Definition of 'Balance Of Payments - BOP'

A record of all transactions made between one particular country and all other
countries during a specified period of time. BOP compares the dollar difference of
the amount of exports and imports, including all financial exports and imports. A
negative balance of payments means that more money is flowing out of the country
than coming in, and vice versa.

Balance of payments may be used as an indicator of economic and political stability.

For example, if a country has a consistently positive BOP, this could mean that there
is significant foreign investment within that country. It may also mean that the
country does not export much of its currency.
This is just another economic indicator of a country's relative value and, along with
all other indicators, should be used with caution. The BOP includes the trade balance,
foreign investments and investments by foreigners.
The balance of trade is the relationship between a nation's imports and exports of
goods and services. Any imbalance in these trade implies an equal and opposite
imbalance in asset trade. A positive balance of trade is known as a trade surplus and
consists of exporting more than is imported; a negative balance of trade is known as a
trade deficit or, informally, a trade gap. A trade deficit (more properly labeled as a
current account deficit) means that exports are insufficient to pay for imports and a
trade surplus is the opposite of it -corresponding to the capital account deficit. Trade
deficit risks jeopardizing nation’s economic growth because current account deficit
leads to net selling of international assets. Hence, current account trade surplus
increases country’s international asset position correspondingly and a trade deficit
decreases the net international asset position accordingly. The balance of trade is
generally affected by the factors like: Prices of goods manufactured at home, trade
agreements, tariffs and non-tariff barriers, exchange rates, state of business cycle at
local or international market.

1.
Exports of Pakistan Primary Commodities
2.
Rice,Raw Cotton
Fish & Fish Preparations Fruits,Vegetables,Tobacco,Wheat, Spices
Oil Seeds, Nuts and Kernels

2. Textile Manufactures Cotton

Yarn
Cotton Fabrics Knitwear
Bed Wear
Towels
Readymade Garments
3. Other ManufacturersCarpets & Carpeting
Petroleum and Petroleum Products
Sports Goods, Leather Manufacturers
Surgical & Medical Instruments
Cutlery, Chemical and Pharmaceutical Products Engineering Goods
Gems, Jewellary
Furniture,Molasses
Exports of Pakistan
It is not only in agriculture that we have excelled in; Pakistan has a reasonably strong
industry base. In many areas, our industry not only fully meets the local requirements
but also earns valuable foreign exchange for our country.
Textile Products. Our textile products are famous world wide which account for
more than 50% of our total exports. There are over 500 Textile Mills producing high
quality textile products. Majority of our textile industry is based in Faisalabad while
units do exist in other parts of the
country also.
Fertilizers Industry. Pakistan is one of major exporters of fertilizers with one of the
world’s biggest fertilizer plant in recently constructed our country. Being an
agricultural country the consumption of fertilizers is a direct indicator of the growth
of the agricultural sector. Overall industry capacity is approx 7.5million tons per
annum
Cement Production. Total of 30 cement industrial units are meeting the local and
regional requirements and contributes approx 30 billion Rs in the form of taxes. Our
cement industry has a production capacity of 20 million tons out of which we
exported approx 11 million tons of cement which earned 700 million US$ of foreign
exchange. More than 150,000 people are employed in cement sector.
Sports Goods. Located in Sialkot our sports goods industry has earned very good
name for the country as well as foreign exchange. Our exports in year 2009 were than
35 million US$. Made in Pakistan footballs, soccer balls, gloves are famous all over
the world.

Leather Products. Leather good are the second major export items of Pakistan after
textiles. Pakistan exports are approximately 700million US$ annually. Italy is a major
importer of our leather jackets, gloves and handbags.

Surgical Instruments. Based in Sialkot, our surgical industry has a history of more
than 100 years. In 2009 Pakistan exported nearly 250Million US$ worth of surgical
instruments to the
world.

Electrical Appliances. Our industries in Gujrat, Gujranwala and Shiekhopura are

producing good quality electrical appliances like fans, room coolers, air conditioners,
washing machines etc. These are export quality products which have established
good reputation over a period of time. These appliances are exported to regional and
other friendly countries.
Causes for negative balance of payments

1.Pakistan's balance of payments is highly dependent on workers

remittances but these remittances cannot be sustained over a long period
of time.
2.One major structural problem of exports is that it is based on relatively
low value added products. Pakistan's exports are highly concentrated in
cotton group, leather group, rice, synthetic textiles and sports goods.
3.Although Pakistan is trading with large number of countries but her
exports are highly concentrated in few countries. More than half of
Pakistan's exports are concentrated in USA, Germany, Japan, UK, HongKong, Dubai
and Saudi Arabia. Such a high degree of geographic concentration of exports is
dangerous as it renders the economy to the manipulation of the importing countries.
4.Imports are concentrated on a limited number of commodities namely
machinery, petroleum & petroleum products, chemicals, transport
Equipment, edible oil, iron and steel, fertilizer and tea.
5.Agriculture-related exports constitute a high ratio of the total exports. In
FY02-03, 73 per cent of export earnings came from the export of cotton and cotton
products, leather and rice. Such a high degree of dependency on agriculture-related
products is an element of uncertainty in export earnings.
6.Although Pakistan is trading with a large number of countries, yet major
portion of imports comes from a few selected countries. Almost 50 percent of
imports come from USA, Japan, Kuwait, Saudi Arabia, Germany,the UK and
Malaysia. Such a high degree of geographic concentration of imports is undesirable
and is in favor of exporting countries.
7.Pakistani societies make heavy expenditure on their rituals, weddings etc
which are useless.
8.The main cause or we can say that the biggest problem is political
uncertainty.

