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Balance of payment


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The global economic downturn impacted world output and trade volumes adversely during 2009. With an upturn underway in the world economy for the past two quarters, the outlook for global trade appears to have become more positive, as depicted by the modest improvement in the Baltic Dry Index, a key early gauge of global trade volumes

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Balance of payment

  3. 3. INTRODUCTIONThe global economic downturn impacted world output and trade volumesadversely during 2009. With an upturn underway in the world economy forthe past two quarters, the outlook for global trade appears to have becomemore positive, as depicted by the modest improvement in the Baltic DryIndex, a key early gauge of global trade volumes
  4. 4. Pakistan faced severe economic conditions such as energy crisis andlarge costs to exports but even tough its external sector experienced anoverall improvement in 2009 to 10 the external current account deficitscontracted to around 2.8% of GDP, the reasons were as follows:1) a sharp narrowing of the currentaccount deficit which more than offset the declining financial accountsurplus during the period.2) macroeconomic stabilization measures taken by the government3) back of a steep decline in imports for much ofthe year, improving exports as world demand is gradually restored, anda continued increase in workerRemittances4) Worker remittanceshave increased from US$ 6.4 billion in July‐April 2008‐09 to US$ 7.3billion in ten months5) recent increase in remittances, which appears to be secular innature, has emanated from a policy initiative called PakistanRemittance Initiative (PRI).6) the collapse in global commodity prices induced by theEurozone‐widecontagion from the ongoing Greek debt crisis
  5. 5. TRADE BALANCESTATISTICS OF TRADE BALANCE FOY 2009-10:1) Pakistan’s merchandise trade deficit improved by 13.9 percent in July‐April 2008‐09 from $ 14,218 million to $ 12,238 million during July‐April 2009‐10.2) Exports recorded growth of 8.0 percent during July‐April 2009‐10 3) Export receipts of the country surpassed the full year official target of 6.0percent exports growth for 2009‐10.4) The import bill of the country decreased by 2.8 percent during July‐April 2009‐10 over thecomparable period of last year.5) The narrowing trend in monthly trade deficit started to reverse since December 2009 whenitdeteriorated by 59.9 percent and reaching at 41.9 percent deterioration in the month of march2010
  6. 6. EXPORTSExports amounted to $ 15.9 billion in July‐April 2009‐10 showinga growth rate of 8.0 percent. Higher quantum export of items likerice, fruits and raw cotton due to their improved production incountry along with recovery of international demand and exchangerate depreciation were major reasons for the increase in exportsduring the period under review. Textiles which is a major driver ofthe exports of Pakistan captured 53.3 percent share in totalexports. Non‐textile exports grew by 9.2 percent during July‐April2009‐10. Food Group export increased by 7.1 percent duringJuly‐April 2009‐10. With a 66 percent share in food group and11.4 percent in overall exports of this year, rice exportswitnessed a growth rate of 7.5 percent during the July‐April2009‐10. The overall increase in export of rice came fromnon‐basmati rice as quantity export of non‐basmati riceincreased by 100.5 percent. Quantity export of rice increased by66.0 percent on the back of improved domestic production andhigher import demand from countries Kenya, Iran and SaudiArabia.
