manufactured products in
composition of exports since 1994-95 has remained
heavy. But now large share of Pakistan’s exports
constitute of manufactured goods (see
Table.3.4).This indicates slow movement towards
technology and innovation. More recently, the
increase in primary commodities exports improved
production of cotton crops .The manufactured
goods share decline to 3% in 2009-2010 and the
main factor was energy crisis faced by the export
sector.
Source Table 3.4: Economic survey of Pakistan 2009-
10, chapter name balance of payment page 94 and table
number 7.4

3.5 MAJOR SOURCES OF

PAKISTAN’S EXPORTS: Pakistan has
achieved significant geographical diversification of
its exports. During the year 2001-2002, 54.9
percent of Pakistani exports were concentrated in
seven major exports markets (USA, Germany,
Japan, UK, Hong Kong, Dubai and Saudi Arabia)
and the remaining exports share of 45.1 percent
consists of all other countries. This direction of
export market continuously declined since 2001-
2002 and presently 31.6% share of exports is held
by six major countries (see Table 3.5) with the
remaining countries making up 68.4 percent of
exports. The reliance on fewer exports markets is
the main constraint behind less exports of Pakistan
during July-March 2009-10. Which suggests that
the USA captured the 17.3 percent share in all
export markets of country and still continued to
sustain the largest export market of the country.

Source table 3.5: Economic survey of Pakistan 2009-10,

chapter name balance of payment page 95 and table number
7.5

3.6 CURRENT POSITION OF EXPORT

OF PAKISTAN: “The government has revised
the export target for the current financial year
 2010-11 at US $22 billion from $20 billion said
Makhdoom Amin Faheem Federal Minister of
Commerce in the new cabinet. The revised target
has been set because of record breaking exports
during the last three months, culminating in an
achievement of $2.329 billion in the month of
January 2011 in his if the export move with this
pace shortly we will achieve
the target of $22 billion”5.

5
Pakistan and gulf economist, how to boost exports? Feb 14-20,2011 , Export target for 2011
revised to $22 Billion, page number 7,
3.7 IMPORTS OF PAKISTAN: Import
growth during July-April 2009-10 declined by 2.8
percent against the corresponding period last year.
Lower international prices, compressed domestic
demand, exchange rate depreciation and improved
production of cotton crops remained the major
factors behind less imports. Among the major
import groups: food, machinery and telecom
groups witnessed a decline during July-April 2009-
10 while Petroleum, consumer durables, raw
materials and other items showed increment. So
over all mixed trend is observed in imports of
Pakistan in 2009-10 See (table 3.6).

Source Table 3.6: Economic survey of Pakistan 2009-

10, chapter name balance of payment page 97-98 and table
number 7.6

3.8 COMPOSITION OF PAKISTAN’S

IMPORTS: Our imports composition showed
mixed trend our capital goods export decline from
2005-06 to 2009-10 while consumer goods (raw
material) showed consistent increment which
shows the sign of dependence on the other
countries see (table 3.7).
Source Table 3.7: Economic survey of Pakistan 2009-
10, chapter name balance of payment page 99 and table
number 7.8

3.9 MAJOR SOURCES OF

PAKISTAN’S IMPORTS: Pakistani imports
mostly come from these 7 countries as USA, UK,
Kuwait, Germany, Malaysia, Japan and Saudi
Arabia. Pakistan major share of imports is
constitute by Saudi Arabia although since 203-04
our imports from these countries showed decline
(see table 3.8) while imports from other countries
has consistently increased which is also a favorable
sign because Pakistani government tried to
generate alternative markets.

Source Table 3.8: Economic survey of Pakistan 2009-

10, chapter name balance of payment page 99 and table
number 7.9

3.10 RECENT TREND OF IMPORTS:

Pakistan imports have decline -2.8 % in the year
2009-10 which is a good sign and this decline will
observe because of increasing international prices
of goods. According to some economists this our
imports will decline in the up coming years.

