Project of eop (balance of payment)

BALANCE OF PAYMENT

Project:

Balance of Payments (BOP) & Balance of
trade (BOT) of Pakistan

Submitted to:

Mam Farah Naz Naqvi

Submitted by:

Mehwish Batool M10MBA009
Aroosh Mehmood M10MBA026
Naveen Saba M10MBA010

Hailey College of Banking &
Finance

Hailey College Of Banking And Finance Page 1

BALANCE OF PAYMENT

TABLE OF CONTENTS
Concept of Balance Of Payment 4
Definitions 4
Balance Of Payment Equilibrium 5
Differentiation Between BOT And BOP 5

Significance of BOP 6

Purpose of BOP 6

Working of BOP 6

Credit Side Items 7

Debit Side Items 7

Components Of Balance Of Payment 7

Current Account 7

Capital And Financial Account 8

Official Reserve Account 9

Types Of Equilibrium 9

Pakistan’s Balance Of Payment 13

History 14

Causes Of Adverse Balance Of Payment 17

Procedures To Correct Balance Of Payment 19

Current Position 21

Summary Of BOP FY-11 24

Exports & Imports with Different Countries 25

Improvements 27

Comparison Between Imports And Exports 29

Real GDP of Some Countries 30

Conclusion 31


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Concept Of Balance Of Payment
When all components of the BOP accounts are included they must sum
to zero with no overall surplus or deficit. For example, if a country is
importing more than it exports, its trade balance will be in deficit, but the
shortfall will have to be counter-balanced in other ways – such as by
funds earned from its foreign investments, by running down central bank
reserves or by receiving loans from other countries
That why it is known as balance of payment.

DEFINITIONS
GENERAL DEFINITION:

Balance of payments (BOP) accounts are an accounting record of all
monetary transactions between a country and the rest of the world for a
specified period, usually a year.
These transactions include payments for the country's exports and
imports of
Goods,
Services,
Financial capital, and
Financial transfers.

GENUINE DEFINITION:

According to the IMF publication ‘BALANCE OF PAYMENT MANUAL’
describes the concept in the following terms:
“The Balance of Payment is a statistical statement for a given period
showing:
1. Transactions in goods and services and income between an
economy and the rest of the world;
2. Changes of ownership and other changes in that country‟s
monetary gold and claims on liabilities to the rest of the world;
and
3. Unrequited transfers and counterpart entries that are needed
to balance, in the, any entries for the forgoing transactions
and charges which are not mutually offsetting”.
BALANCE OF PAYMENT EQUILIBRIUM
The “balance of payment equilibrium” (bpe) is defined as,


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the situation when trading among different countries is such that the
trading partners remain debt free from each other over a reasonable
number of years.
In other words, the value of a country‟s imports is equal to the value of its
exports.In order to put the bpe model into practice, the trading partners
would have to establish and meet numerical goals for their exports and
imports. The U.S., for example, should have exported $726 billion
dollars worth of products more in 2005 to bring its balance of trade and
payment deficits to zero.

“Equilibrium is that state of balance of payment over the relevant time
period which makes it possible to sustain an open economy without
severe unemployment on a continuing basis.”

DIFFERENTIATION BETWEEN BOT & BOP

Balance of trade refers only to the merchandise balance or balance on
„visible transactions‟ alone.
Visible items refer to the commodity exports and imports entering
the balance of trade. They are visible because they are recorded
at thecustoms barriers of the country.

On the other hand, the balance of payments refers to the sum of both the
balance on „visible transactions‟ as well as„invisible items‟

 It also includes capital and financial accounts.
 Invisible items refer to the imports and exports of services.
 Such services may be of various kinds for which payments have
to be made or received,

For Example:

1. transport charges,
2. shipping freight,
3. passenger fares,
4. harbour and canal dues,
5. commercial services (fees and commissions),
6. financial services (brokers‟ fees) and
7. services connected with the tourist traffic and
8. Payment of interest on external debt. As against the commodity or
merchandise transactions, which are visible, these services are
called invisible items of the balance of payments as they are not
recorded at the customs barriers
SIGNIFICANCE OF BALANCE OF PAYMENT

 It is the basic instrument that measures the international transaction
of acountry during specific period.


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 Bop is one of the major indicator of a country‟s status in the
international market.
 Bop depict the true picture of a country.
 The rise of global financial transactions and trade in the late-20th
century spurred bop and macroeconomic liberalization in many
developing nations.
 Bop is very important in the regard that it tell us about our short term
and long term asset.
 Bop tell us about the surplus and deficit regarding our transaction

 The rise of global financial transactions and trade in the late-
20th century spurred BOP and macroeconomic liberalization in
many developing nations

 If it is deficit the sum is counterbalanced by an accumulation of
official net liabilities, so the country sees its official reserve
assets decline.

