BALANCE OF TRADE AND

BALANCE OF PAYMENT

Presented By
Faizan Ahmed(BME-1927)
Mudassir Islam (BBE-1825)
Muhammad Amir(BBE-1812)
Abdul Haseeb Musani(BBE-1899)
Zubair Dhedhy(BBE-1850)
 WHAT IS TRADE
DEFINITION:
The act or process of buying ,selling or exchange
commodities at either wholesale within country or
between countries . Also called domestic trade or
foreign trade.

TYPES:
DOMESTIC TRADE: WHOLESALE AND RETAIL

INTERNATIONAL TRADE: IMPORTS AND EXPORTS

 DEFINITIONS
BALANCE OF TRADE:
It is the comparison between value of export and
imports of the physical items (goods, not services) of
a country in a given period of time usually a year.

BALANCE OF PAYMENT:
It is the annual record of economic relations of the
country with the rest of the world in a particular
period of a year or more commonly over a year.
 TYPES
BALANCE OF TRADE:
FAVOURABLE / UNFAVOURABLE /
SURPLUS BALANCE OF ADVERSE BALANCE OF
TRADE TRADE
EXPORT IS GREATER EXPORTS IS LESS THAN
THAN IMPORTS IMPORTS

BALANCE OF PAYMENT:

FAVOURABLE / UNFAVOURABLE /
SURPLUS BALANCE OF ADVERSE BALANCE OF
PAYMENT PAYMENT
RECEIPTS ARE MORE RECEIPTS ARE LESS
THAN PAYMENTS THAN PAYMENTS
 FACTORS AFFECTING
BALANCE OF TRADE:
availability of raw COST OF PRODUCTION
materials
GOVERNMENT TAXES GOVERNMENT
AND DUTIES RESTRICTIONS ON
TRADE & DUTIES

BALANCE OF PAYMENTS:

INFLATION NATIONAL INCOME

GOVERNMENT EXHANGE RATES
RESTRICTIONS
 CAUSES
UNFAVOURABLE BALANCE OF
TRADE:
HIGH IMPORTS
LOW PRODUCTION
INCREASE IN OIL PRICES
HIGH POPULATION
LAW QUALITY OF GOODS
IMPORTS OF CONSUMER GOODS
DEVALUATION OF CURRENY

UNFAVOURABLE BALANCE OF
PAYMENT:
ADDITION IN IMPORTS
SLOW GROWTH IN PRODUCTION
DEFENSE SPENDING
LESS EXPORTS
AFFECT OF INFLATION
RESTRICTION ON DEVELOPING COUNTRIES
REMEDIES FOR IMPROVING
BALANCE OF TRADE / PAYMENT

REDUCE IMPORTS MORE TRADE

AGREEMENTS
EXPORT PROMOTION EXPLORE MARKET

SPECIAL SCHEME REDUCE USE OF OIL

ENHANCE OPTIMUM INDUSTRIES

PRODUCTION
 BALACE ON TRADE
VS
BALANCE OF PAYMENT
1. It is a broad term
2. It includes all transactions related to
visible, invisible and capital transfers.
3. It is always balances itself.
4. BOP = Current Account + Capital
Account + or – Balancing item.
5. Following are main factors which
affect BOP:
a) Conditions of foreign lenders.
b) Economic Policy of Govt.
c) All the factors of BOT.
1. It is a narrow term.
2. It includes only visible items.
3. It can be favorable or unfavorable.
4. BOT = Net Earnings on Exports – Net
Payment for imports.
5. Following are main factors which
affect BOP:
a) Conditions of foreign lenders.
b) Economic Policy of Govt.
c) All the factors of BOT.
 BALANCE OF TRADE
AND
BALANCE OF PAYMENT
OF

PAKISTAN
 LAST TWO DECADES OF BOT
OF PAKISTAN
► Since 1950;
Imports > exports
BOT deficit each year; FY 1990 through FY 2018

► Pakistan’s dependability on foreign donors and creditors.

Pakistan’s external debt will peak to $130 billion within four years – a net addition of $34.6 billion or
36.3% AS PER IMF.

► By May 2019, the Pakistani rupee had undergone a year-on-year depreciation of 30% vis-à-vis the US
Dollar.

► Industrial Sector growth rate declines from FY 2005 17.37% to FY 2018 12.45%.

► Inflation rate increases from FY-2019 3.9% to 7.0% as compared to last Year FY-2018.

► Pakistan recorded a Current Account deficit of 3242 USD Million in the second quarter of 2019.
● HIGH TRADE OF DEFICIT OF ALL TIME:
1418 USD Million in the third quarter of 2002.
● LOW TRADE OF DEFICIT OF ALL TIME:
-6321 USD Million in the second quarter of 2018.
 CAUSES / DEFECTS OF BOT OF PAKISTAN

◙ HUGE DIFFERENCE IN STANDARD AND POOR

CLASSES OF PEOPLE, POOR BEING MORE POOR
AND RICH BEING MORE RICH
◙ LOTS OF LOANS FROM FRIEND COUNTRIES
◙ AGAIN ACQUIRE $6 BILLION LOAN FROM IMF
◙ POLITICAL INSTABILITY
◙ DEVALUATION OF CURRENCY
◙ LESS AGRICULTURAL PRODUCTIVITY
◙ HIGH IMPORTS OF ENERGY
 CURRENT POSITION OF
PAKISTAN’S BALANCE OF TRADE
 FACTS AND FIGURES OF
BOP OF PAKISTAN
 Pakistan's Current Account recorded a deficit of 3.2 USD bn in
Jun 2019, compared with a deficit of 2.0 USD bn in the previous
quarter. It is updated quarterly, available from Mar 1976 to Jun
2019, with an averaged value of -407.7 USD mn. All-time high
of 1.4 USD bn in Sep 2002 and a low of -6.3 USD bn in Jun 2018
 Pakistan’s balance of payments came under severe pressure

during fiscal 2018-19 and in the last six months (Jan-Jun 2019)
of the current fiscal year owing, to the unprecedented rise in
oil, food and other commodity prices.

