BALANCE OF PAYMENTS

SIR SHEIKH USMAN YOUSUF

It is our honor to express our deep gratitude and in calculating thank to

SIR SHEIKH USMAN YOUSUF

who gave us an opportunity to benefit from their immense knowledge and experience without which, the work described in this project would not have been possible.

HADIA HUSSAIN

MI09MBA037
SHAMILA GHAFOOR

MI09MBA045
TAYYABA RAFIQUE

MI09MBA049

 Theoretical
Purpose Balance BOPs

Aspects of BOPs

of Payments of a Country

Equilibrium of BOPs Equilibrium

Types

 Types

of Disequilibrium
Position

Current Causes

of Disequilibrium with Reference to Pakistan

Suggestions Conclusion

 It

is a comprehensive record of economic transactions of the residents of a country with the rest of the world.
is a tabulation of the credit and debit transactions of a country with the foreign countries.

It

To provide the Govt. with information about the international economic position of the country.
in making decisions about :

Helpful

Monetary and Fiscal issues; Trade and payments.

It can be in two forms: Vertically

Debit (Payments)

Credit (Receipts)

Horizontally

 BOPs

can be shown vertically, categorized as debit and credit transactions. Payment received Credit transaction.
e.g. Export of goods, borrowings from abroad
Payment

made transaction.

Debit

e.g. Imports of goods and services, lending to foreign countries.

 Horizontally

they are divided into three

categories:

The Current Account (including international trade, service transactions and unilateral transfers). The Capital Account (consisting of direct investment and purchases of interest bearing financial transactions, non-interest bearing demand deposits and gold). The Official Reserve Asset Account (movements of international reserves by Govt. and officials).

 That

state of BOPs over the relevant time period which makes it possible to sustain an open economy without severe unemployment on a continuing basis.
are 2 types of BOPs Equilibrium:

There

Static Equilibrium; Dynamic Equilibrium.

Exports

Imports

National

money incomes should be in an equilibrium vis--vis money incomes abroad. Exchange rate must be in equilibrium.

Foreign

 Condition

for short period of time is that exports and imports differ by the amount of short term capital movements and gold (net).
in long term is that imports and exports differ by the amount of long term autonomous capital movements made in a normal direction.

Condition

 Several

variables join together to constitute equilibrium e.g. national incomes, supply of money etc.
of these variables by supply of factors like production function, distribution of incomes, state of anticipations etc.

Backing

 If

Any change in the previous mentioned variables occur and no appropriate change in the other variables, disequilibrium occurs.

 There

are three types of disequilibrium:

1. 2. 3.

Cyclic disequilibrium; Secular disequilibrium; Structural Disequilibrium

 It

occurs because of two reasons:

Two countries may be passing through different business paths; May be following the same path but income and price elastic ties of different are different.

Remedies:

Exchange Rate Depreciation may cause retaliation. Import Restrictions be imposed.

 Also

called Long term disequilibrium. It occurs due to:

Long run and deep-seated changes in an economy; Varying pattern of current account; Domestic investment exceeds domestic savings; Imports exceeds exports; Lack of sufficient funds.

It can be further categorized into:

Structural disequilibrium at Good level:

It occurs when a change in the demand or supply of exports or imports alters a previously existing equilibrium or when a change occurs in the basic circumstances. Remedies: Can be remedied if expenditures are decreased or production is increased.

Structural Disequilibrium at Factors level: It results from factor prices which fall accurately factor endowments. For instance, price of labor being too high, will be used sparingly resulting in country being importing goods with higher labor content. This will lead to unemployment, upsetting the economy.

 Having

trade deficit In almost all years except:

1947-1948: Surplus because of the exports of the newly born country were quite high. 1950-1951: Surplus due to Korean War. 1972-1973: Surplus because of massive devaluation in currency.

Year

Export

Import

Trade Deficit 9.4 12.8

Workers Remittan ces 3.8 3.9

Current Account Deficit 5.1 8.5

2006-2007 2007-2008

11.8 11.6

21.2 24.4

2008-2009
2009-2010

10.9
9.1

21.5
16.0

10.6
7.0

4.8
4.2

5.7
1.7

 Import
Year 2006-2007 2007-2008 2008-2009 2008-2009 ( July to March)

Export and Trade Balance

Export 1,029,312 1,196,638 1,383,718 1,176,388 Imports 1,851,806 2,081,763 2,723,570 2,021,991 Balance -822,494 -1,315,434 -1,339,852 -905,375

2009-2010 (pro)

1,036,466

2,515,072

-985,525

 Narrow Rise

export base;

in oil prices;

Trade

restriction of developed countries;

payments for freight insurance; demand for imports;

Higher

Ever-increasing Inflation.

 Proportion

of manufactured goods be

increased;
Promotion Exports Quality

of Non traditional exports;

exhibitions and fairs;

and cost of the exports goods be improved; of capital goods should be allowed.

Import

After having an understanding of BOP of Pakistan we have come to a conclusion that it has been facing SECULAR DISEUILIBRIUM.Pakistan is having a trade deficit in almost all years, due to ineffective policies and due to political instability. There should be stability in policies so that Pakistan can improve its balance of payments.