3.11 SUMMARY OF IMPORTS AND

EXPORTS: Over all our exports have shown
tremendous increment while our imports have
shown decline. Exports amounted to $ 15.9 billion
in July-April 2009-10 as against $ 14.7 billion in
same period last year, showing a growth rate of 8.0.
Higher quantity export of items like rice, fruits and
raw cotton due to their improved production in
country along with recovery of international
demand and exchange rate depreciation were major
reasons for the increase in exports

Import growth during July-April 2009-10 declined

by 2.8 percent against the last year. Compressed
domestic demand, exchange rate depreciation and
improved production of cotton crops remained the
major factors behind less imports. Among the
major import groups: food, machinery and telecom
groups witnessed a decline during July-April 2009-
10 while Petroleum, consumer durables, raw
materials and other items showed increment. So
over all mixed trend is observed in imports of
Pakistan in 2009-10.
 4.0 PROBLEMS OF PAKISTAN
BALANCE OF PAYMENT

There are a number of problems that causes

imbalance in Pakistan’s BOP few of them are given
below:

4.1 DEPENDENCE ON TEXTILE: our

export is dependent on textile as 53.5% of our total
export is based on textile so rest of the share is
occupied by other items as Rice, cotton, sugar etc.
so still we have not found different commodity
through which we can earn foreign currency and
that dependence is affecting textile industry.

4.2 IMPORT ORIENTED INDUSTRY:

Most of the import substitution industries which
have been set up in Pakistan are importing inputs
and technology. The import of industrial raw
material share is 50% in our total imports which is
eating away our precious foreign exchange
earnings of the country.

4.3 TOUGH COMPETITION IN

INTERNATIONAL MARKET: Our
balance of payment is also adversely affected by
the international market competition because
different countries are technologically very sound
so they can produce more goods with limited input
but in our country still we use sick or idle
machineries which increase cost of product and our
country cannot compete in international market
with this

4.4 POLITICAL UNCERTAINTY:

political uncertainty is a big problem for he
Pakistan because when government change it
become quite difficult for the investor to show
confidence in the newly form government and
history is full of this sort of events as recently when
PPP (Pakistan peoples Party) came in Pakistan
rupee devaluated to almost 43.3% and it hurt our
BOP while in Musharaf era rupee dollar was traded
against Rs: 60. It is commonly observed in our
country that one government stopped the ongoing
projects and start new one which also cause
imbalance in our BOP.

4.5 INCREASE IN PRICES OF

INPUTS: the increase in the prices of fuel,
electricity, high cost of imported machinery, utility
etc have increase the cost of imported goods and
industrial raw material on which domestic industry
is heavily dependent. So this general rise in process
of imports make Pakistani product expensive in
international market and we always remain
backward in achieving the export target.

4.6 FISCAL POLICY: Behind persistent BOP

deficit there is also a role of fiscal policy because
there are a number of flows in our fiscal policy e.g.
our government have made our businesses life
difficult by imposing heavy taxes on them so what
happened with taxes? When these axes are imposed
businesses have fewer amounts to spend in new
projects or for reinvestment in other areas.

4.7 EXPORTS OF PRIMARY GOODS

AND IMPORTS OF FINISHED
GOODS: More than 30% of our total export is
based on primary goods as Raw Cotton, Jute, Rice
etc. while in return we import capital goods as
machineries etc. so what happened? We pay more
on capital goods and earn less foreign earning from
our primary goods.

4.8 ENERGY CRISIS: As we know our

industries cannot run on their capacity unless or
until electricity is provided on regular basis, but
unfortunately but unfortunately electricity is not
being provided to our industries due to a number of
reasons one of them is the incapacity of power
plants to operate due to obsolete machineries. “The
domestic demand of electricity in 2010 is 20584
 MW (Mega Watt) while supply or installed
electricity capacity is 15055 MW”6. This gap -5529
MW is filled by load shedding and this act
adversely affects industry as their production
doesn’t occur and hey won’t achieve their export
target. Ultimately when they cannot export their
goods foreign earning is stopped while on the other
hand imports remain stable which increase the
deficit of BOP.

4.9 DEPENDENCE ON FOREIGN

ASSISTANCE: There is an old saying “one
who do wrong thing unconsciously is a mistake but
if he repeat his same behavior then it is not a
mistake it is a nature and one cannot change the
nature of any person”. Same as given in words
apply on our government and its partners. They
borrow money from other countries and institutes
and don’t utilize that money in proper way and
when maturities of these loans come they again
borrow from other institutes as IMF. So this
consistent act of borrowing from all the previous
governments has worsens the BOP deficit and it is
a big problem which Pakistan faces now a days.

4.10 NATURAL DISASTERS: Flood, earth

quake etc have adversely affected our economy
specially our balance of payment billions of rupees
are being spend on reconstruction and
rehabilitation while thousand of hectare of
agricultural products are affected by these things.
Hence what happened? Then we cannot meet our
domestic demand and import goods and this create
BOP deficit gap.

