CAUSES OF UNFAVOURABLE BOP -OR- BOT: These are the permanent problem of deficit in BOP: A- LIMITED EXPORT CAPACITY 1.

Narrow Export Base Pakistan basically is an agricultural country. Its major exports are rice, cotton, raw wool, leather, fish etc. Our exports, during the last five years, are remaining around $ 15 billion to $ 20 billion. The reason is that our export base is narrow. It is concentrated in relatively low value added products. Value of exports during 2010-11 is $ 24 billion. 2. Consumption Oriented Society People of Pakistan are mostly consumption oriented. Due to rapid rise in population and increased consumption habits, the domestic manufactured goods are mostly consumed in the country. The exportable surplus is going on decline. Govt. has to import 4.0 million tones of wheat and heavy amounts of sugar, pulses and tea in 2005-06, being an agrarian country. 3. Less Modernization of Machinery Since 1970’s, there have been less modernization, balancing and replacement of machinery in the private industrial sector. The fall in production and decline in the quality of products has adversely affected exports. 4. Increase in the Sick Industrial Units The number of sick industrial units, mainly due to nationalization of industries, has borne up. It is on record that the performance of most of the industries in the public sector is not satisfactory. The decline in production of semi-manufactured and manufactured goods reduces the exportable surplus and adversely affects the volume of trade. 5. Less Production of Value Added Goods The share of industry in the GDP is 25.8 %. The share of value added goods must increase to earn over many years. The share of value added goods must increase to earn foreign exchange and turn the trend of adverse balance of payment. The production of value added goods is at basic stage in Pakistan that leads to adverse BOP. 6. Devaluation The repeated devaluation of rupee against US dollar has not helped in the increase of exports. It has made the imported inputs more costly. The demand for our goods in the international market is elastic. As such, due to devaluation, as tool for boosting, exports are not effective. 7. Tough Competition Stiff competition in the foreign market particularly of our value added goods has reduced the volume of foreign trade in Pakistan. There is availability of higher standard goods at lower prices in international market. It causes reduction in exports, which result in deficit in BOP. 8. Increase in Prices of Inputs The increase in the prices of fuel, electricity, high capital costs of imported machinery, exchange rates etc. have inflated. The costs of both imported capital goods and industrial raw material, on which domestic industry is heavily dependent the inflationary impact of the rise in the prices of inputs are not helping in achieving the export targets set in each financial year. 9. Anti-dumping Duties Japan, Hong Kong and some other nations imposed antidumping duties on our cotton yarn, fabric and bed linen. Such types of duties on our exportable goods are also a big hurdle in the way of our exports. 10. Technical Barriers Imposition of non-tariff, barriers like child labour, ISO 14000 etc., has adversely affected our exports for the last years. The advanced countries of the world have imposed technical

8 billion as debts services charges during 2010-11. Due to reduction in export earning. Foreign Debts Servicing Pakistan has obtained about $ 59. According to Economic Survey of Pakistan 2010-11.4 million in 2007-08. Labour Intensive Industries Labour intensive industries should be established. Our import bill of petroleum group is increased to $ 8670. on their imports. 2. Most of industries. 275 billion. Rise in Oil Prices The sharp rise in the prices of oil particularly in 70’s and also in the beginning of 1980’s and 1990’s is taking a big amount of the foreign exchange earnings. Defense Needs We have to purchase modern weapons for our defense at a very high cost from different countries. A decline in terms of trade causes imbalance in the balance of payment. The interest payment has adversely affected the balance of payment. particularly in the manufacturing value added sector has reduced export earnings. Import Oriented Industry Some of our industries are based on the imported inputs and raw material e. TOT = [(Export Price Index ¸ Import Price Index) ´ 100] TOT = (296. EXPORT LED GROWTH 1. while it was $ 530 million in 1978-79. 18. Increases in Import Payment for Fertilizer There is sharp increase in the import payments to the outside world due to increase in prices of fertilizers.g. The fall in the volume of production.10 ¸ 446. 15. terms of trade are 59. these industries can be set up at lower cost. trade-marks and designs etc. our BOP is unfavourable. which were established for achieving the twin objective of earning and saving foreign exchange. B.UN-RESTRICTED IMPORT NEEDS 14. Expenditure on defense is Rs. Import of Capital Goods Pakistan has to import capital goods for rapid industrialization of the country in order to build up the economy. Fall in Terms of Trade The import unit values are higher than the export unit values for the last over three decades in Pakistan. copyrights. 17. have been eating away roughly 30 % of aggregate import bill.01) ´ 100] = 66. 12. 13. Our balance of payment shows debit due to high payments. which increases burden on our BOP and it becomes adverse. Pakistan will have to upgrade the standard of purity and quality to compete for its products in the international market. 11.61 % of our export earnings in 2005-06.barriers such as patents. The products of these industries can be exported.5 billion from different countries and it pays interest on these loans regularly. oil and petroleum etc. It paid $ 7. Manufactured Goods . 16..3 indices. The heavy import of machinery has considerable increased the import bill and has adversely affected balance of payment. edible oil and petroleum. because labour is cheaper in Pakistan.39 indices Above computation is showing that we lost about 33. Political Uncertainty The political uncertainties in the industrial units have considerably affected the efficiency of the industries. MEASURES TO CORRECT ADVERSE BOP Measures to correct the deficit balance are of three types: A.

MISCELLANEOUS 13. there will be less need for such imports. Decrease in Consumption Taxes should be imposed to reduce the consumption of many items. Export Development Fund and Export Processing Zones etc. food products and electrical goods. it will not capture foreign market. foreign exchange reserves are wasted. Import of Only Essential Items Only essential items should be imported which are needed for our industrial production. steel. Substitutes for Imported Items Import substitutes should be manufactured in the country. Joint Venture Establishing industries with joint venture of foreign investors can also push up the export. 15. If packing is not attractive and durable. C. The products of these industries can be sold in the foreign market. 14. electric motors. All these are playing their effective role to increase export and to correct the BOP. ball pens. 12. shoes. is taking strict measures to eliminate markets of smuggled goods. so that there is no wastage of foreign exchange to import of un-necessary and luxuries. Packing High quality packing is essential for promoting exports. Reduction in Export Duties This step will make our export competitive in the international market. Thus. Exchange control should be followed. Population Control . REDUCTION IN IMPORTS 10. 9. 11. So. Pricing of Goods It is necessary for increasing exports that goods should be produced under optimal conditions and offered at competitive prices in international market. edible oil and electrical goods are increased. 3. So.Instead of exporting primary goods like raw cotton. cycles. paper. 4. all this should be restricted. Quality Products Many of our goods cannot be exported because of poor quality. Foreigners will prefer to import from Pakistan because of low prices. crockery etc. electric fans. 6. After atomic explosion. Immoral Practices Many Pakistanis have brought bad name to our trade because they export commodities of inferior quality than specified in agreements. Pakistan has already done this. leather goods. Pakistan should export manufactured goods like textiles and garments. the Govt. People should be educated to come out from the complex of foreign goods. cannot be sold abroad. Exchange Control Exchange control is also an important step to minimize the imports. Control of Smuggling Bara markets should be eliminated. There are Export Promotion Bureau. 8. Export Marketing Agencies should be made more active. Pakistan is needed to improve the quality of its products according to international standard. Rich people in our country are spending freely on unnecessary imported consumer items. If home production of fertilizer. Import of luxuries should be banned. 5. 7. B.

Sincere efforts should be made to decrease growth rate of population.Many of our problems are arising due to fast increase in population. . People should be educated in this regard.

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