Assignment no.

5
International Finance

Submitted to: Mam Sana Saleem

Submitted by: Wasim Cheema
Department: LBS
70057284
BBA 8th

UNIVERSITY OF LAHORE (CHENAB CAMPUS)

Current Account Deficit

The current account deficit - difference between the government’s higher foreign expenditure
and lower income - narrowed by a massive 78% to $2.96 billion in the previous fiscal year ended
June 30. The current account deficit shrank to 1.1% of gross domestic product (GDP) in FY20
compared to 4.8% ($13.43 billion) in FY19, the State Bank of Pakistan (SBP) reported on
Tuesday. The deficit of $2.96 billion is the lowest in five years. The number improved after the
government revised upward the previous month’s (May) current account surplus to $344 million
compared to the initially reported $13 million.The much-needed improvement in the current
account deficit in FY20, however, was initially achieved by compromising economic growth.
Later, the Covid-19 outbreak slowed down the economy further and caused negative growth for
the first time in 68 years.
In dollar value, the gross domestic product (GDP) contracted 5.22% to $263.80 billion in FY20
compared to $278.36 billion in FY19, the central bank reported. The value of GDP in terms of
dollar, however, does not truly reflect the growth pattern. Pakistan actually measures economic
production in rupee terms and converts that into dollar value. The volatility in the rupee-dollar
exchange rate caused a sharp difference between GDP growth in terms of dollar and actual
growth in rupee value. Earlier, the government had provisionally reported an economic
contraction of 0.38% for the first time in the past 68 years.
“It (current account deficit) is a good number,” Pakistan Kuwait Investment Company (PKIC)
Head of Research and Development Samiullah Tariq said while talking to The Express Tribune.
The number, however, was achieved through curtailing imports rather than increasing exports.
“This is worrisome that we have not yet improved exports,” he added.

A notable
growth in the
receipt of
workers’

remittances helped a lot in narrowing the current account deficit in FY20. Arif Habib Limited
Head of Research Tahir Abbas said “the decline in current account deficit came due to a 30% fall
in trade deficit to $22.8 billion in FY20 compared to $32.6 billion in FY19.” The current account
deficit in June stood at $96 million compared with $981 million in the same month of previous
year. It was achieved mainly due to a 13% drop in imports and 51% improvement in workers’
remittances. Exports, however, declined 12% in June 2020 compared to June 2019.
“The government is targeting current account deficit of 2.4% of GDP in current fiscal year 2020-
21,” Tariq said. “We have to increase exports to improve the balance of payments and reduce the
current account deficit to a sustainable level.”
He said economic growth would be better in FY21 than the one recorded in FY20. The
International Monetary Fund (IMF) has projected Pakistan’s GDP growth at 1% in FY21.
Imports would continue to increase with reopening of the domestic economy from the lockdown.
The workers’ remittances are also anticipated to sustain uptrend during the current year, he said.
He, however, said the government should address issues pending release of the third tranche
from the IMF of $450 million under its ongoing loan programme of the total of $6 billion. “The
resumption of the IMF programme is a must to streamline the economy and improve confidence
of other multilateral and bilateral lenders’ confidence in the domestic economy,” he said. The
resumption of IMF programme is also needed to attract both long-term and short-term foreign
investment in the domestic economy. “I am confident the government would address the pending
issues to get the IMF programme revived,” he said.