So throuh the information of deficit and surplus we can make The
corrective measures which Is very important for a country

 BOP state the intenational economic relation of a country.
 A guide to its monetary, fiscal and xchange rate.
 Inform gov about the international economic position of a country to
assist in reaching the correct decision.
 To know the influence of foreign trade on national economy
 Is currency becomer weaker or stronger?
 How effective are monetary and fiscal policies?

PURPOSE OF BOP:
The main purpose is to provide the government information about the
international economic position of the country and to help make
decisions about monetary and fiscal issues and about trade and
payments.

WORKING OF BOP:
It is a nature of a balance of payment system that it should operate
similarly to the balance sheet of a company. So,

 Receipts from a country credit side
 Payments to a country debit side

CREDIT SIDE ITEMS ARE;


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 Exports of goods and services,
 Un requited or transfer receipts in the form of gifts etc,from
foreigners,
 Borrowings from abroad ,
 Foreigners direct investment, and
 Official sale of reserve assets including gold to foreigner countries
and international agencies.

DEBIT SIDE ITEMS ARE;
 Imports of goods and services,
 Transfer payments to foreigners,
 Lending to foreigners countries
 Investments by residents in foreign countries, and

Official purchase of reserve assets or gold from foreign countries and
international agencies.

COMPONENTS OF BOPs ACCOUNT

The Balance of Payment for a country is the sum of the;
1. Current account
2. Capital and financial account
3. Official reserve assets account

1. CURRENT ACCOUNT
The current account is the sum of
 Net Sales from trade in goods and services,
 Net Factor Income (such as interest payments from
abroad),and
 Net Unilateral Transfers from abroad (such as gifts and
foreign aid).

RESULTS:

Positive Net Sales corresponds to a Current Account Surplus.
Negative Net Sales corresponds to a Current Account Deficit.


BALANCE OF PAYMENT

WHAT SHOULD WE DO TO IMPROVE CURRENT
ACCOUNT:

The current account should increase if;
1. The domestic currency depreciates,
2. Domestic GDP decreases, or
3. Foreign GDP increases.

EFFECTS:

1. Domestic currency depreciation makes domestic goods relatively
cheaper, boosting exports relative to imports.
2. A decrease in domestic GDP reduces domestic demand for
foreign goods, lowering imports without affecting exports.
3. An increase in foreign GDP increases foreign demand for
domestic goods, increasing exports without affecting imports.

FORMULA:

Current Account = Trade Balance+ Net Factor Income
from Abroad+ net Unilateral Transfers
from Abroad

2. CAPITAL ACCOUNT
The capital account records the net change in ownership of foreign
ownership of domestic assets.
Capital account is now also known as the financial account .It includes;
Loans and investments between the country and the rest of world
(but not the future regular repayments/dividends that the loans
and investments yield; those are earnings and will be recorded in
the current account).
All international trade transactions( of goods and services),
All international unilateral transfers (gifts and foreign aid).

FORMULA:
Financial Account = Increase in foreign ownership of
domestic assets-Increase of domestic
ownership of foreign assets


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3. OFFICIAL RESERVE ASSETS ACCOUNT
The official reserve account records the governments’ current stock
of reserves.

Official reserve transactions consist of movements of international
reserves by government and official agencies to accommodate
imbalances arising from the current and capital accounts.

Reserves include;
Official Gold Reserves,
Foreign Exchange Reserves, and
IMF Special Drawings Rights.

Countries who try to control the price of their currency will have large net
changes in their official reserve accounts.

Some of the most extreme examples include CHINA and JAPAN.
In 2003 and 2004, Japan had an outflow of reserves, yen, by more
than equivalently one third of one trillion US dollars.

TYPES OF BOPs EQUILIBRIUM
There are two types of BOP equilibrium, i.e, Static equilibrium and
dynamic equilibrium Static Equilibrium

Static Equilibrium
The distinction between static and dynamic equilibrium
depends upon the time period.
In static equilibrium, exports equal imports including ;
Exports and imports of services as well as goods
The other items on the bops – short term capital, long term
capital and monetary gold are on balance, zero.
Not only should the bops be in equilibrium. The foreign exchange rate
must also be in equilibrium.
Dynamic Equilibrium
The condition of dynamic equilibrium for short periods of time
is that exports and imports differ by the amount of short-term
capital movements and gold (net) and there are no large de
stabilizing short-term capital movements.


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The condition for dynamic equilibrium in the long run is that
exports and imports differ by the amount of long term
autonomous capital movements made in a normal direction,
i.e. From the low-interest rate country to those with high
rates. When the BOP of a country is in equilibrium, the
demand for domestic currency is equal to its supply.

CAUSES OF DISEQUILIBRIUM IN BOP
Though the credit and debit are written and balanced in the balance
of payment account, it may not remain balanced always.
Very often, debit exceeds credit or the credit exceeds debit causing
an imbalance in the balance of payment account.
Such an imbalance is called the disequilibrium.