Solution
1.Government should formulate a strategy to be free of the country’s dependency on
workers’ remittances.
2.The emphasis should be on the export of the high value goods and the services.
3.Pakistan should expand its international market.
4.The country has to expand its export base that is too narrow. 5.The industrial sector
should be the major sector of the economy. 6.The trend of saving should be
promoted.
7.Economic system has to change.
8.Political stability should exist.

9. Foreign investments should be encouraged

IMPRVEMENT IN THE BALANCE OF PAYMENT

1. Increase in Exports by Providing Different Incentives

First important step for improving balance of payments of Pakistan is to increase its
exports. It is suggested that following steps should be adopted in this regard.

 Decrease in cost of production, for which interest rate for new industries should
be reduced.

 Cost of transport particularly railway freight should be minimized.

 Custom duties on the export-oriented industries should be reduced.

 Cost of transport particularly railway freight should be minimized.

 Modern techniques of production should be used.

 Instead of exporting raw material, value added goods should be produced and
exported.

 Those industries should be encouraged and set up which use locally produced
raw material.

 Labor productivity should be enhanced by imparting education, training and

providing different types of facilities of life.
 Goods of different varieties keeping in view the demand and requirement of
foreigners should be developed, produced and exported.

3. Decrease in Imports by Setting up Key Industries

 Second important requirement for improving balance of payments is to decrease

imports. It is suggested that after adopting following steps imports will be
decreased.

 Import substitution industries should be set up.

 For production of edible oils, seeds should be grown locally.

 Tea consumption should be discouraged.

 Production of food grains such as wheat should be increased.

 Import of luxurious items should be banned or heavily taxed.

 Basic and key industries should be developed which can produce machinery and
spare parts for manufacturing industries.

4. Increase in Invisible Earnings

Thirdly, for improving balance of payments expenses on invisibles are to be

decreased and to increase exports. After adopting following steps, invisibles balance
can be improved.

 National shipping company should be strengthened for assisting the international

trade.

 Freight charges of this company will become a source of saving of foreign

exchange.

 Domestic commercial banks and insurance companies should be strengthened

and be given

 task for facilitating Pakistan’s international trade.

 Expenses on our embassies abroad, which involve foreign exchange should be

reduced. VIP culture should put to an end and unnecessary tours and medical
expenditure of high government officers and politicians in foreign countries
hospital should be disallowed.

 Foreign countries visits by the general public should be discouraged in order to

save the precious foreign exchange of the country.
 The efficiency of Trade Attaches of Pakistan Embassies should be improved. It
is their duty to do their best for developing markets of Pakistani products in the
countries they are posted.


4. Search of New Markets

Fourth important requirement for improving the balance of payments is the expansion
of trade relations. After adopting the following steps trade relations will be expanded.

 Govt. officials and business community should participate in trade fairs arranged
by foreign countries.

 Trade Agreements with different countries should be made.

 Seminars and Trade Exhibition should be arranged within country in which

foreign delegates should be invited to participate.

 Booklets, brochures, pamphlets about Pakistani products and economy of

Pakistan should be distributed to foreign business community.

 Research for marketing should be conducted.

Quality and Packaging of International Standard

1.
Exportable Goods should be of international standard; their packaging should meet
the same standard. Good packaging provides safety and security of the product and is
not destroyed during handling and shifting process.
1.
Revival and Restoration of Sick Industries
2.
Sick industries should be revived. This will increase output of industrial goods,
which will result in the decrease of prices. The cheap goods will become a good
market for buyers and they will import more from Pakistan, thus the export proceeds
of the country will increase.
1.
Foreign Joint Ventures
2.
Pakistan’s exports can be pushed up after collaboration of foreign investors. The
foreign partners have more contacts in foreign markets and in order to increase
profitability of industry, foreign partners will market the products in their countries
hence Pakistan’s exports will increase.
1.
Promotion of Labor Intensive Industries
2.
Small and cottage industries are labor-intensive. Products utilizing more cheap labor
with have a comparative cost advantage which will help in decrease in cost.
Industries such as, leather goods, ready made garments, surgical instruments sports
goods should be developed for export purpose.

Benefits of Trade

 Develop a broader market Obtain greater benefits

 Leads to an increase in international ties.
 Leads to specialization among countries, and thus improve efficiency in
production which in turn is the mother of the need for technology innovation.
Increase standard of living among trading nations.