Balance of Payment - Final

MACROECONOMICS TERM REPORT
BALANCE OF PAYMENTS
AND ITS ASSOCIATED FACTORS
IN LIGHT OF
PAKISTAN ECONOMY
Submitted by:
Abdul-Rab Ahmad Iqbal

ID: 2007-3-35-7336
Submitted to:
Mr. Najam Altaf

Dated: 23 August 2008
1
LETTER OF ACKNOWLEDGEMENT
Mr. Najam Altaf

Faculty Member
Macroeconomics
Institute of Business Management
Karachi
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

ID# 7336
i
LETTER OF TRANSMITTAL
Mr. Najam Altaf

Faculty Member
Macroeconomics
Institute of Business Management
Karachi
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

ID# 7336
ii
Macroeconomics Term Report
Balance of Payments and its Associated Factors in light of Pakistan Economy
Table of Contents
Executive Summary...................................................................iv
1. Balance of payments...............................................................1
0.1 IMF definition...........................................................................................................................1
2. Components of BOP...............................................................1
2.1 Current account....................................................................1
2.1.1 Components of Current Account..........................................................................................2
2.1.1.1 Balance of Trade............................................................................................................2
2.1.1.2 Income Account.............................................................................................................2
2.1.1.3 Unilateral Transfers.......................................................................................................2
2.1.2 Reducing current account deficits.........................................................................................3
2.2 Capital account......................................................................3
2.3 Financial account..................................................................4
3. Balance of Payment Equilibrium..........................................4
4. Balance of trade.......................................................................5
4.1 Factors affecting Balance of Trade..........................................................................................5
5. Exchange rate..........................................................................6
5.1 Free or pegged Exchange rate..................................................................................................6
5.2 Relationship With Balance of Payments..................................................................................6
6. Foreign Exchange Reserves...................................................6
6.1 Relationship with exchange rate..............................................................................................7
7. Pakistan’s Balance of Payments............................................7
7.1 Current Account Situation of Pakistan....................................................................................7
7.1.1 Balance of Trade...............................................................................................................8
7.1.2 Net Factor Income from Abroad.......................................................................................8
7.2 Capital Account Situation of Pakistan.....................................................................................9
7.3 Performance of Other Factors related to BOP of Pakistan
10
7.3.1 Exchange Rate....................................................................................................................10
7.3.1.1 Affect of exchange rate on Exports/Imports................................................................10
7.3.1.2 Conclusion of Analysis................................................................................................11
8. Comparison of Pakistan’s BOP with India and China.....12
8.1 China:.....................................................................................................................................12
8.2 India:......................................................................................................................................13
8.3 Pakistan:.................................................................................................................................13
9. Conclusion.............................................................................13
Pakistan's Balance of Payments............................................17
1 Pakistan's Balance of Payments..........................................21
Institute of Business Management iii

Macroeconomics Term Report
Balance 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.
0.1 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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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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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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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:
Page 4 of 16
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.
Page 5 of 16
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.
Page 6 of 16
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 Payments

In 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 Transfers
from Abroad.
Capital Account = Foreign Direct Investment + Portfolio Investment + Other Investments
7.1 Current Account Situation of Pakistan

The 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.
Page 7 of 16
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 Imports of Goods and Balance of trade

Services Services
2005-06 US $ 20322 million US $ 33193 million (US $ 12871 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 Income of Abroad from Net Factor Income

Abroad Pakistan
2007-08 (US $ 2669 million)
(Jul – Mar)
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.
Page 8 of 16
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 Current transfers Net Share of

Inflow Outflow 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 US $ 8761 million 53.9%
(Jul –
Mar)
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 million

2006-07 US $ 6619 million
2007-08 (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 million
2007-08 US $ 3010 million
(Jul – Mar)
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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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 million
2007-08 (US $ 55 million)
(Jul – Mar)
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 2007-08

Exchange 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 2007-08

Exports 14,482 16,553 17,278 20,125
US $ million
Imports
Year 2004-05 2005-06 2006-07 2007-08

Exports 18,996 24,994 26,989 35,412
Page 10 of 16
US $ million
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 Manufacturing

2005-06 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 Products
b. 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 Metals

2005-06 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.
Page 11 of 16
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.
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 2008