Disequilibrium may take place either in the form of deficit or in the form
of surplus
Disequilibrium of Deficit arises when our receipts from the foreigners fall
below our payment to foreigners. It arises when the effective demand for
foreign exchange of the country exceeds its supply at a given rate of
exchange. This is called an 'unfavorable balance'.
Disequilibrium of Surplus arises when the receipts of the country exceed
its payments. Such a situation arises when the effective demand for
foreign exchange is less than its supply. Such a surplus disequilibrium is
termed as 'favourable balance.

Population Growth
Most countries experience an increase in the population and in some like
India and China the population is not only large but increases at a faster
rate. To meet their needs, imports become essential and the quantity of
imports may increase as population increases

Development Programmes
Developing countries which have embarked upon planned development
programmes require to import capital goods, some raw materials which
are not available at home and highly skilled and specialized manpower.
Since development is a continuous process, imports of these items
continue for the long time landing these countries in a balance of
payment deficit.

Demonstration Effect


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When the people in the less developed countries imitate the
consumption pattern of the people in the developed countries, their
import will increase. Their export may remain constant or decline causing
disequilibrium in the balance of payments.

Natural Factors
Natural calamities such as the failure of rains or the coming floods may
easily cause disequilibrium in the balance of payments by adversely
affecting agriculture and industrial production in the country. The exports
may decline while the imports may go up causing a discrepancy in the
country's balance of payments.

Cyclical Fluctuations
Business fluctuations introduced by the operations of the trade cycles
may also cause disequilibrium in the country's balance of payments. For
example, if there occurs a business recession in foreign countries, it may
easily cause a fall in the exports and exchange earning of the country
concerned, resulting in a disequilibrium in the balance of payments.

Inflation
An increase in income and price level owing to rapid economic
development in developing countries, will increase imports and reduce
exports causing a deficit in balance of payments.

Poor Marketing Strategies
The superior marketing of the developed countries have increased their
surplus. The poor marketing facilities of the developing countries have
pushed them into huge deficits.

Flight Of Capital
Due to speculative reasons, countries may lose foreign exchange or gold
stocks People in developing countries may also shift their capital to
developed countries to safeguard against political uncertainties. These
capital movements adversely affect the balance of payments position

Globalization
Due to globalization there has been more liberal and open atmosphere
for international movement of goods, services and capital. Competition
has been increased due to the globalization of international economic
relations. The emerging new global economic order has brought in


BALANCE OF PAYMENT

certain problems for some countries which have resulted in the balance
of payments disequilibrium.

There are three main types of BOP Disequilibrium
which are ;
 Cyclical disequilibrium,
 Secular disequilibrium,
 Structural Disequilibrium

1.Cyclical Disequilibrium
Cyclical disequilibrium occurs because of two reasons.
First, two countries may be passing through different paths
of business cycle.
Second, the countries may be following the same path but the
income elasticities of demand or price elasticities of demand
are different.

2.Secular Disequilibrium

The secular or long-run disequilibrium in BOP occur because
of long-run and deep seated changes in an economy as it
advances from one stage of growth to another.
The current account follows a varying pattern from one state
to another.
Disequilibrium arises owing to lack of sufficient funds available
to finance the import surplus, or the import surplus is not
covered by available capital from abroad. Then comes a stage
when domestic savings tend to exceed domestic
investment and exports outrun imports.
Disequilibrium may result, because the long-term capital
outflow falls short of the surplus savings or because surplus
savings exceed the amount of investment opportunities
abroad.

3.Structural Disequilibrium
Structural disequilibrium has two sub types into:

(i) Structural Disequilibrium at Goods Level:


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Structural disequilibrium at goods level occurs when a
change in demand or supply of exports or imports alters a
previously existing equilibrium, or
when a change occurs in the basic circumstances under
which income is earned or spent abroad, in both Causes
without the requisite parallel changes elsewhere in the
economy.

(ii) Structural Disequilibrium at Factors Level:
Structural disequilibrium at the factor level results from
factor prices which fall to reflect accurately
factor endowments, i.e., when factor prices are out of line
with factor endowments, distort the structure of production
from the allocation of resources which appropriate factor
prices would have indicated.

General Measures to Correct BOP Disequilibrium
To correct the different types of disequilibrium in BOP the following
general measures are used:

(a) Exchange depreciation (price effect),
(b) devaluation (by government)
(c)Tariffs,
(d) Import quotas, and
(e) Export duties

PAKISTAN’S BALANCE OF PAYMENT

BOP provides the government information about the international
economic position of the country and to help make decisions about
monetary and fiscal issues and about trade and payments.
BOP position of a country serves as an index of its economic
position.

