Transcript Balance of Payment

Pakistan Balance of Payment,
Current and Capital Accounts
Kamran Tabish
(15770)
Ghulam Abbas
(14087)
Faizan Khan
(15568)
Nehreeza Aklaq
(15082)
Nida Tariq
(7009)
Distribute Topic in Group
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1. Faizan Khan

Balance of Payment (BOP)
History of Balance of Payment
Balance of Trade
Difference between BOP & BOT
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2. Nehreeza Akhlaq

Terminologies of Balance of Payment
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5. Nida Tariq

Measures to Remove deficit Balance of Payment.
BOP Balance of payment Future Expectations.
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3. Kamran Tabish

Major Exports & Imports of Pakistan
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4. Ghulam Abbas
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Problems of balance of Payment in
Pakistan.
Factors responsible for Deficit Balance
of payment
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Outline/Contents
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Balance of Payment (BOP)
History of Balance of Payment
Balance of Trade
Difference between BOP & BOT
Terminologies of Balance of Payment
Major Exports & Imports of Pakistan
Problems of Balance of Payment in Pakistan
Factors responsible for Deficit Balance of payment
Causes of Adverse or Remove deficit BOP of Pakistan
Balance of Payment Future Expectations
Suggestions
Conclusion.
Balance of Payment (BOP)

Balance of payments is a statistical statement designed
to provide for a specific period of time a systematic record
of an economy’s transactions with the rest of the world.
It is a record of economic transactions between resident
of one country and the rest of the world during the course
of one year.
 Its major components are the Current Account and the
Financial Account.

BOP (cont’d)
 All
trades conducted by both the private and public
sectors are accounted for in the BOP in order to
determine how much money is coming in and
going out from a country
BOP (cont’d)
 The
balance of payment like all balance sheets
must balance.
 The items which lead to an inflow of foreign
earnings are placed on the credit side of the
balance sheet
 The items which give rise to an outflow of foreign
currency are placed on the debit side of the
balance sheet
Surplus & Deficit of BOP
 Surplus/Favorable
BOP:
Payments < Receipts
 Balanced/Equilibrium
of BOP
Payments = Receipts
 Deficit/Unfavorable
BOP:
Payments > Receipts
History of BOP
 Pakistan’s
BOP situation has not been satisfactory
since independence. The country with the
exception of five years has been running a
persistent deficit in her BOP on current account
Years of Surplus in BOP of Pakistan
 These
years are as follows:
1950-51
1954-55
1955-56
1958-59
1959-60
2002-04
After the surplus years, Pakistan has been
facing a deficit in its BOP
 1996-97
($3.82 billion)
 1997-98 ($1.92 billion)
 1999-2000 ($ 1.14 billion)
 2006-07 ($6.878 billion)
 2007-08 ($13.735 billion)
 2008-09 ($8.549 billion)
Deficit in Pakistan BOP
Balance of Trade

BOT is the difference between the value of exports and
imports of physical items (goods) of a country during a
given period of time
Surplus & Deficit of BOT
 Surplus/Favorable
BOT:
Value of exports > Value of imports
 Balanced/Equilibrium
of BOT:
Value of exports = Value of imports
 Deficit/Unfavorable
BOT:
Value of exports < Value of imports
Difference Between BOP & BOT
BOP
BOP refers to the sum of
both the balance on
‘visible transactions’ as
well as ‘invisible items’. It
also includes capital and
financial accounts
BOT
BOT refers only to the
merchandise balance or
balance on ‘visible
transactions’ alone
Terminologies of BOP
 The
terminologies of BOP are divided into
following three categories:
 The
Current Account
 The
Capital Account
 The
Official Account/Reserve
The Current Account
Consist of four main components
 Trade balance –
 Net Services Balance –
 Net Income Balance –
 Current Transfer –
Current Account (cont’d)
Comparison of Pakistan current account
with others countries.2010
Country
Current Account Balance U.S ($)
Pakistan
-1,640,999,936
China
272,499,998,720
Japan
166,500,007,936
Kuwait
38,200,000,512
Denmark
14,350,000,128
The Capital Account
 In
capital account, international monetary flows
related to investment in business, real estate, bonds
and stocks are documented
 The
capital account is the net result of public and
private international investments flowing in and
out of a country.
The Net Capital Account in Pakistan
Reported Years
Net Capital Account U.S ($)
2008
148,000,000.00
2009
484,000,000.00
2010
132,000,000.00
Comparison of Pakistan Capital Account with
Others Countries 2010
Country
Pakistan
132,000,000.00
China
5,207,525,000.00
United Kingdom
5,182,095,000.00
Canada
4,620,237,000.00
Kuwait
2,158,031,000.00
The Official Reserve Assets Account

