COMSATS University Islamabad (Lahore Campus)

Department of Management Sciences

8/9/2021
International Finance

Assignment 1

Bachelors of Business Administration

(BBA)
Session 2018-22

Submitted To:

Dr. Usman Khan

Submitted By:

Hamad Raza (FA18-BBA-191)

Raja Muhammad Shahzad
Hassan (FA18-BBA-163)
Question:
Draw a graph of current account balance of a country and explain the trends
considering economic conditions of the country.

Graph:

Pakistan Current Account Balance

Current Account Balance:

Basically, it is the sum of balance of trade which is obtained by eliminating exports from imports
of goods and services, it also includes net factor income such as interest and dividends and the
sum of net transfer of payments like foreign aid of any country.
Summary:
In June 2021, Pakistan's current account deficit was 2.5 billion dollars, down from 617.0
million dollars the previous quarter. Pakistan Current Account Balance data is available
quarterly, with an average value of -412.5 USD MN, from March 1976 to June 2021. The data
ranged from a high of 1.4 USD billion in September 2002 to a low of -6.1 USD billion in June
2018. Pakistan's current account balance was -3 billion dollars in 2020.
Forecast:
According to Trading Economics global macro models and experts, Pakistan's current account is
predicted to be -980.00 USD million by the end of this quarter. According to our econometric
models, the Pakistan Current Account will trend around -1460.00 USD Million in 2022 and -
2112.00 USD Million in 2023 in the long run.
ECONOMIC TRENDS:

 Structure and Growth of Pakistan during Zia-ul-Haq Era:

 During the Zia era, significant economic growth was not followed by a quick increase in
investment. During 1977-88, gross fixed capital formation as a proportion of GDP was
around 17%, somewhat lower than the Bhutto era.  Despite the enormous rise in
remittances from workers, the national saving rate only increased slightly to around 14%
of GDP. During the Zia era, it appears that private savings grew while governmental
savings decreased.

 Military spending increased in nominal terms from Rs. 8 billion (or 5.4 percent of GDP)
in 1976-77 to Rs. 47 billion in 1987-88. (7 per cent of GDP). This significant rise in the
size of the economy, resulted in a real increase in Military spending of almost 160
percent, or more than 9% per year. Military spending increased at a higher rate than at
any previous time in Pakistan's history.
 There has been a lot of political instability, sluggish economic development, and repeated
foreign exchange problems since Zia's death. Pakistan has to go to the IMF three times
for bailout packages. Not only were the elected administrations politically inept, but they
were also dominated by powerful vested interests.

 Industrial growth and exports:

 Pakistan's newly elected government inherited a devastating budgetary situation. In 1988,

Pakistan requested a structural adjustment facility from the IMF and agreed to a target of
lowering the budget deficit to 4.8 percent by 1990-91. Despite the IMF's $900 million
contribution, the deficit continued to grow and hit a new high of 8.7% in 1990-91.
Pakistan and the IMF reached a new deal under which the budget deficit would be
reduced to 4% in 1994-95 and 3% in 1995-96. Pakistan, on the other hand, may have a
5.8% deficit in 1994-95.

 Cotton, cotton textiles, and garment exports fueled the manufacturing export boom of the
1980s, accounting for more than 60% of the growth in the value of exports. Despite the
increase in manufacturing and exports, Pakistan's industrial sector has several flaws. The
tiny size of the domestic market hampered industrial development, especially after
Bangladesh was created. Pakistan's industrial sector has remained relatively narrow and
 undiversified. Food and textiles generated more than 40% of total industrial value added
even in 1990-91.
 When Nawaz Sharif took power in 1990, he pledged to liberalize the foreign exchange
policy, reduce investment regulations, privatize government assets, and boost incentives
for local and foreign investment.
 Pakistan's exports have been static for a decade and are now $2 billion less than they
were in 1995. The military regime's promise of budgetary reform has yet to be fulfilled.

 The Bomb and after:

 The military administration that took control attempted to address the country's
worsening economic position. Alters in the balance of payments and the fiscal position
have harmed the economy. Pakistan's overall budgetary resources amounted to 15% of
GDP. Out of this, 5% goes to civil administration, 4% to defense, and the remainder
goes to debt service. As a result, there is nothing left for development. Due to a bad
harvest caused by a severe drought in 2000-01, agricultural production fell by 2.5
percent, bringing GDP growth to 2.2 percent, the lowest in 25 years.
 Pakistan's exports have remained unchanged for the past decade and are presently $2
billion lower than in 1995. Budgetary reform promised by the military administration has
yet to be implemented.
 The economy is now steadily moving in the direction of more sustainable and inclusive
growth. The current account balance is positive, the fiscal deficit is manageable due to a
positive primary balance, the currency is stable, and foreign exchange reserves have
reached $23.2 billion (as of June 3rd, 2021).  Based on current year performance, the
economy is predicted to increase by 5% in FY2022 and accelerate further in the medium
term.
 According to Trading Economics global macro models and experts, Pakistan's current
account is predicted to be -980.00 USD million by the end of this quarter. According to
our econometric models, the Pakistan Current Account will trend around -1460.00 USD
Million in 2022 and -2112.00 USD Million in 2023 in the long run.