HISTORY
Pakistan‟ Balance of payments situation has not been satisfactory since
independence. The country with the exception of three years i.e.1947-
48, 1950-51, and 1972-73.Excluding the three years stated above,
Pakistan has been facing a deficit in its balance of payments since 1970
to date. The resource gap is being met through loans and grants


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from various international agencies, by increasing exports,
minimizing imports etc.

TREND, VOLUME AND VALUE OF FOREIGN
TRADE SINCE 1947:
FIRST PHASE (1948 TO 1950)
The special features of this phase were,
Devaluation of pound sterling in 1948,
Decrease in external value of Indian rupee a major importer of
Pakistan‟s jute,
Non-devaluation of Pakistani rupee,
Decrease in volume of trade (open general license scheme)
Korean war

Pakistan just after the independence faced problem of shortage of
essential commodities. in 1948, government of Pakistan lifted ban on
imports be on imports which resulted in increase in the volume of
imports.
In September, 1949, British government devalued her currency by 30%
to correct her balance of payments position. in response to this
devaluation , common wealth member countries including India devalued
their currency but Pakistani did not devalues its currency because of
greater demand of exports .India who was the bigger importer of
Pakistani jute and cotton ceased to import and also restricted exports to
Pakistan. Pakistan had to face a difficult situation because
Pakistan‟s60% foreign trade was with India, however, Pakistan
successfully faced this challenge and efforts were made to divert its
trade with other countries of the world. it reduced dependence on India.
In mid-1950, Korean War started. The demand for our exports increased
sharply, Pakistan earned a lot of foreign exchange due to increased
quantity of exports of jute and cotton.

SECOND PHASE (1951 TO 1955)
The special features of this phase were:
Import policy was liberalized.
End of Korean war,
Reduction of imports by advanced countries,
Abolished open general license(OGL)

As a result Korean War, the industrial developed countries stated
increasing the imports of raw material; the import policy was liberalized
through OGL. India also started importing jute from Pakistan. This made
balance of payment position favorable. The Korean War soon ends and


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export prices of jute and cotton feel sharply. The industrially developed
countries which had stockpiled raw material for years reduced imports.
Therefore, balance of payments position again became unfavorable
government of Pakistan again adopted the import control policy and
abolished OGL. Under stringent conditions all imports ere made
licensable from 1952.

THIRD PHASE (1955 TO 1960)
Special features of this phase were.
Devaluation of currency,
Import of food grain,
New export promotion schemes.

In 1950‟spakistan started the policy o industrialization and import
substitution. Besides this due to bad weather conditions and poor
exports Pakistan was forced to devalue its currency to boost exports.
Due to industrial development, home industry started consuming jute
and cotton which decreased the quantity of exportable surplus. To
increase exports earnings various schemes were started. In 1958
martial law government initiated new schemes for export promotion;
Export promotion schemes
Industrial development
Indo-pak war
Low exchange import

FOURTH PHASE (1960-1965)
Period from 1960 to 1965 can be treated as a period of higher rate of
economic development and export incentives. During this period foreign
trade expanded bit volume and value of imports was greater than
exports. This increased trade deficit yet industrial performance remained
satisfactory.
Martial law government took many steps to boost exports. Export
promotion council was established and export credit guarantee scheme
was stared. In this period composition of exports changed from export of
agriculture raw material to semi manufactured goods and manufactured
goods. Pakistan trade relations with east European countries are
improved.
FIFTH PHASE (1965-1970);
THE PERIOD FROM 1965 TO 1970 was a period of disaster for
Pakistan .In September 1965 indo–pak war started and Pakistan had to
spend huge amount of its foreign exchange on import of defence
armaments. During 1966-1967, there was a serious food shortage and
Pakistan had to import wheat. The inflow of foreign aid remained below
the target. The export targets could not be achieved. The political


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instability from 1968-1970 also effected trade and balance of payments
remained unfavorable.

SIXTH PHASE (1971-1977)

East Pakistan separated from West Pakistan in 1977.import structure
was distributed. There was an export shortage.however, effortswere
made to accelerated exports and these efforts proved fruitful. Pakistan
faced a serious shortage of foreign exchange, to overcome this problem
in 1972, Pakistan devalued its currency by 131%, multiple exchange rate
policy and export bonus scheme were abolished. The exports fell short
of target due to the following reasons,
Nationalization of industries,
Monetary and fiscal changes,
Floods in 1973-1974,
Unorganized efforts to increase export.

SEVENTH PHASE (1978-1983):
The period from 1978 to 1983 is treated as a period of economic
prosperity and stability. There was an increase in exports. Exports grew
at a reasonable rate, imports along with exports showed an upward
trend. In January, 1981, one rupee note was declined from dollar which
accelerated the exports. Although it was not devaluation but our currency
demonstrated a decline in external value. In 1979.afghan refugees
entered in Pakistan which increased burden on imports and decreased
exports.