China 68.70 160.80 249.90 375.00 400.00
India -2.50 -9.90 -9.70 -11.50 -31.50
Pakistan 1.81 -5.62 -7.36 -6.85 -12.07
Current account % GDP 2004 2005 2006 2007 2008
China 3.50 7.00 9.00 10.90 9.40
India -0.40 -1.20 -1.10 -1.00 -2.90
Pakistan 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 2008
China 618.20 825.70 1072.60 1530.30 1959.50
India 136.50 145.90 192.40 299.60 358.40
Pakistan 10.60 9.80 10.80 13.30 10.16
Foreign Reserve (USD Bn)
1190.00
990.00 China
790.00 China
590.00 India
Curre
390.00 India
190.00 Pakistan Pakistan
-10.00
08
04
05
06
07
20
20
20
20
20
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.
11.00 Page 12 of 16
• 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%.
• 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:
Page 13 of 16
• 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.

• 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)
2005-06 2006-07
I T E M
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
Page 16 of 16

2005-06 2006-07
I T E M
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
3.1.4.2. 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 -173
3. Errors And Omissions 253 - 253 610 451 159
4. Exceptional Financing - 55 -55 100 - 100
Page 17 of 16

Page 18 of 16
2006-07p 2007-08 p
I T E M 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 19 of 16
Page 20 of 16
1 Pakistan's Balance of Payments
2006-07p 2007-08 p
I T E M 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
3.1.3.2. 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
3.1.4.2. 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 - 172
3. Errors And Omissions -451 -139 506 86 - 86
4. Exceptional Financing - -100 100 - - -
Page 21 of 16
Page 22 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
1
SDRs Nostro
2003 Dec. 725 246 10,279 1,314 12,564
2004 Jun. 831 238 10,326 1,760 13,155

Dec. 831 243 8,939 2,959 12,972
2005 Jun. 917 227 9,578 2,616 13,338

Dec. 917 216 9,010 2,481 12,624
2006 Jun. 1,288 216 10,549 2,537 14,590

Dec. 1,288 215 10,424 2,565 14,492
2007 Jun. 1,366 212 13,133 3,213 17,924

Dec. 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 17,739

Aug. 1,411 212 13,597 2,693 17,913
Sep. 1,560 216 13,660 2,854 18,290
Oct. 1,661 218 14,032 2,460 18,371

Nov. 1,648 220 13,326 2,242 17,436
Dec. 1,760 214 13,158 1,892 17,024
2008 Jan. 1,942 212 12,329 1,686 16,169

Feb. 2,044 213 11,719 1,623 15,599
Mar. 1,964 217 10,868 1,727 14,776
Apr. 1,832 221 9,853 1,585 13,491

May. 1,863 220 8,472 1,745 12,300
Jun. 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 23 of 16
Annex C – Pakistan’s Workers Remittances
4.9 Workers’ Remittances

(Million US Dollar)
June
Country 2003- 04 2004-05 2005-06 2006-07 2007-08
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 24 of 16
Annex E – Exports
4.13 Foreign Direct Investment Classified by

Economic Groups
(Million US Dollar)
June
ECONOMIC GROUPS 2005-06 2006-07 2007-08
2007 2008 P
Food and Food Packing 53.3 37.5 49.6 19.6 4.0
Beverages 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
Exports By Selected Commodities