Official Reserve transactions consist of movements of
international reserves by governments and official
agencies to accommodate imbalances arising from the
current and capital accounts
End Period
Net Reserve with
SBP
Net Reserve with
Bank
Total Liquid Ex
Reserve
2007-2008
8,577.0
2,821.7
11,398.7
2008-2009
9,117.9
3,307.3
12,425.2
2009-2010
12,958.2
3,792.2
16,750.4
Major Exports and Imports of
Pakistan
Exports
 Exports
mean selling of goods and services to
other countries to earn foreign exchange
 Export
for the fiscal year 2010-11 are estimated to
be around $ 24.6 billion, against the Annual Plane
2010-11 target of $19.9 billion.
Exports (cont’d)
Pakistan exports were worth 2034 Million USD in
February of 2012.
 Pakistan exports rice, furniture, cotton fiber, cement, tiles,
marble, textiles, clothing, leather goods, sports goods,
surgical instruments, electrical appliances, software,
carpets and rugs and food products.
 Pakistan now is being very well recognized for producing
and exporting cements in Asia and Mid-East.
 Main exports partners are European Union (UK), United
States, UAE, and Afghanistan.

Exports of Pakistan
Imports
 Imports
mean buying of goods and services from
other countries to fulfill the domestic needs
 Pakistan’s
imports during July-March 2010-11
increase by 15.1% to $25.9 billion over the
corresponding period of previous year $22.5
billion.
Imports (cont’d)
 Pakistan
import was worth 3649 Million USD in
February of 2012.
 Pakistan imports mainly petroleum, petroleum
product, machinery, plastics, transportation
equipment, edible oils, paper and paperboard, iron
and steel and tea.
 Its major import partners are: European Union,
China, Saudi Arabia, United Arab Emirates and
United States.
Imports of Pakistan
Problems of Balance of Payment in
Pakistan
Pakistan's balance of payments situation has not been
satisfactory since Independence. The main factors
contributing adverse balanced of payments in Pakistan is
due to:
 Import of capital goods like machinery, new technology
etc. for rapid industrialization has adversely affected the
balance of payments in Pakistan.
 Rising in oil prices has adversely affected the balance of
payments in Pakistan.
(cont’d)
 Increase in import payments for fertilizer, machinery,
edible oil etc.
 Pakistan's society is consumption oriented and most of
the consumer goods are important from abroad.
Import of industrial Raw material and machinery.
 Higher import unit values than export unit values.
 Higher payments for freight, insurance, transports and
trade by Pakistan.
 Political instability, floods, droughts, strikes etc. cause
reduction in industrial production
Factors of Deficit Balance of Payment
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Substitutes
Increase in Population
Revenue Oriented Tariffs
Trade Restrictions
Import of Capital Good
Inflation
Political Uncertainty
Import of Oil and Fertilizer
Repayment of Debt and Interest
Huge Import of Invisible Goods
Technological Change in Method of Production
Change Country Nation Income
Measures to Correct/Remove deficit
balance of payment
Following are the measures to remove deficit BOP of Pakistan:
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Export Led Growth:
1.
Export plays an important role in the growth of the economy
Promotion of labor Intensive Industries
Diversification of Export
Decrease in Consumption
High Quality Goods
Price of Goods
Packing
Creation of export agency
Joint Venture
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9.
Measures to Correct/Remove deficit
balance of payment (Contd.)
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Reduction in Imports
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Reduction in Invisible Import
Balance of Payment Future Expectations
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Foreign Direct Investment (FDI) may increase if there
is political stability and continuation of policies.
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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.
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Friends of Pakistan has promised significant monetary
support. If it realizes than it will have a positive effect.
Balance of Payment Future Expectations

Our Export may increase and BOP may show good result
because of natural disasters in Australia, Japan etc. so the
demand prices of our raw material will increase and than
Pakistan can earn substantial profit from there and can its
BOP.
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Chine’s investors are still showing confidence in investing
Pakistan’s economy. If this remains constants in upcoming
year our BOP will improve
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In short f our government will pay proper attention in
boosting exports our BOP will show positive results in future.
SUGGESTIONS
 Pakistan must increase its production so that Surplus can be exported.
Pakistan don’t need to enter IMF & World Bank Programs.
New Water Reservoirs need to be made.
Pro Active Export Policy and better marketing of Surplus goods.
Electricity crises needs to be solved urgently so that open mills and factories give
more production and closed units open again.
Pakistan needs a leadership with competence, very strong nerves, clear
understanding of the issues and psyche of the other side of the table, ability
understanding of the issues and psyche of the other side of the table, ability to
negotiate with the super powers and come out with a most suitable to negotiate
with the super powers and come out with a most suitable package.
“MAY ALMIGHTY ALLAH BLESS
OUR COUNTRY PAKISTAN”
AMEEN