EIGTHTH PHASE (1983 TO 1991):
In this period wheat, sugar and food grain shortage appeared .foreign
remittances stared declining and foreign debt washout up to 16 billion
dollars. During the period of 1985-1986, exports increased than imports
but at the same time foreign remittances started declining due to coming
back of Pakistani workers after completion of projects and development
programs and decrease in oil prices. Due to decrease in oil prices,
Pakistan import bill decreased by Rs.6 billion. Foreign debt increased
from 12 billion dollars in1984 to 16 billion dollars in 1991.

NINTH PHASE (1992 TO 2009):
Many political changes appeared in the country. There was a fall of
government by Nawaz Sharif, then Benzir Bhutto and then again Nawaz
Sharif government in 1999 and gen. Musharaf took over the government.
Total exports which were 16 billion dollars reached in2008-


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2009.percentage share of exports of primary commodities, 11%,
manufactured goods 61.4% .total imports declined to 26.7 billion dollars
in 2008-2009.

CAUSES OF ADVERSE BALANCE OF
PAYMENTS

YEAR TRADE REASONS
SURPLUS
1947-48 Rs.125 M Exports of newly
Pakistan were
high

1950-51 Rs.176 M KOREAN WAR,
exports of cotton
&jute were high

1972-73 Rs.153 M In1972,
devaluation of
currency by
131% of Pakistani
rupee.

1. FISCAL POLICES:
Pakistan’s fiscal policy has been a serious obstacle to the expansion of
its exports. The import duties on the raw material required for the
production of certain goods which have an export potential are so high
that the production costs make the goods uncompetitive in the world
market.

2. EXPORT OF PRIMARY COMMODITIES

The main factor for unsatisfactory export performance is stated to be
the adverse trend in the terms of trade. but this is the result of heavy


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dependence of the country‟s export earnings on primary commodities
like cotton and rice and semi-manufactured goods, which are subject to
frequent price fluctuations in the world market.

3. INFLATION

Inflationary conditions are a serious obstacle to the promotion of exports.
Inflation results in a rise in the domestic cost of production so that the
goods produced cannot compte in the world market.BOP were also
affected by the impact of inflationary pressures.

4. CONSUMTION ORIENTED SOCIETY
Pakistanis are mostly consumption oriented. Due to rapid rise in
population and increased consumption habits, the manufactured goods
are mostly consumed in the country, so, a smaller portion is left for
exports.

5. TRADE BARRIERS OF DEVELOPED
COUNTRIES

The trade barriers raised by developed countries against the import of
manufactures from the developing countries is one of the important
factor preventing greater production and export by some industries in
Pakistan, particularly the cotton textile industry.

6. IMPORT SUSTITUTION POLICY OF
PAKISTAN
The emphasis of Pakistan‟s industrial policy has been more substitution
than on exports expansion .the position of domestic industries results in
higher prices for the consumer. In Pakistan, industries have a sheltered
domestic market tend to become inefficient due to absence of foreign
competition

7. SLUGGISH GROWTH OF PRODUCTION

Pakistan‟s major exports comprise of agriculture goods i.e. cotton, its
products and rice. Pakistan has a large area of cultivation but it is not
utilized properly. Mostly the cultivatable area is affected through poor
drainage system. Another reason is climate conditions .if the whether
condions are unfavorable, the production of these commodities goes


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down and the production of the commodities is affected heavily and
causes reduction in exports.

8. OBSOLETED TECHNIQUES OF
PRODUCTION
The industrial sector as well as agriculture sector in our country are still
operating on the machinery manufactured before 1980.especiaaly in the
public sector modernization, balancing and replacement of machinery is
out of question since 1972 which results a fall in production and the
quality of products, also remains low and it is not possible to increase
exports and to compete even with developing countries.

9. UNBALANCED PRICES

The frequent changes in the fiscal and monetary polices of Pakistan in
the past years had disturbed the level of investment, the volume of
imports and exports.

PROCEDURES TO CORRECT BALANCE
OF PAYMENTS
 Export of manufactured goods

Pakistan should export manufactured goods (leather goods,
electrical goods etc.) instead of primary goods.

 Quality products

Many of our goods can not be exported because of poor quality.
Quality products should be manufactured for increasing the exports in
international market.

 Import of fundamental items:

Only essential items should be imported which are needed for our
industrial production. Import of luxurious should be banned.

 Import Alternative


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Import substitutes should be manufactured in the country to save the
foreign exchange on imports.

 Terms of trade

Terms of trade of Pakistan are unfavorable which increasing deficit in our
balance of payments is so there is a need to improve terms for trade by
exporting finished goods instead of raw material and primary goods.

 Special Schemes

In order to improve balance of payment, government should introduce
special schemes for the exporter and importer. Through these schemes
exporters should be encouraged and importers should be asked to
minimize imports.

