Pakistan’s Balance of Payments

For as long as one can remember, Pakistan has always had an unfavorable balance of
payment account. But before diving into why that is so, let us first look at what exactly is a
balance of payment account. The balance of payment takes into consideration all the
economic transactions of a country with other countries around the globe. Hence, it takes into
account the exports and imports of a country. Pakistan’s current account is updated quarterly
and the deficit had fallen from 607.0 USD million in Dec 2019, compared with a deficit of
1.5 USD billion in the previous quarter. Even though this has lowered, the amount is still
very high.

When we say “unfavorable balance of payment”, what we mean to say is that the country has
a current account deficit. The reason of this deficit lies in excess imports and low exports.
Pakistan’s exports mainly comprise of agricultural and primary sector goods. Goods like
cotton, wheat, mangoes, dried fruits and sports goods are our country’s main exports. The
main problem with these exports is the fact that they lie in the primary sector of an economy
which makes the goods less in value, hence making them cheap. Considering that most of
these goods depend on the weather and harvest of the country, slight fluctuations in the
harvest can lower the exports and reduce cash inflows within the country.

Pakistan has always been highly dependent on imports comprising the highest share of
intermediary and capital goods. Pakistan’s composition of imports have remained somewhat
same throughout the years including mineral fuel, mineral oil and products, machinery,
electrical appliances, iron and steel, vehicles etc. costing the highest dollar value. However
the reduction in trade deficit in year 2019 was driven by the recent fall in imports.
Imports have fallen to $54.8 billion in 2019 from $60.8 billion in 2018 and have further
decreased by 17% in the first half of 2020 owing to fall in demand for machinery and
vehicles. Since the demand for investments is declining, the rising inflation with depreciating
currency and high duties on imports may divert the imports from capital goods to mineral
fuels decreasing pressure on the deficit. However the imports might increase once the
economic conditions improve.
Although Pakistan has been successful in restricting imports but increasing exports is still a
big challenge to attain a favorable balance of payments with problems of low labor
productivity, unplanned policies and no value addition.