  7. 7. % OF EXPORTS INCLINE AND DECLINE FY2009-10 15 10 5 0 -5-10-15-20-25 Other Engineering Textile Petroleum Cement Leather Goods Non textile Food Group Rice Manufacturing Goods 7 7.3 0.7 -17.1 6.3 -21.7 9.2 7.1 7.5
  8. 8. Export performance major categories FY 2008-201010000 8000 6000 4000 2000 2008-09 0 2009-10
  9. 9. Mapping Pakistan’s Major Exports % With Fastest Growing Products of World 2009 2008 60 5080 4060 3040 2020 10 00
  10. 10. EXPORTS OF TEXTILE MANUFACTURING IN 2001-2002 (% SHARE) 16.1 15.1 0.9 cotton yarn4.6 cotton cloth 15.9 19.6 knitwear bed wear 14.6 towels tents,canvas,tarpulin readymade
  11. 11. EXPORTS OF TEXTILE MANUFACTURES 2001 - 2002 (% 2009 - 2010 (% SHARES) SHARES) cotton yarn cotton yarn cotton cloth 0.6 cotton cloth 14.1 knitwear 12.60.9 16.1 15.1 6.5 knitwear 4.6 bedwear 17.2 16.6 19.6 15.9 towels bed wear 17 14.6 tents,canva towels s& tarpaulin readymade
  12. 12. EXPORTS 0F TEXTILE MANUFACTURING (% SHARE)8765 synthetic textile4 made up articles3 others210 2001-2002 2006-2007 2009-2010
  13. 13. COMPOSITION OF EXPORTS (% SHARES)8070605040302010 manufactured 0 semi-manufactures 2006-07 primary commodities 2007-08 2008-09 2009-10
  14. 14. MAJOR EXPORT MARKET (% SHARE)100%90% OTHER COUNTRIES80% SAUDIA ARABIA70% DUBAI60% HONG KONG50% UK40% JAPAN30% GERMANY20% USA10% 0% 2002-03 2009-10
  15. 15. •Import growth during 2009‐10 declined by 2.8 percent because ofLower international prices, compressed domestic demand, exchangerate depreciation and improved production of cotton crops remainedthe major factors behind the overall decline in import bill.•Among the major import groups: food, machinery and telecom groupswitnessed a decline during 2009‐10 while Petroleum, consumerdurables, raw materials and other items groups witnessed an increase ingrowth.• Trend in international prices of oil increased from $ 54 to $ 134 perbarerel by 2008.After reaching at peak level oil prices declined rapidlyand stood at its bottom level of $ 39 per barrel in 2009.•Since than the oil prices have started to increase due to the volatilenature of international oil prices .
  16. 16. Trend in Oil Prices
  17. 17. STRUCTURE Of IMPORTS Import of 2008 - 09 Import of 2009-10 Others Food Group 15% 12% food Telecom Other group 3% Machinery 17% 10% Machinery Telecom group Group 2% 14% 15%Raw Materia Raw material ls 23% 22% petroleum group 29% Consumer Petroleum Consumer Durables Group Durables 5% 28% 5% •Food group imports declined by 21.3 % in 2009-2010 this decline is mainly attributed to reduced quantinum import as unit values of most of food items remain higher in 2009-2010 • Wheat import declined by 96.4% on the back of sufficient availability of wheat in the country.
  18. 18. •Import billof edible oil fell by 12.5 % due to contraction in its price and quantity imports.•Import of sugar is increased by 591.6% in 2009-10 as a result of the efforts toimprove the domestic supply condition of sugar.•The highest decline was observed in construction & mining machinery, whichdeclined by 43.4 %. ••Import of agricultural machinery posted an increaseof 130.6 % growth.This growthis led by increased import of tractors and parts of tractors on the back of projects .•Textile machinery importwitnessed substantial growth of 20.5 %.This can be seenas a reflection of the revival in textile related activities in the country.•Import of petroleum group expanded by 1.3% in 2009-10. This rise is mainlycaused by higher quantum import of the petroleum product category.•Maximum increase has been witnessed in consumer durable group, that is 6.4 %in2009-10.This rise is mainly led by increase in domestic demand of road vehicleimport.
  19. 19. •In 2009-10 raw material witnessed a growth rate of 1.5 %.Import of fertilizer manufactured remained the prominent factor leading to the increase in import bill of raw material group. • The highest decline was observed in telecom sector, which declined by 30.1 % During 2009-10. Import Bill as a Result of the Change in Import Prices Additional Bill (Gains/Losses) 50.00 1.00 2.80 0.00 Fertilizer Soya bean Oil Palm OiL Plastic Material Petroleum Crude Iron & Steel Petroleum Products Medicinal Products (50.00)(100.00)(150.00) (63.20)(200.00) (16.40)(250.00) (218.60) (215.10)(300.00) (256.40)(350.00)(400.00)(450.00) (420.00)
  20. 20. Composition Of Import 60 50 40 30 Capital Goods Consumer Goods 20 10 0 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010•Concentration of imports of its composition suggests that raw material for consumergoods dominates the composition of imports and its share has graduallybeen increasing since 2005‐06.The share of capital and consumer goods remainedconstant during July‐ March 2009‐10
  21. 21. Major sources of import 16 14 13.4 12 11.2 11.4 10 10.2 U.S.A. Japan 8 7.5 7.5 Kuwait 6.6 Saudi Arabia 6 6.2 6.1 6 5.8 5.6 5.7 5.4 Germany 4.7 4.9 4.6 4 4.3 3.9 3.7 3.6 3.2 3.8 2 0 0 0 0 0 0304 0405 0506 0607 0708 0809 July 0809 910•Saudi Arabia has held the lion share in Pakistans imports with in markets since 2003‐04.signs of market diversification are present as the combined share of these major exportpartners has been declining from as high as 43 % in 2003‐04 to current levels.