Pakistan Imports
Pakistan imported an estimated US$37.3 billion worth of goods from around the globe in 2019,
down by -14% since 2015 and down by -37.3% from 2018 to 2019. Given Pakistan’s population
of 216.6 million people, its total $37.3 billion in 2019 imports translates to an estimated $175 in
yearly product demand from every person in the South Asian country. From a continental
perspective and based on 2018 data, suppliers in Asia provide almost three-quarters (73.8%) of
total Pakistani imported goods. Smaller percentages originate from Europe (11.9%), North
America (6%), Africa (5.3%), Latin America (1.2%) excluding Mexico but including the
Caribbean, then Oceania (0.8%) led by Australia.
Machinery:
In 2019, Pakistani importers spent the most on the following 10 subcategories of machinery.
 Computers, optical readers: US$317.5 million (down -18.6% from 2018)
 Liquid pumps and elevators: $262.8 million (up 15.6%)
 Piston engine parts: $258.3 million (up 12.2%)
 Air conditioners: $249.4 million (up 45.2%)
  Air or vacuum pumps: $234.2 million (down -32.5%)
 Turbo-jets: $233.8 million (up 7.1%)
 Taps, valves, similar appliances: $207 million (up 0.4%)
 Textile fiber work machines: $183.6 million (up 5.3%)
 Centrifuges, filters and purifiers: $159.8 million (down -13.8%)
 Miscellaneous machinery: $139 million (down -54.3%)
Among these import subcategories, Pakistani purchases of air conditioners (up 45.2%), liquid
pumps and elevators (up 15.6%) then piston engine parts (up 12.2%) grew at the fastest pace
from 2018 to 2019. These amounts and the percentage gains within parenthesis clearly show
where the strongest demand lies for different types of machinery -related imports among
Pakistani businesses and consumers.
Electronics:
In 2019, Pakistani importers spent the most on the following 10 subcategories of electronics and
related products.
 Phone system devices including smartphones: US$1.4 billion (up 10% from 2018)
 Electrical converters/power units: $730.2 million (up 152.9%)
 Solar power diodes/semi-conductors: $409.4 million (up 3.1%)
 Insulated wire/cable: $204.1 million (down -18.2%)
 Electric generating sets, converters: $162.4 million (down -73.8%)
 Electrical/optical circuit boards, panels: $149.1 million (down -13.5%)
 TV/radio/radar device parts: $122.5 million (up 243.8%)
 Unrecorded sound media: $118.4 million (down -33.4%)
 Lower-voltage switches, fuses: $114.8 million (up 24.9%)
 Electric motors, generators: $105.4 million (down -16.1%)
Among these import subcategories, Pakistani purchases of television, radio or radar device parts
(up 243.8%), electrical converters or power units (up 152.9%) then lower-voltage switches and
fuses (up 24.9%) grew at the fastest pace from 2018 to 2019. These amounts and the percentage
gains within parenthesis clearly show where the strongest demand lies for different types of
electronics-related imports among Pakistani businesses and consumers.
Iron:
In 2019, Pakistani importers spent the most on the following 10 subcategories of iron and steel.
 Iron or steel scrap: US$880.3 million (down -44.2% from 2018)
 Hot-rolled iron or non-alloy steel products: $391.3 million (down -24.1%)
 Flat-rolled other alloy steel products: $271.1 million (down -23.5%)
 Flat-rolled iron or non-alloy steel products (plated/coated): $262.3 million (down -27.1%)
 Flat-rolled stainless steel items: $131.4 million (down -3.9%)
 Cold-rolled iron or non-alloy steel products: $97.6 million (down -57.1%)
 Hot-rolled iron or non-alloy steel products: $54.4 million (down -74.4%)
 Coiled other alloy steel bars, rods: $45.4 million (down -45.7%)
 Iron ferroalloys: $34.6 million (down -44.2%)
  Iron or non-alloy steel bars, rods: $32.6 million (down -9.4%)
Among these import subcategories, Pakistani purchases of flat-rolled stainless steel items fell at
the slowest pace from 2018 to 2019 via its -3.9% reduction. These amounts and the percentage
gains within parenthesis clearly show where the strongest demand lies for different types of iron
and steel-related imports among Pakistani businesses and consumers.
Fuel:
In 2019, Pakistani importers spent the most on the following 10 subcategories of mineral fuels-
related products.
 Processed petroleum oils: US$1.1 billion (down -84.3% from 2018)
 Coal, solid fuels made from coal: $781.1 million (down -51.9%)
 Petroleum gases: $321.8 million (down -90.9%)
 Coke, semi-coke: $30.7 million (down -33.6%)
 Petroleum oil residues: $11.4 million (down -91.2%)
 Petroleum jelly, mineral waxes: $8.7 million (down -19.4%)
 Coal tar oils (high temperature distillation): $6.1 million (down -86.5%)
 Distilled tar: $3.2 million (no 2018 data)
 Asphalt/petroleum bitumen mixes: $584,000 (up 77%)
 Peat: $467,000 (down -6%)
Among these import subcategories, only Pakistani purchases of asphalt or petroleum bitumen