 Self-Sufficiency:

Pakistan‟s balance of payments is now worsening due to repayment of
debt and debt servicing.to avoid further deficit we must follow the self
reliance policy.

 Exploring export markets:

More emphasis should be laid on export survey and export market entry.
it is paramount importance that our exporters should know more about
operating in a foreign market. it must also be our export policy to make
preparations for organizing our efforts to secure more export orders from
abroad.
There is need to survey foreign markets, opening of display centers and
information offices abroad and exploring the foreign markets by our
manufactures for sale of Pakistani goods.

Reducing the balance of payments deficit depends on our rapid
industrial production and the quality of our products. We need to
fully utilize the idle capacity of our industries.
We can import advanced technology for increasing home
production.
The tax element in the cost of production of export commodities
needed to be eliminated except where it was desired to tax export
of specified commodities.

CURRENT POSITION

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Balance of payment‟s surplus or deficit is mainly the combination of
current and capital account. So,During July- April 2010-2011 the
country witnessed a surplus of $ 1,210 million.

ITEMS Cr. Dr. Net
1. Current Account 883,383 929,791 -46,408
A. Goods and services 542,599 854,442 311,843
a. Goods 450,896 706,997 256,101
1. General merchandise 447,043 700,147 253,105
2. Goods for processing - - -
3. Repairs on goods - 1,712 -1,712
4. Goods procured in ports by carriers 3,853 5,137 -1,284
5. Nonmonetary gold - - -
b. Services 91,703 147,445 -55,741
1. Transportation 30,653 81,600 -50,946
1.1 Passenger 13,614 9,847 3,767
1.2 Freight 2,483 61,392 -58,909
1.3 Other 14,556 10,361 4,196
2. Travel 6,507 15,241 -8,734
2.1 Business 86 514 -428
2.2 Personal 6,422 14,727 -8,306
3. Communications services 4,110 3,425 685
4. Construction services 514 342 171
5. Insurance services 514 3,682 -3,168
6. Financial services 2,141 2,226 -86
7. Computer and information services 3,939 2,740 1,199
8. Royalties and license fees - 1,969 -1,969
9. Other business services 15,755 22,005 -6,251
10. Personal, cultural, and recreational - 342 -342
services
11. Government services, n.i.e. 27,571 13,871 13,700
B. Income 15,840 71,325 -55,484
1. Compensation of employees 514 171 342
2. Investment income 15,327 71,154 -55,827
2.1 Direct investment 1,456 40,928 -39,473
2.1.1 Income on equity 1,456 40,928 -39,473
2.1.2 Income on debt (interest) - - -
2.2 Portfolio investment 11,645 12,330 -685
2.2.1 Income on equity - 1,798 -1,798
(dividends)
2.2.2 Income on debt (interest) 11,645 10,532 1,113
2.3 Other investment 2,226 17,895 -15,669
2.3.1 Monetary authorities 856 2,740 -1,884
2.3.2 General government - 13,015 -13,015
2.3.3 Banks 1,370 342 1,027
2.3.4 Other sectors - 1,798 -1,798
C. Current transfers 324,943 4,024 320,919


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1. General government 16,954 86 16,868
2. Other sectors 307,990 3,939 304,051
2. Capital and Financial Account 137,769 82,456 55,313
A. Capital account 1,712 - 1,712
1. Capital transfers 1,712 - 1,712
1.1 General government 1,712 - 1,712
1.1.1 Debt forgiveness - - -
1.1.2 Other 1,712 - 1,712
1.2 Other sectors - - -
2. Acquisitions/disposal of non- produced - - -
non financial assets

B. Financial account 136,057 82,456 53,601
1. Direct investment 34,078 171 33,907
1.1 Abroad - 171 -171
1.2 In reporting economy 34,078 - 34,078
2. Portfolio investment 5,651 - 5,651
2.1 Assets - - -
2.2 Liabilities 5,651 - 5,651
3. Other investment 93,073 76,034 17,039
3.1 Assets 4,624 16,782 -12,159
3.1.1 Trade credits - 3,082 -3,082
3.1.2 Loans - - -
3.1.2.1 Long-term - - -
3.1.2.1 Short-term - - -
3.1.3 Currency and deposits 4,624 9,076 -4,452
3.1.3.1 Monetary authorities - - -
3.1.3.2 General government 86 - 86
3.1.3.3 Banks - 9,076 -9,076
3.1.3.4 Other sectors 4,538 - 4,538
3.1.4 Other assets - 4,624 -4,624
3.1.4.2 General government - - -
3.1.4.3 Banks - 4,624 -4,624
3.1.4.4 Other sectors - - -
3.2 Liabilities 88,450 59,252 29,198
3.2.1 Trade credits - - -
3.2.2 Loans 67,814 52,573 15,241
3.2.2.1 Use of Fund credit - 4,452 -4,452
and loans from the Fund
3.2.2.2 General Govt 53,258 37,503 15,755
3.2.2.2.1 Long-term 53,258 37,503 15,755
3.2.2.2.2 Short-term - - -
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 14,556 10,617 3,939
3.2.2.4.1 Long-term 14,556 9,247 5,309
3.2.2.4.2 Short-term - 1,370 -1,370
3.2.3 Currency and deposits 14,470 942 13,529