4.11 SHORTAGE OF AVAILABILITY

OF CREDIT TO PRIVATE SECTOR:
Due to State Bank Of Pakistan (SBP) tight
monitory policy credit is out of reach from private
sector because of higher interest rate. Since if

6
Pakistan and gulf economist, Power emergency, Feb 2-8,2009 , Fact sheet page number 61, table
1.
 private sector won’t have enough money how can?
We boost our export in other countries.

4.12 LIMITED COUNTRIES

EXPORTS: “Our export is just limited to few
countries as USA (United States Of America), UK
(United Kingdom), China, Saudi Arabia etc more
than % of our export goes in these countries”7. We
have not found our ways to enter in other countries
by bilateral trade agreement or by any other means
in order to remove BOP deficit.

4.13 STRIKES AND PROCESSIONS: the

daily strikes and procession badly hurt our
industrialist because they have to make their export
target complete in time when these things occur
their firms remain close and it hurt the goodwill of
Pakistani exporters as well as Pakistan’s image in
international market.

4.14 RISE IN FREIGHT RATES: The

rapid rise in the air and sea freight rates has also
adversely affected the BOP of Pakistan. The rise in
freight in because of increased oil prices.

4.15 CONSUMPTION ORIENTED

SOCIETY: Pakistanis are mostly consumption
oriented. Due to rapid rise in population and
increased consumption habits, the domestic
manufactured goods are mostly consumed in the
country. So when the
domestic demand is not fulfilled properly how can
we export?

7
Economic survey of Pakistan 2009-10, chapter name balance of payment, topic name direction of
exports page 94
 5.0 IMPACTS OF BALANCE OF
PAYMENT DEFICIT ON ECONOMY

If any country BOP face consistent deficit then it is

not a good sign for the country because foreign
investors think if there is no trade how we will get
return so they crowd out that economy. when there
is constant deficit following impacts may come:

1. Foreign reserves of country shrink

2. It leads the country to borrow money from other
financial institutions.
3. Foreign earning will decrease.
4. Country’s currency value may depreciate.

The example of the above given heading is given

below:

5.1 FOREIGN RESERVES OF

COUNTRY SHRINK: When there is a
Consistent BOP deficit reserve of countries shrinks
rapidly because imports of the country increase and
exports decrease.
For example: say suppose there is “A” country who
has foreign reserve of $2 billion and their exports is
$.5 billion while imports are $2 billion. So what
happened to country “A” Foreign reserves?
Mathematically it is given below:

Country “A” Foreign Reserve

$2 billion
Country “A” Exports / Foreign earnings
$.5 billion
Sub total
$2.5 billion

Less: payments for imports

$2 billion

Grand total
$.5 billion
So this example clearly show that how quickly
county “A” reserves fall and how BOP effect
foreign reserves of country.

5.2 IT LEADS US TO BORROW

MONEY FROM OTHER FINANCIAL
INSTITUTIONS: when consistent deficit
remain in country’s BOP it leads the country to
borrow from institutes as IMF- International
Monitory Fund as Pakistan did. Pakistan current
account deficit was $13.735 billion when our
governments borrow money from IMF, so it shows
hat if BOP deficit remain it leads the country to
borrow and these institutes make countries
dependent on their money which is a very bad sign.

5.3 FOREIGN EARNING WILL

DECREASE: It is matter of fact that if
consistent deficit remain in country’s BOP then it
means that country exports are les than its import
when exports are less there will be less foreign
earning.

5.4 COUNTRY’S CURRENCY VALUE

MAY DEPRECIATE: when persistent deficit
remain in Country’s BOP its currency rate
depreciate against other currencies as happened in
Pakistan. For example: ”After remaining at stable
position for more than four years, Pak rupee started
to lose significant value against US dollar and it
depreciated by 22 percent in the period of Jan-Nov
2008. This depreciation was attributed to factors
like substantial loss of foreign exchange reserves,
political uncertainty, speculative activities in
foreign exchange markets and trade related
outflows. Due to Pakistan’s entry in standby
agreement with International Monetary Fund (IMF)
in November 2008 along with market conditions at
that time, Pakistan adopted a more flexible
exchange rate regime. After shift towards more
flexible exchange rate regime, country witnessed a
slow down in exchange rate depreciation of 2.5
 percent during Dec-Jun 2008-09. More recently,
owing to the overall external account improvement
and stable reserve position has made Pakistani
rupee some what stable and it also appreciated
some time against dollar”8.

