S/LT Danish PN

BALANCE OF PAYMENTS

Outline
Balance of Payment (BOP)
Balance of Trade (BOT) Difference between BOP & BOT

History of BOP
Major Exports & Imports of Pakistan Causes of Adverse BOP of Pakistan Measures to Correct Adverse BOP of Pakistan

 Some theoritical aspects

Bops of a country Bops account chart Bops equilibrium Types and causes of disequilibrium General measures to correct bops

disequilibrium Pakistan balance of payments Foreign exchange currency accounts

Balance of Payment (BOP)

BOP is a record of the economic transactions between the residents of one country and the rest of the world during the course of one

year

BOP (contd)
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 (contd)
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

Components of BOP
The components of BOP are divided into following three categories:
The Current Account

The Capital Account

The Official Reserve Assets Account

The Current Account

Current Account includes all international trade transactions of goods and services, international service transactions (i.e.

tourism, transportation and royalty fees), and international transfers (i.e. foreign aid)

The Capital Account

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

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

Surplus & Deficit of BOP

Surplus/Favorable BOP:
Payments < Receipts

Balanced/Equilibrium of BOP
Payments = Receipts

Deficit/Unfavorable BOP:
Payments > Receipts

Balance of Trade (BOT)

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

History of BOP
Pakistans 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

Major Exports and Imports of Pakistan

Exports
Exports mean selling of goods and services to other countries to earn foreign exchange Overall exports of Pakistan recorded a growth of 10.2% during the first ten months (July-April) of the fiscal year 2007-08 against

a growth of 3.6% in the same period of 200607

Exports (contd)
Pakistans exports have increased from $ 13.8473 billion to $ 15.2555 billion in the first ten months (July-April) of the fiscal year

2007-08 as compared to the same period of 2006-07

Major Exports of Pakistan

Commodities
Cotton Manufactures

2006-07 in %
59.7

2007-08 in %
54.7

Leather
Rice Textiles Sports goods Others

5.2
6.6 2.5 1.7 24.3

6.1
7.1 2.9 1.6 27.6

% OF EXPORTS INCLINE AND DECLINE FY2009-10

Imports
Imports mean buying of goods and services from other countries to fulfill the domestic needs Pakistans imports during the first ten months (JulyApril) of the fiscal year 2007-08 grew by 28.3% compared with the same period of the fiscal year

2006-07 reaching to $ 32.06 billion

Major Imports of Pakistan

Commodities
Machinery Petroleum & Products
Chemicals Transport Equipments

2006-07 in %
21.9 24.0
13.0 7.6

2007-08 in %
18.4 26.5
12.4 5.7

Edible oil Iron & Steel

Fertilizers Tea Others

3.1 4.9
1.5 0.7 23.3

4.2 3.3
2.7 0.5 26.3

Causes of Adverse BOP

Following are some of the causes of

adverse BOP of Pakistan:

Increase in Imports Low Volume of Exports Inflation Increase in Defense Need Increase in Population Revenue Oriented Tariffs

Trade Restrictions

easures to Correct Adverse BOP

Following are the measures to correct

adverse BOP of Pakistan:

Promotion of Exports
Finished Products Quality & Cost of Export Goods Export Exhibitions and Fairs Devaluation

Measures to Correct Adverse BOP (contd)

Check on Imports Luxurious Products Unnecessary Items Industrial Development Explore New Markets Imports of petroleum products

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