Balance of Payment and its Problems

1. Deficit balance of payment of Pakistan, causes and control (Notes)

2. The balance of payment problem in developing countries, especially
in Pakistan by Hafeez ur rehman, * hafiz abdur rashid
 Balance of Payment

• It tells how many goods and services a country has been

exporting and importing and how much a country is borrowing
or lending.

• The balance of Payment (BOP) of a country is a systematic

record of all economic transactions between the residents of the
reporting country and the residents of foreign countries during a
given period of time.

• The main purpose of BOP is to inform the government about the

international economic position of a country
 Surplus and Deficit in Balance of Payment
• Payment to foreigners and Receipt from foreigners are deficit
and surplus respectively.
• If there is deficit in BOP then country should take one or more of
the following measures.
1. Receive assistance from IMF
2. Get short term loans from other countries
3. Receive grants from other countries
4. Sell foreign assets of the country
5. Reduce investment made in other countries
6. Sell foreign currencies from country’s foreign exchange
reserves
7. Can purchase goods on credit from other countries
 Balance of Payment Situation of Pakistan

• Pakistan’s BOP situation has not been satisfactory since

independence.

• The country with the exception of three years has been running a
persistent deficit in her BOP on current account. These years are
as follows

i. 1947-1948

ii. 1950-51

iii. 1972-73
 Balance of Payment Situation of Pakistan

1947-1948:

 Exports were Rs. 444 million, imports were Rs. 319 milliom and
trade surplus of Rs. 125 million.

1950-1951:

 Trade surplus was of Rs. 176 million, it was due to excess exports of
cotton and jute.

1972-1973:

 Trade surplus was of Rs. 153 million, it was due massive currency
devaluation in 1972.
 CAUSES OF UNFAVOURABLE BOP
A-     LIMITED EXPORT CAPACITY
1. Narrow Export Base
2. Consumption Oriented Society
3. Less Modernization of Machinery
4. Increase in the Sick Industrial Units
5. Less Production of Value Added Goods
6. Devaluation
7. Tough Competition
8. Increase in Prices of Inputs
9. Anti-dumping Duties
10. Technical Barriers
11. Fall in Terms of Trade
12. Foreign Debts Servicing
 CAUSES OF UNFAVOURABLE BOP
B- UN-RESTRICTED IMPORT NEEDS
1. Import of Capital Goods
2. Import Oriented Industry
3. Rise in Oil Prices
4. Increases in Import Payment for Fertilizer
5. Defense Needs
 MEASURES TO CORRECT ADVERSE BOP
A. EXPORT LED GROWTH
1. Labor Intensive Industries
2. Manufactured Goods
3. Reduction in Export Duties
4. Quality Products
5. Export Marketing
6. Immoral Practices
7. Pricing of Goods
8. Packing
9. Joint Venture
 MEASURES TO CORRECT ADVERSE BOP
B. REDUCTION IN IMPORTS
1. Import of Only Essential Items
2. Exchange Control
3. Substitutes for Imported Items
C. Other
4. Decrease in Consumption
5. Control of Smuggling
6. Population Control

Conclusion