BALANCE OF PAYMENT

3.2.3.1 Monetary authorities - 942 -942
3.2.3.2 General govt. - - -
3.2.3.3 Banks 4,281 - 4,281
3.2.3.4 Other Sectors 10,189 - 10,189
3.2.4 Other liabilities 6,165 5,737 428
3.2.4.1.1 Long-term - - -
3.2.4.1.2 Short-term - - -
3.2.4.2 General govt. - 1,884 -1,884
3.2.4.2.1 Long-term - 1,884 -1,884
3.2.4.2.2 Short-term - - -
3.2.4.3 Banks - 3,082 -3,082
3.2.4.3.1 Long-term - 599 -599
3.2.4.3.2 Short-term - 2,483 -2,483
3.2.4.4 Other Sectors 6,165 771 5,394
3.2.4.4.1 Long-term 6,165 - 6,165
3.2.4.4.2 Short-term - 771 -771
4. Official reserve assets 3,254 6,251 -2,997
4.1 Monetary gold - - -
4.2 SDRs 3,254 - 3,254
4.3 Reserve position in the Fund - - -
4.4 Foreign currency reserves - 6,251 -6,251
3. Errors and Omissions - 8,905 -8,905
4. Exceptional Financing - - -

CURRENT ACCOUNT BALANCE:
Pakistan has long suffered a current account deficit which is regarded
as an important indicator to gauge the pressures on a country‟s external
sector.
During July-April 2010-11, the current account deficit turned to
surplus of $748 million from deficit of $3,456 million in the
comparable period of last year. This year‟s improvement in current
account is broad based as improvement witnessed across the broad in
all sub-components including balance of goods, services and income
account while buoyancy in current account to turn it into surplus in the
form of,
higher export growth,
strong and sustained inflows of workers‟ remittances,
logistic support related receipts and
Grants received for flood relief.

SUMMARY OF BOP FY-11:


BALANCE OF PAYMENT

Current account balance turned positive with $214 million as surplus
during FY11 with massive deficit of $3,946 million in the previous
year. Exports fetched $25,356 million with an increase of $5,683 million
(29 percent) over the last year. Imports also increased by $4,663 million
(15 percent) to $35,872 million from $31,209 million.Services account
deficit increased by $250 million to $1,940 million from $1,690 million in
the preceding year.Income account deficit, however, narrowed to $3,017
million from $3,282 million in the previous year reflecting a decrease of 8
percent.Net current transfers with an impressive growth of 25 percent
touched $15,687 million in FY11.Capital account balance slashed to
$161 million from $175 million in FY10. Financial account surplus with
a drastic cut of $2,996 million shrunk to $2,101 million (59 percent) from
$5,097 million.The overall balance, however, tremendously improved to
$2,492 million with a massive 97% increase from $1,266 million in FY10.

2010-11 Millions(US$)
Items Jul-Sep Oct-Dec Jan-Mar Apr-Jun FY11 FY10
Current Account balance -542 564 -32 224 214 -3,946
Trade balance (Goods) -2,991 2,781 2,385 -2,359 - -10,516 -11,536
Exports f.o.b. 5,266 5,846 6,780 7,464 25,356 19,673
Imports f.o.b. 8,257 8,627 9,165 9,823 35,872 31,209
Services (net) -651 303 -716 -876 -1,940 -1,690
Income (net) -648 -849 -710 -810 -3,017 -3,282
Current transfers (net) 3,748 3,891 3,779 4,269 15,687 12,562
General govt. 197 119 168 340 824 556
Other sectors 3,551 3,772 3,611 3,929 14,863 12,006
Capital Account (net) 20 15 47 79 161 175
Financial Account(net) 713 266 735 387 2,101 5,097
Errors and Omissions (net) -104 43 95 -18 16 -60
Overall balance 87 888 845 672 2,492 1,266
Reserves and r elated items -87 -888 -845 -672 -2,492 -1,266
Reserves assets -35 -809 -791 -590 -2,225 -4,063
Use of Fund Credits & Loans -52 -79 -54 -82 -267 2,174
Exceptional financing - - - - - 623

Graphical Representation


BALANCE OF PAYMENT

COMPARISON OF BOP OF PAKISTAN
WITH OTHER COUNTRIES
Pakistan is a developing country and is undergoing severe problems of
political and economic nature due to which our balance of payment with
regard to other countries is not satisfactory.

