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Balance of Payment

Balance of Payment

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Published by Muazzam Mughal
Assignment on Balance of Payment of Pakistan for the subject International Financial Management.
Assignment on Balance of Payment of Pakistan for the subject International Financial Management.

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Published by: Muazzam Mughal on Jul 06, 2010
Copyright:Attribution Non-commercial


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International FinancialManagement
(Morning) – A
Department of ManagementSciences
 The Islamia University of Bahawalpur Rahim Yar KhanCampus
Balance of Payment
“It is a systematic record of all the economic transactions betweendomestic country and rest of the world is known as Balance of Payment.”It includes the payments and receipts during exports, imports,foreign remittances, inward or outward investments etc…Balance of Payment is the difference between Current Account andCapital account of a country. The Current Account further includes Trading Account, ServiceAccount, Income Account and unilateral transfers and other relateditems. The Capital account includes Loan transactions, inward or outwardinvestments, short-term capital and other related items. The actual figures for balance of payment can be obtained at theyear end therefore it is projected based on the previous data andassisting facts and figures.Pakistan’s current account balance in the fiscal year 2008-2009 wasUSD 8,547 unfavorable, debit or negative. In the same year thecapital and financial account balance was USD 3,608 favorable orpositive which lead to the Balance of payment to be USD 4,939deficit.In fiscal year 2009-10, current account balance is projected to beUSD 4,911 unfavorable or negative. This means that we are going toface deficit balance of payment this year as well.
Why Pakistan is facing deficit balance of payment?
 The major reason is and has always been the imports of luxurious and high cost goods for the elite class of the countrythat increases the import bill to the dangerous level where ason the other hand the exports are on decreasing day by day. The textile industry was the backbone of our exports but nowit’s suffering from various crises among them the power crisisis the major issue.
Apart from import bill, the global recession in the recent yearhas severely affected the business and trade all over the world
which also affected Pakistan.
 The investments in the country have declined to the lowestand the major reason is the law and order situation prevailingin the country. The self-imposed war against terrorism hasmade our situation worse as no one is willing to makeinvestments in the country.
 The local industry is facing hard times as we don’t havesufficient energy resources available. It has decreased theproduction of goods and ultimately we have to buy them fromother countries which add to our import bill and increase thesupply of our currency.
Pakistan is agriculture based country and we have one of thefinest and largest canal system. But would you believe that weneed to import sugar, wheat and other basic crops to meet thedemand in the country? In recent year Pakistan needed toimport tons of sugar and wheat just because of themismanagement of resources and water shortage created byIndia by building dams on rivers which are flowing towardsPakistan.
Energy crisis needs to be separately mentioned because it notonly affected the Textile industry but overall the economicactivities in the country are paralyzed. And we need to putsome serious efforts to eliminate it otherwise theconsequences will be dangerous.
Political instability in the country has always affected thegrowth of the country and it does affect the trade andultimately the current account of the country.
 The government policies are the tools to take correctiveactions to make the things stable and on the track but wrongpolicies may lead to adverse affects. We have been lacking ingood policies regarding the economy of the country.
Inflation, as we’ve discussed in class is a factor which affectnot only the trade but the foreign exchange as well. Theincreasing rate of inflation will lead to the surplus supply of thecurrency and it would depreciate the currency value. Once the

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