(a) State Bank of Pakistan
Page 25 of 16
Annex E – Exports
(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 180,352 172,145 216,580 238,505 235,619 285,445 333,472 336,106
01 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 78,971 118,295 128,549 143,518
B) 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 21,632
03 Fruits 7,776 10,946 19,416 22,277 22,507 15,020 11,059 12,699
04 Vegetables/Leguminous Vegetable 8,100 10,923 5,830 6,415 7,944 6,779 5,853 6,345
05 Tobacco 214 957 2,111 272 240 313 254 351
06 Wheat 0 0 7 206 0 0 0 0
07 Spices 980 1,096 942 1,074 1,247 1,187 1,478 1,583
08 Oil Seeds, Nuts and Kernals 4,530 7,121 7,135 3,423 3,595 3,367 2,208 1,913
09 Sugar 0 0 3,714 5,429 5,082 10,567 30,727 8,601
10 Meat and Meat Preparations 4,130 2,469 2,443 7,686 5,489 5,225 6,304 6,017
11 All Other Food Items 29,336 24,766 27,961 22,408 25,694 32,131 39,550 36,541
B. Textile Group 895,907 785,553 892,460 801,506 815,176 859,179 871,441 915,586
12 Raw Cotton 7,495 6,848 5,095 6,792 11,696 12,494 10,158 7,035
13 Cotton Yarn 120,949 98,229 99,876 84,764 86,268 87,516 84,831 89,310
14 Cotton Cloth 195,537 160,419 191,711 160,375 164,105 174,089 183,938 199,666
15 Cotton Carded or Combed 23,806 13,898 29,749 12,812 12,978 21,742 12,940 14,599
16 Yarn Other than Cotton Yarn 7,815 7,255 5,278 6,291 4,221 4,125 4,428 7,077
17 Knitwear 173,388 157,060 179,968 166,400 163,066 173,614 168,264 202,721
18 Bed Wear 114,503 109,398 139,115 127,583 117,926 125,786 133,781 126,383
19 Towels 35,887 39,883 32,749 36,567 38,553 38,261 47,823 36,949
20 Tents,Canvas & Tarpulin 7,714 6,360 5,837 6,469 4,458 5,932 4,380 7,743
21 Readymade Garments 105,723 88,457 88,286 88,611 90,446 93,664 99,809 98,248
22 Art,Silk & Synthetic Textile 26,126 25,722 35,034 33,405 30,642 36,668 34,180 50,923
23 Madeup Articles(incl.Other Tex 26,507 27,074 32,165 26,814 32,354 32,862 32,878 35,221
24 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 26 of 16
Annex F – Imports
4.16 Imports By Selected Commodities

(a) State Bank of Pakistan
(Thousand US Dollar)
COMMODITY 2007 2008

Nov. P Dec. P Jan. P Feb. P Mar. P Apr. P May. P Jun. P
A. Food Group 244,497 259,888 436,593 348,150 429,140 412,590 256,991 248,202
1.Milk And Cream Incl For Infants 4,659 3,651 7,182 6,058 7,723 4,620 4,026 5,329
2.Wheat Unmilled 0 17,209 144,098 94,878 179,901 134,727 0 0
3.Dry Fruits 4,951 4,279 4,325 5,567 7,201 5,097 4,602 3,570
4.Tea 11,287 12,438 10,921 17,358 19,303 17,714 19,085 14,731
5.Spices 4,736 4,069 5,476 4,662 5,326 7,871 8,595 5,685
6.Soyabean Oil 17,621 16,185 7,660 8,055 4,060 0 520 0
7.Palm Oil 123,077 132,421 164,819 126,398 113,440 145,013 146,243 99,832
8.Sugar 945 618 256 476 1,090 879 861 484
9.Pulses 12,045 10,737 13,245 10,482 14,049 19,545 16,332 19,204
10.All Others Food Items 65,177 58,280 78,611 74,216 77,047 77,124 56,727 99,366
B. Machinery Group 519,864 448,016 510,896 422,624 501,408 523,505 484,959 587,982
11.Power Generating Machinery 125,879 100,260 96,835 60,688 81,869 84,525 113,285 116,655
12.Office Mach.Incl.Data Pros. Equp. 23,200 26,248 21,861 16,346 19,468 19,357 27,341 21,106
13.Textile Machinery 30,012 35,281 24,968 36,687 46,759 43,317 37,112 34,666
14.Construction & Mining Machinery 4,670 12,831 3,604 13,017 4,032 7,132 7,559 7,706
15.Electrical Machinery & Apparatus 68,871 58,018 117,910 54,848 104,011 79,102 46,110 112,455
16. Telecom 117,048 84,798 84,061 123,080 89,806 131,701 108,653 124,611
17.Agricultural Mach. & Implement 16,621 8,483 12,016 12,891 22,275 14,393 7,927 9,435
18.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 99,955 110,856 128,401
19. 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 18,697
19.2 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 3,706
20.Aircrafts,Ships And Boats 7,459 9,870 16,807 14,493 31,708 12,392 38,761 55,335
21. 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 1,097,585
22.Petroleum Products 434,589 497,755 488,179 446,581 500,824 728,568 869,475 808,528
23.Petroleum Crude 504,905 438,912 320,453 373,326 296,378 357,834 589,378 289,056
E. Textile Group 107,179 158,444 309,983 231,066 166,903 169,486 125,135 104,358
24.Raw Cotton 45,242 94,265 230,824 178,719 113,667 105,537 56,155 43,179
25.Synthetic Fibre 23,737 27,865 34,075 21,051 21,229 23,391 23,707 20,518
26.Synthetic & Artificial Silk Yarn 23,864 21,944 26,625 17,885 17,214 23,600 26,033 22,088
27.Worn Clothing 614 642 416 561 553 839 736 683
28.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 7,219
31.Plastic Materials 93,548 94,994 118,239 101,621 108,932 108,249 90,612 107,525
32.Medicinal Products 30,021 22,594 29,350 31,854 29,906 32,178 29,508 38,016
33.Others 207,871 173,712 273,284 206,447 247,192 273,991 233,323 259,335
G. Metal Group 168,646 171,840 206,577 203,520 161,604 213,505 240,239 212,579
34.Gold 0 0 0 52 0 9 0 0
35.Iron And Steel Scrap 35,242 40,037 45,101 33,978 27,389 34,548 42,613 45,838
36.Iron And Steel 85,600 95,686 120,272 130,708 89,977 139,506 149,803 120,601
37.Aluminium Wrought & Worked 16,482 10,072 12,301 11,610 14,342 11,042 15,421 19,654
38.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 60,321
39.Rubber Crude Incl.Synth/Reclaim 9,891 8,495 9,589 9,020 11,191 13,552 12,496 10,674
40.Rubber Tyres & Tubes 12,961 8,560 12,449 9,880 8,800 8,668 8,396 8,741
41.Wood & Cork 9,019 3,608 5,966 4,731 5,181 5,591 6,352 8,688
42.Jute 4,128 1,364 4,677 3,475 6,328 7,315 714 4,335
43.Paper&Paper Board & Manf. 34,242 25,506 34,814 29,326 36,545 33,067 33,800 27,883
I. All Others 301,648 224,623 301,628 335,804 275,323 228,543 271,920 295,075
Import 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
Page 27 of 16