ACCORDING TO IMPORT AND EXPORT

USA has 16.5% of exports of the total global export while the have only
4.3% of imports.Similarly UK has 1.3% of import and Germany has 2.6%
import

Following table shows Imports and Exports of different
countries:

COUNTRIES EXPORT (%) IMPORT (%)


BALANCE OF PAYMENT

USA 16.5 4.3
UK 5.1 1.3
GERMANY 5.1 2.6

HONG KONG 2.3 _

UAE 7.4 13.3

AFGANISTAN 9.0 _

JAPAN _ 4.1

MALAYSIA _ 5.7

KUWAIT _ 6.8

SAUDIA _ 11.7
ARABIA
OTHERS 55.0 50.2

TOTAL 100 100

ACCORDING TO GDP

India has real gdp growth rate of 8.1% while china has 9.5% in
comparison Pakistan has only 5% GDP growth rate this has mainly due
to
 Political instability
 Corruption
 Reluctant to use tee home made products
 Trends toward more imports

USA has 7.2% GDP growth rate even Afghanistan has 9.5% GDP
growth rate even this country is almost in the war situation


BALANCE OF PAYMENT

IMPROVEMENTS

 WORKERS REMITTANCES
Workers remittances are the part of current account. In this year current
account improves due to workers remittances.Remittances for the first
time in the history of Pakistan crossed the one billion dollar mark in a
single month during March 2011 and remained over the one billion for
second consecutive month in April 2011 which has boosted Optimism
about workers‟ remittances to cross the $11 billion this year. Workers‟
remittances totaled $9.1 billion in July-April 2010-11 as against $7.3
billion in the comparable period last year depicting an increase of 23.8
percent.

Analysis of country-wise data (July-April 2010-11) shows that remittance
inflows from EU, Saudi Arabia, UK and UAE recorded strong growth of
38.3 percent, 36.7 percent, 34.9 percent and 25.7 percent, respectively.


BALANCE OF PAYMENT

 INCREASE IN IMPORTS
Heavy imports are an important cause of dis-equilibrium in balance of
payments. Exports have always been than imports. Merchandise imports
are $ 32.3 billion in July-April 2010-11. an increase of 14.7 percent from
the last year. The overall import
bill is higher by $ 4.1 billion, reflecting the impact
of higher global crude oil and commodity prices.
Major imports are;
food group(milk,wheat,sugar,tea,pulses etc),
13.4% share of imports
machinery group(office, textile machinery etc),
petroleum group(petroleum products etc)
27.2 share of imports
consumer durables(elec.mach.&app etc),
raw materials, (raw cotton,synthetic fiber),
telecom and,2.6% share of imports
Others 16.9% share of imports

 LOW VOLUME OF EXPORTS

Exports have always been less than imports. Merchandise exports are
$20.2 billion in July-April 2010-11. The growth of 27.8 percent from the
last year. The lion‟s share of this year‟s exports came from textile sector
and food group contributing 61.8 percent and 18.1 percent. Major export
items are;
Food group (rice,fish wheat,spices,oil seeds) 17.5% share of
exports
Textile manufactures (raw cotton, cotton yarn,etc) 55.3% share of
exports
Petroleum group (petroleum products etc) 5.4% share of exports
Other manufacturers(carpets,sports,etc) 16.1% share of exports
All other items 5.7% share of exports

 EXCHANGE RATE:


BALANCE OF PAYMENT

The continued build up in foreign exchange reserves, a surplus in the
current account balance and a sufficient inflow of remittances through
official banking channels have strengthened Pak rupee vis-à-vis the US
dollar both in the interbank and open market. Exchange rate averaged
Rs. 83.7 in fiscal year 2009-10 and Rs. 85.3 to a dollar in June 2010.

COMPOSITION OF EXPORTS &IMPORTS
EXPORTS Rs.20154.2 million
IMPORTS Rs.32262.9 million

Graphical Representation:

REAL GDP GROWTH RATE OF SOME COUNTRIES


BALANCE OF PAYMENT

COUNTRIES REAL GDP GROWTH

INDIA 8.1

CHINA 9.5

BANGLADESH 7.2

USA 3.4

PAKISTAN 5

AFGANISTAN 9.5

Graphical Representation

CONCLUSION:


BALANCE OF PAYMENT

From this project we concluded that economic condition of Pakistan is on
average basis. Cause of Pakistan adverse balance of payments is
increase in imports and decline in exports. Pakistan is an
underdeveloped country and its real GDP growth is less than other
underdeveloped countries this is due to political instability conditions
prevail in Pakistan. We are very thankful to Mam Farah Naz Naqvi for
giving this project due to which we learn a lot about our Pakistan
economic conditions and balance of payments (BOP).


Project of eop (balance of payment)

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