BALANCE

OF
PAYMENT
OF
PAKISTAN
 MBA

Section (A)
Group # 3
Group Members:
Name: ID #:

FARAN MAJEED 083114

SYED AKIF QADRI 083103

IBRAR HUSSAIN 083109

Acknowledgement
In the name of ALLAH who has created this universe and left it for MAN to explore the
new horizons and to be concurred. He has bestowed His master piece “MAN” with the
greatest strength in the universe which is knowledge. With the help of this knowledge
man is going higher and higher and is seeking for new destinations. This is knowledge
which makes things easier and easier to be done. Same is the case with us, we with the
help of such knowledge have been able to do such a job which was assigned to us and is
regarding our final project of economics. If ALLAH had not given us the power of
knowledge, we could not be able to accomplish this task.

Then we would like to remember His last messenger Hazrat Muhammad (SAW) who is
the person through whom knowledge came to us, and who enlightened the world with His
message and brought the human being out of darkness of ignorance to the light of
knowledge.

We would like to thank our parents who always encourage us at the time when we
became disappointed and it is fact that without their untiring and selfless efforts we could
never do this.

At the end we would like to thank our respected teacher Prof SHAFIQ-UR-REHMAN
who did his best and worked hard for us so that we may get some practical knowledge of
the practical field.
We pay our gratitude from the core of our heart to this great teacher without his kind help
and guideline, we could never been able to complete this project.
 Dedication
We would like to dedicate our this effort to our respected teacher who is always very kind

, humble and courteous. He does not have only the good appearance but has a beautiful

heart as well. He in fact knows how to teach and how to be nice. According to our

opinion He follows the following quotation:

“It is very nice to be

important,

But

It is more important to be
nice.”
Over view
• Introduction
• Definition
• BOP accounts
• How does the BOP balance
• Major exports and imports
• Problems
• Remedies
• Conclusion
INTRODUCTION
Balance of payment is the comprehensive record of economic transactions between
the residence of a country and the rest of the world during the course of one year.
Balance of payments like all balance sheets must balance.
The items which lead to an inflow of foreign earning, 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
Balance of trade is one of the major indicators for assessing economic performance of
the country. It determines the trade potential of the country. If the balance of trade of
any country is positive, that country is considered economically sound and vice versa

Balance of payments is a statistical statement designed to provide for a specific

period of time a systematic record of an economy’s transactions with the rest of the
world.

An “economy” is comprised of economic entities (residents) that have closer

association with that specific economy than with any other. Economic entities that
have closer association with other economies are nonresidents.

DEFINITIONS
“The record of all transactions of goods & services of one country with the rest of
the world.”

“Balance of payment is the comprehensive record of economic transactions between

the residence of a country and the rest of the world during the course of one year.
Balance of payments like all balance sheets must balance.”

“Balance of payments is a statistical statement designed to provide for a specific

period of time a systematic record of an economy’s transactions with the rest of the
world.”

Balance of Payments
 The balance of payments is an accounting listing (tabulation) of the values of
economic (trade and financial) transactions between the residents of a (home) country
and residents of other countries.
Balance of payments entries are recorded based on the double-entry bookkeeping
principle.
The balance of payments entries are always balanced; the entries add up to zero.

Balance of Payments Accounts

Current Accounts
It include all the imports & exports of goods and services

• Merchandise Trade
• Service Trade
• Services of Capital: Interest Incomes, Dividends
• Unilateral Current Transfers
Capital Accounts
It include all the financial transactions with the rest of the world

• US private investments abroad

• Foreign private investments in the US
• Other investments/capital transactions
• Errors and statistical discrepancies
Official (Capital) Accounts
The reserve facilitate to maintain balance in current account and capital account

• (Changes in) US official reserve assets abroad: gold, SDRs, foreign

currencies
• (Changes in) foreign official assets in the US

Pakistan's payments problems have been chronic since the 1970s, with the cost of oil
imports primarily responsible for the trade imbalance. The growth of exports and of
remittances from Pakistanis working abroad (mostly in the Middle East) helped Pakistan
to keep the payments deficit in check. Since the oil sector boom began subsiding in the
early 1980s, however, remittances declined. Remittances from overseas workers peaked
at $2.9 billion in 1982/83, then dropped to $1.4 billion by 1997/98 and $1 billion from
1999 to 2001. This trend especially accelerated during the Gulf War, when nearly 80,000
Pakistanis in Kuwait and Iraq lost their jobs. Only about 25% of these jobs had been
regained a year after the end of the conflict. Increased imports and softer demand for
Pakistan's textiles and apparel in major markets also caused the current account deficit to
further increase. The balance of payments position weakened in 1995/96 as imports grew
by 16% and exports by only 6%. The rupee was devalued by 11% during 1995 and 1996
to encourage exports. Nevertheless, foreign reserves fell to around $800 million by mid-
1997. By 2000, foreign debt equaled 100% of GDP. The government took steps in the
early 2000s to liberalize and deregulate the exchange and payments regime. Pakistan
moved to a dual exchange rate system in 2000. An increase in liquid foreign exchange
reserves in 2001 was due in part to outright purchases from the kerb market and inflows
from international financial institutions. Export growth in 2000/01 was primarily due to
higher exports of primary commodities such as rice, raw cotton, and fish, and other
manufactures such as leather, carpets, sporting goods, and surgical instruments. Imports
increased in 2000/01 primarily due to higher imports of petroleum and petroleum
products, and machinery.