 Pakistan approached the IMF for balance-of-payments

support and received a $6-billion package spreading over 14
quarters, ending in Dec-2022.
 CURRENT SITUATION OF
BALANCE OF PAYMENT
◙ Exports in Pakistan increased to 300875 PKR Million in July from
266540 PKR Million in June of 2019. Exports in Pakistan averaged
46456.80 PKR Million from 1957 until 2019, reaching an all time high of
306303 PKR Million in May of 2019 and a record low of 51 PKR Million in
April of 1958.
◙ Imports in Pakistan decreased to 638338 PKR Million in July from
677510 PKR Million in June of 2019. Imports in Pakistan averaged
88736.94 PKR Million from 1957 until 2019, reaching an all time high of
734578 PKR Million in May of 2019 and a record low of 96 PKR Million in
April of 1959.
◙ Remittances in Pakistan increased to 5747 USD Million in the second
quarter of 2019 from 5069 USD Million in the first quarter of 2019.
Remittances in Pakistan averaged 2928.59 USD Million from 2002 until
2019, reaching an all time high of 5747 USD Million in the second quarter
of 2019 and a record low of 906 USD Million in the third quarter of 2003.
 CAUSES OF DEFECTS IN BOP OF
PAKISTAN
LIMITED EXPORT CAPACITY

 Few export items

 Export of Primary Commodities or semi
manufactured goods
 Consumption Oriented Society
 Unfavorable Terms of Trade
 Unfavorable Attitude of Developed Countries
 Inflation
 CAUSES CONT….
UNRESTRICTED IMPORT NEEDS

 Pakistan has a Developing Economy

 Import Oriented Industries
 Oil Bill
 Huge Import of Invisible Goods
 Debt Servicing
MOST IMPORTANT CAUSE IS WAR ON
TERRORISM
 REMEDIES FOR IMPROVING
BOT / BOP OF PAKISTAN

 To correct adverse balance of payments, three

ways are suggested.
 The foreign earnings should be increased by more
exports.
 The imports should be reduced.
 The unnecessary expenditure on invisible items be
decreased.
 REMEDIES CONT…
◙ MORE EXPORTS
1. Labor Intensive Industries
2. Manufactured Goods
3. Reduction in export duties
4. Quality product
5. Export marketing
◙ LESS IMPORTS
6. Only Essential Items Only such items should be
imported which are needed for our industrial
production.
7. Import of luxuries should be banned.
8. People should be educated to come out of the complex of
foreign goods.
 REMEDIES CONT….
◙ Reduction in Invisible
Items of Import
o Reduce expenditure on freight
o Fewer people should go abroad
o Foreign diplomatic mission’s expense
o Foreign trips of ministers and higher officials
◙ OTHER MEASURES
o Control Consumption
o Rupee Depreciation
o Control on Smuggling
o Population Control
o Liberal Trade Policies
o International Cooperation for Market Access
 FOREIGN CURRENCY AND
IT’S IMPACT
◙ Currency fluctuations in international trade.
◙ A weaker currency stimulates exports and makes imports expensive,
thus decreasing the country’s trade deficit depending on the sector.
◙ A strong currency can reduce exports and make imports cheaper,
effectively widening the trade deficit.
◙ It is generally assumed that a strong currency is a good thing for a
nation’s economy.
◙ A weaker currency may actually help the country’s economy, contrary
to popular belief.
◙ A depreciating currency can result in inflation as the cost of importing
goods increases.
◙ Currency fluctuations impacts the monetary policy of a country, as
exchange rates plays role in deciding exchange rates set by a country’s
central bank.
◙ Constant currency fluctuations affects market adversely, causing it to
become volatile, and affecting both local and foreign trade.
 FOREIGN CURRENCY AND IT’S
IMPACT ON ECONOMY OF PAKISTAN

Foreign Direct Investment in Pakistan increased by

179 USD Million in July of 2019. Foreign Direct
Investment in Pakistan averaged 144.32 USD Million
from 2012 until 2019, reaching an all time high of 611
USD Million in May of 2014 and a record low of -94
USD Million in June of 2015.
 CAUSES OF DEVALUATION OF
PAKISTAN RUPEE AND IT’S IMPACT
ON ECONOMY

 HIGH IMPORTS
 PURCHASES FOREIGN LUXURY
ITEMS
 LESS RESERVES
 LESS EXPORTS
 WAR ON TERRORISM
 LAW AND ORDER SITUATION
 REMEDIES FOR DEVALUATION TO
RE-VALUATION OF PAKISTAN RUPEE

 MAKE QUALITY PRODUCTS

 HIGH EXPORTS
 LESS IMPORTS
 RECEIVE HIGH PAYMENTS
 INCRESES RESERVES
 FACILITATES THE FOREIGN INVESTORS
 ENCOURAGES THE FOREIGN NATIONAL
CITIZENS