Balance of Payment - Final

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Balance of Payment - Final

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MACROECONOMICS TERM REPORT

Abdul-Rab Ahmad Iqbal

Mr. Najam Altaf

Mr. Najam Altaf

Abdul-Rab Ahmad Iqbal

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The report is hereby submitted for perusal.

Abdul-Rab Ahmad Iqbal

Institute of Business Management iii

Institute of Business Management iv

0.1 IMF definition

2.1 Current account

2.1.1 Components of Current Account

2.1.1.1 Balance of Trade

2.1.1.2 Income Account

2.1.1.3 Unilateral Transfers

2.1.2 Reducing current account deficits

2.2 Capital account

2.3 Financial account

3.Balance of Payment Equilibrium

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)

5.1 Free or pegged Exchange rate

5.2 Relationship With Balance of Payments

6.Foreign Exchange Reserves

6.1 Relationship with exchange rate

7.Pakistan’s Balance of Payments

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

Current Account + Capital Account = 0

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

7.1 Current Account Situation of Pakistan

2005-06 (US $ 4990 million)

7.1.1 Balance of Trade

Exports of Goods and Imports of Goods and Balance of trade

7.1.2 Net Factor Income from Abroad

Income of Pakistan from Income of Abroad from Net Factor Income

7.1.3 Current Transfers

Current Transfers Current transfers Net Share of

7.2 Capital Account Situation of Pakistan

2005-06 US $ 4792 million

7.2.1 Foreign Direct Investments

FDI Inflow FDI Outflow Net

7.2.2 Portfolio Investments

7.3 Performance of Other Factors related to BOP of

7.3.1 Exchange Rate

Year 2004-05 2005-06 2006-07 2007-08

7.3.1.1 Affect of exchange rate on Exports/Imports

Year 2004-05 2005-06 2006-07 2007-08

Year 2004-05 2005-06 2006-07 2007-08

7.3.1.2 Conclusion of Analysis

Textile Agriculture Manufacturing

The major categories of import base are as follows:

Petroleum Foods Machinery Vehicles Chemicals Metals

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

Current account USD bn 2004 2005 2006 2007 2008

FDI (net) USD bn 2004 2005 2006 2007 2008

Foreign Reserve (USD Bn)

• Focus on increasing the exports through widening the exports base,

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

• Focus on value addition of products and cost effective production to lower

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