The US Central Intelligence Agency (CIA) reports that in 2001 the purchasing power
parity of Pakistan's exports was $8.8 billion while imports totaled $9.2 billion resulting in
a trade deficit of $399.9 million.

The International Monetary Fund (IMF) reports that in 2001 Pakistan had exports of
goods totaling $9.13 billion and imports totaling $9.74 billion. The services credit totaled
$1.46 billion and debit $2.33 billion. The following table summarizes Pakistan's balance
of payments as reported by the IMF for 2001 in millions of US dollars

How does the BOP balance?

Debit(-) Credit (+)
Exports
100(+)
Imports 120(-)
Current Account Balance -20
Reduction in US bank
Deposit claims abroad 10
Official Settlement Balance -10
Reduction in official
Reserves 10
Balance of Payments 00

Major Export

The main export items of Pakistan are rice, furniture, cotton fiber,
textiles, leather etc.

Major Import

The main import items of Pakistan are petroleum, industrial machinery,

automobiles, computer, computer parts etc.
Problems
Following are the main problems of Pakistan balance of payment

• Addition in imports
Imports of our country rising day by day. This is the major factor
for adverse balance of payment.

• Defense spending
We are adding more importance to our defense and importing costly
arms and ammunition. This factor also making our BOP
unfavorable.

• Very slow growth in production

The growth in our production is very slow due to this reason we
cannot export sufficient goods to others

• Exports of primary products

Our country exports primary products due to this reason we are not
able to earn handsome amount of money

• Rise in freight rates

The rapid rise in the air and sea freights has adversely affected the
balance of payment

• Social factor
In our country society is consumption oriented and we have to
import a lot and we can export a little amount of goods. This causes
our BOP unfavorable
• Excessive consumer imports
Our country is importing more consumer goods not capital goods
these consumer goods does not result in further producing and
become burden on the economy

• Ban on developing countries

Many developed countries have imposed ban on our country’s
export due to this reason we are not able to export maximum
goods

• Affect of inflation
If there is inflation in the country the prices of the exportable goods
will rise. Consequently other countries will demand less quantity of
its goods and services. This will affect the BOP

• Low quality of goods

The gods prepared in our country are usually of low quality due to
which these are not sold in much quantity and ultimately our
exports are less than imports

• Availability o substitutes
Due to availability of substitutes in other countries the demand of
our product falls

• Narrow export base

Export base of our country is very narrow because we export a very
few items if any item suffers problem in a year our export remain
very low.
 • Currency value
Our currency value is also not favorable in comparison of other
countries from where we are importing goods this factor also affect
BOP

• Enhancement in oil prices

Oil is major important import of our country and price of oil is
continuously rising this feature also matter and makes BOT
unfavorable

Current Account 1,880

Balance on goods -608
Balance on services -871
Balance on income -2,079
Current transfers 5,438
Capital Account …
Financial Account -399
Direct investment abroad -31
Direct investment in Pakistan 383
Portfolio investment assets …
Portfolio investment liabilities -192
Other investment assets 54
Other investment liabilities -613
Net Errors and Omissions 716
Reserves and Related Items -2,197
Remedies

With the help of following remedies we can easily over come the problems
of balance of payment

• Reduce imports
Our country should maximized its exports as much as possible only
goods necessary for further production should be imported and other
should be banned

• Export promotion
Our country should plan an effective strategy to promote export to great
level this will helpful to improve our BOP

• More trade agreement

In order to improve our trade balance our country should make maximum
trade agreement with other countries. In this way our trade will increase
that will improve our BOP

• Explore market
We can improve our bop by exploring more and more markets for goods.
This factor will especially helpful for maximizing our export that will
improve our BOP

• Diversification of economy
For improving our BOP our country should produce every type of
product instead of few. We should promote all sectors of economy

• Incentives to exports
Our government should provide some incentives to exporters to
maximize export of the country

• Enhance production
In order to improve BOP country should increase production of goods so
we will be export lot and we will also be able to minimize imports

• Special schemes
In order to improve BOP govt should introduce special schemes for the
exporter through these schemes exporter should be encourage

• Form trade bodies

Govt of the country should establish more and more trade bodies in order
to promote exports and in order to improve BOP

• Optimum industries
Our Govt should establish more and more export industries so that we
may able to export more and import less

• Reduce use of oil

Oil is a major import of our country and we are spending heavy amount
of our earned foreign exchange on import of oil. We can minimize
spending of foreign by reducing use of oil in the country

Conclusion