PAKISTAN’S CURRENCY RATE

US $ RATES PER PAKISTAN RUPEE

YEAR LEADERS US
1972 Zulfiqar Ali Bhutto Rs:4
1977 Zulfiqar Ali Bhutto Rs:9
1983 General Zia-ul-Haq Rs:1
1987 General Zia-ul-Haq Rs:1
1990 Benazir Bhutto Rs:2
1991 Nawaz Sharif Rs:2
1994 Benazir Bhutto Rs:3
1996 Benazir Bhutto Rs:4
1997-99 Nawaz Sharif Rs:5
1999-08 Parwaiz Musharaf Rs:6
2009 Syed Yousuf Raza Gillani Rs:8
Source Table 5.1: Pakistan and gulf economist,
Inflation and interest rate Feb 15-21, 2010, Fact
Sheet, page number 48

As the above given table suggests as our BOP is in

constant deficit, our exchange rate is constantly
fluctuating as given in the above table see (table
5.1).

8
Economic survey of Pakistan 2009-10, chapter name balance of payment topic: Exchange rate,
page 105
 6.0 SUGGESTIONS TO OVERCOME
BALANCE OF PAYMENT DEFICIT

There is no magic through which we can change

our BOP deficit but it is required from us to take
concrete measures in order to make our BOP
favorable few the suggestions which can turn our
BOP deficit into a good position are given below:

6.1 IMPROVE THE TECHNOLOGY:

We should improve the technology of our
manufacturing as well as agriculture sector because
these are the sectors which contribute a lot in our
exports.

6.2 EXPLORATION OF NEW

MARKETS: In order to remove BOP deficit
Pakistan should explore new market for their
product and also do different trade agreement with
Muslim countries to boost our export. Actually,
now exploration of new market is not just
requirement for Pakistan but it is necessary for
Pakistan because Pakistan is a country with
thousands of natural resources and products so
there are number of countries which can get benefit
from Pakistani product for example: “Ali Orozov,
Ambassador Kyrgyzstan to Pakistan in is interview
to Khizer H Schon Executive director of
Schongroup in Karachi. Ambassador of Kyrgyzstan
feels that Kyrgyz is an attractive place for Pakistan
to export fertilizer and pesticides. He is also
looking to import pharmaceuticals, textile products
and building material as steel, cement and marbles
ties etc”9. So Pakistan can get benefits by providing
them god products and can get foreign currency.

6.3 BAN ON STRIKES AND

PROCESSIONS: The daily strikes and
procession by the political parties must be
regulated and controlled because these things give

9
Pakistan and gulf economist, how to boost exports? Feb 14-20,2011 ,Kyrgyz holds immense
trade opportunities for Pakistan , page number 8,
loss of billions to our industrial sector which is
considered to be as a backbone of our export.

6.4 LAW AND ORDER: Law and order

situation should be addressed and efforts should be
made to restore law and order situation and wrap
up the country’s “war on terrorism”. Both these
factors are expected to cover the system for
increase in production and exports. Also, these
improvements should have valuable effects on FDI
and tourism inflows.

6.5 BRAND ORIENTED MARKETING:

Pakistan rather selling their product to other
countries without proper brand name, Pakistani
firms should create brand image as Gray Nicholas
import semi finished bats from Pakistan and tag
their brand name on it and sell them at higher
prices, so Pakistan should also adopt this policy if
they can make quality bats so they can also them as
well.

6.6 COST OF DOING BUSINESS: cost o

doing business has to be reduced to international
competitive levels. Interest rate should be reduced
so that private sector may get credit and flourish
him into a new exporter for the country.

6.7 DEPENDENCE ON TEXTILE

SECTOR EXPORTS: It should be removed
and new export products that can be exported to
another country, new export should be explore as
marbles of Baluchistan.

6.8 MINIMIZE EXPENDITURE ON

IMPORTING SERVICES: The expenditure
on invisible imports as services should be curtailed
because services are only for the year while visible
goods as machineries should be imported because it
has long lasting effect on economy and they will
give foreign earning in future.
 6.9 EXPORT OF FINISHED GOODS
RATHER THAN PRIMARY GOODS:
We should export finished goods rather than
primary goods because it will give us more foreign
earnings. Same thing has been done by other
countries as Bangladesh, India, and Srilanka. From
the last few years they were selling these primary
goods but soon after they realize that is not enough
so now they offer there primary as well as finished
goods in international markets.