mixes thanks to a 77% increase from 2018 to 2019. These amounts and the percentage gains
within parenthesis clearly show where the strongest demand lies for different types of mineral
fuels-related goods among Pakistani businesses and consumers.
Pakistan Export
Sharing land borders with economic powerhouses China and India, the Islamic Republic of
Pakistan shipped an estimated US$20.8 billion worth of goods around the globe in 2019. That
dollar amount reflects a -6.1% decrease since 2015 and a -12.8% slowdown from 2018 to 2019.
The latest available country-specific data from 2018 shows that 68.3% of products exported from
Pakistan were bought by importers in: Canada (18% of the global total), Mexico (15.9%), China
(7.2%), Japan (4.5%), United Kingdom (4%), Germany (3.5%), South Korea (3.4%),
Netherlands (2.9%), Brazil (2.4%), France (2.3%), Hong Kong (2.2%) and India (2%).
From a continental perspective, 38% of Pakistan’s exports by value were delivered to fellow
Asia countries while 35.2% were sold to importers in Europe. Pakistan shipped another 17.7%
worth of goods to North America. Smaller percentages went to Africa (6.3%), Latin America
excluding Mexico but including the Caribbean (1.5%) then Oceania led by Australia (1.3%).
Given Pakistan’s population of 216.6 million people, its total $20.8 billion in 2019 exports
translates to an estimated $100 for every resident in the densely-populated South Asian nation.
Advantages:
The following types of Pakistani product shipments represent positive net exports or a trade
balance surplus. Investopedia defines net exports as the value of a country’s total exports minus
the value of its total imports. In a nutshell, net exports represent the amount by which foreign
spending on a home country’s goods or services exceeds or lags the home country’s spending on
foreign goods or services.
 Miscellaneous textiles, worn clothing: US$3.9 billion (Up by 4.5% since 2018)
 Clothing, accessories (not knit or crochet): $3.3 billion (Up by 28.1%)
 Knit or crochet clothing, accessories: $3 billion (Up by 7%)
 Cereals: $1.1 billion (Down by -49.6%)
 Leather/animal gut articles: $631.7 million (Down by -0.3%)
 Copper: $388.5 million (Reversing a -$20.1 million deficit)
 Fish: $371.2 million (Down by -12%)
 Beverages, spirits, vinegar: $354.8 million (Down by -20.9%)
 Toys, games: $228.1 million (Up by 55.9%)
 Salt, sulphur, stone, cement: $211.1 million (Down by -33.6%)
Pakistan has highly positive net exports in the international trade of clothing-related products. In
turn, these cashflows indicate Pakistan’s strong competitive advantages under various clothing-
related categories.
Opportunity:
Overall Pakistan incurred a -$17.1 billion trade deficit during 2019, down by -53.3% from -$36.6
billion in red ink one year earlier.
Below are exports from Pakistan that result in negative net exports or product trade balance
deficits. These negative net exports reveal product categories where foreign spending on home
country Pakistan’s goods trail Pakistani importer spending on foreign products.
 Machinery including computers: -US$4.9 billion (Down by -18% since 2018)
 Electrical machinery, equipment: -$4.5 billion (Up by 7.4%)
 Iron, steel: -$2.3 billion (Down by -37.4%)
 Organic chemicals: -$2 billion (Down by -28.9%)
 Mineral fuels including oil: -$1.9 billion (Down by -88.9%)
 Plastics, plastic articles: -$1.5 billion (Down by -31.2%)
 Manmade filaments: -$1.4 billion (Up by 104.2%)
 Vehicles: -$1.1 billion (Down by -55.4%)
 Oil seeds: -$975.5 million (Down by -28.1%)
 Pharmaceuticals: -$793.2 million (Up by 16.2%)
Pakistan has highly negative net exports and therefore deep international trade deficits for
machinery-related goods notably for computers, liquid pumps, piston engine parts and air
conditioners.
Companies:
Based on Forbes Global 2000 rankings, the following are examples of world-class Pakistani
companies.
 Oil & Gas Development (petroleum operations)
 Pakistan State Oil (petroleum operations)
Wikipedia also lists businesses headquartered in Pakistan that export their products. Selected
examples are shown below.
 Dalda (vegetable oil)
 Engro Corporation (fertilizers, petrochemicals)
 Ghani Automobile Industries (motorcycles)
 Ittefaq Group (steel)
 Ittehad Chemicals Limited (chemicals)
 Khaadi (hand-woven clothing)
 Madina Sugar Mills (PVT) Limited (sugar)
 Master Motors (truck manufacturer)
 Murree Brewery (beverages)
 Servis Tyres (tire maker)
Reference:
http://www.worldstopexports.com/pakistans-top-10-exports/
https://tribune.com.pk/story/2256039/purrent-account-deficit-contracts-78
https://tradingeconomics.com/pakistan/current-account-to-gdp
https://www.sbp.org.pk/ecodata/Balancepayment_BPM6.pdf
https://tradingeconomics.com/pakistan/imports-by-category
http://www.worldstopexports.com/pakistans-top-10-imports/