6.10 RESOLUTION OF ENERGY

PROBLEM: Energy crisis should be met by
short term and long term planning and measures for
short term we can use solar energy as a source of
electricity while in long term government can
construct big dams, while cheapest of them is
“wind energy which cost $3 billion and we can get
50000 MW Of electricity from it”10.

6.11 IMPROVE FISCAL POLICY: Fiscal

policy should be addressed accurately as export
duty should be minimized while import duty should
be increased on finished products while imports
duty relaxation should be given to capital goods
and raw material so that our industrialist get tax
benefit.

6.12 IMPROVE INFRASTRUCTURE:

Pakistani government should make efforts in order
to make sure it provide goods to other countries on
time because our transportation system is very
weak while transportation cost is very high in our
country because of high oil prices so government
should take measures in order to solve this issue by
improving infrastructure and by providing different
incentives to exporters.

In short above given are only the measures that are

being suggested but now it all depending on
government willingness to improve our BOP
10
Pakistan and gulf economist, Power emergency, Feb 2-8,2009 ,topic Energy crisis :
reality or myth by Mohammad Ashfaq, page number 23
deficit otherwise no third-party will come to solve
this problem our government should take measures
to improve our BOP.

CONCLUSION

So by studying we conclude that although

Pakistan’s Balance of payments has shown
improvement and all the account except income
and capital has shown improvement. If the law and
order situation improves and the war against
terrorism end hopefully our BOP will show more
improvement than it is right now.

2009-10 was a good year for Pakistan BOP

perspective as our exports increase and imports
decrease after a long period of time we face
balance of trade surplus. But our government
should not stay calm because as international
markets commodity prices are increasing it will
adversely affect our BOP and our balance of trade
surplus will soon turn into deficit and for removing
this gap our government will again beg from other
countries or financial institutes as IMF.

Pakistan has got a lot of potential in a number of

products as agricultural, manufactured products as
cloth etc but the thing is that all these things should
be collaboratively joined together to bring the
desire outcome and if our policy makers utilize
their resources properly then there is no doubt
Pakistan will emerge as a prosperous country on
the map of the world.

BOP is our external account recently what our

government is trying is just to portrait a picture
which only looks good but they are forgetting that
what about the other things unemployment, drone
attacks, target killing and poverty who will pay
attention on them? But who care? Just increasing
BOP is not enough our government should come
with clear vision what they want to achieve,
improve their taxation system and hire Professional
people so that these people bring changes in our
economy.

Proper measures are required in order to bring all

these above given problems come to an end
otherwise our foreign debt will increase and our
foreign reserves will shrink which will lead us to
borrow money and we will remain backward.

Last but not the least, now it all depends on the

hands of those people on which our future relies if
these people show willingness than our BOP and
our country position will improve, but other wise
there are no sign seems to appear now. We do hope
that our politicians and our leaders understand that
reliance on the foreign assistance and borrowing is
not a good thing we should stand on our own feet
and in order to achieve that we should work with
sincerity, honesty, loyally. We should take example
from Japan how they have achieved progress when
atom bomb was dropped on Japan nothing was left
but they rose up as a nation and now they are the
most developed nation of this world.

“MAY ALMIGHTY ALLAH BLESS

OUR COUNTRY PAKISTAN”
AMEEN
 REFERENCES

• Economics of Pakistan by Professor M.

Saeed Nasir chapter International trade page
183.

• Economics of Pakistan by M. Seed Nasir

edition 2009-10, chapter international trade
page number 184.

• Kawish Newspaper, 20 January 2011 page

number 3.

• Pakistan and gulf economist, how to boost

exports? Feb 14-20, 2011, Exporting fruits
from Balochistan, page number 21.

• Pakistan and gulf economist, how to boost

exports? Feb 14-20,2011 , Export target for
2011 revised to $22 Billion, page number 7,

• Pakistan and gulf economist, Power

emergency, Feb 2-8,2009 , Fact sheet page
number 61, table

• Economic survey of Pakistan 2009-10,

chapter name balance of payment, topic
name direction of exports page 94

• Economic survey of Pakistan 2009-10,

chapter name balance of payment topic:
Exchange rate, page 105

• Pakistan and gulf economist, how to boost

exports? Feb 14-20,2011 ,Kyrgyz holds
immense trade opportunities for Pakistan ,
page number 8,

• Pakistan and gulf economist, Power

emergency, Feb 2-8,2009 ,topic Energy
crisis : reality or myth by Mohammad
Ashfaq, page number 23