  22. 22. The terms of trade measures the rate of exchange of one good or service for another when two countries trade with each other. TERMS OF TRADE 56.5 56 55.5 55 54.5 54 2008-09 2009-10This graph showed the impact of decreased prices of international prices of commodity and This graph showed the impact of decreased prices of internationaloil. country’s terms of trade aggregated to 54.9 during July‐March 2009‐10 as compared to prices of commodity and oil country’s terms of trade increases .56.3 of July‐March 2008‐09
  23. 23. SUMMARY OF BALANCE OF PAYMENTSPakistan’s Current Account Deficit (CAD) narrowed down by $3.06 billion in July‐April2009‐10 as against $ 8.98 billion last year This decline in CAD during 2010 was contributedby the improvement in trade, services, income & current transfers during the period. SUMMARY BALANCE OF 10,000 PAYMENTS 5,000 CURREN T 0 ACCOUN 2008 2009 2010 T -5,000 BALANCE -10,000 -15,000
  24. 24. REASONS TO DECLINE IN CURRENT A/C BALANCE:•Fall in payments on account of repatriation ofdividends,•interest on debt,•freight on merchandise imports &•lower outflows from•foreign exchange companies.DECLINE IN FINACIAL A/C:Decline in financial account surplus, which emerged in2008, continued in July‐April 2009-10 the deficit in thefinancial account is attributed to lower loan inflows,foreign investors’ risk & amid global crisis The majorsectors that recorded decline included communication,financial business and oil & gas exploration.
  25. 25. CAMPARISONDecline in trade deficit is due mainly to a fall in imports complimented by overall improvementin Exports during July‐April 2009‐10. The improvement in income account is based on a declinein investment income outflows & fall in net interest payments .The increase in services exports ismainly led by communication, financial, government and other business services. Lower passage& freight earnings and reduced local operations of foreign transport companies remained thekey factors behind the overall decline in the transportation services exports. CAPITAL & FINANCIALCURRENT ACCOUNT ACCOUNT BALANCE TRADE BALANCE 4% 6% CAPITAL ACCOUNT SERVICE BALANCE FINANCIA 44% 37% L INCOME ACCOUNT ACCOUNT BALANCE 90% NET 11% ERRORS & 8% CURRENT OMISSION TRANSFER S NET
  26. 26. FOREIGN DIRECT INVESTMENT 6000 5000 4000 US$ MILLION 3000 2000 1000 0 2004 2005 2006 2007 2008 2009 2010 JULY-APRIL•MAJOR REASONS OF DECLINE IN FDI:•FDI decline due to global and economic crises.•This crisis reduce the companies investment plans because of these internal factor like1. higher uncertainty ,2. risk aversion behavior3. falling profitability rate4. Energy crisis &5. Law &order situation•FDI also decline along with external factors of global economic slowdown
  27. 27. REMITTANCEGrowth in world remittances during 2009 declined by 6.7 percent on the back of global financialcrisis specifically, remittances flow to Asian countries remained stronger during the period underreview. They are two reasons which increase remittances in Pakistan. The crackdown on illegalfund transfer and asset prices crises in Dubai due to which investment was diverted to Pakistanin the form of remittances by Pakistani migrants who lost their jobs in Dubai, and b) increasedoutreach of banks having arrangements with overseas entities. REMITTANCES GROWTH IN 2009 30 20 10 % Growth 0 UK MEXICO THAILAND TURKEY KAZAHSTAN NEPAL PAKISTAN BANGLADESH MALAYSIA WORLD PHILIPPINES SRILANKA -10 -20 -30 -40 -50 Source :world bank
  28. 28. Foreign Exchange Reserves After declining by 27% during the period of 2007-08, Pakistan’s total liquid foreign exchange reserve witnessed a significant increase in the subsequent period of 2008-09 and July-April 2009-10. Reason: The fall in reserves during 2007-08 remained the net outflow from portfolio investment and step rise in the current account deficit led sharp decline in the foreign exchange reserve of the country. Recovery: Recovery in the reserve during 2008-09 was contributed by inflows from IMF following Pakistan’s entry into a macroeconomic stabilization program and than after addition from other agencies’ capital inflow in the country. In addition to that the narrowed down of current account deficit also contributed in the improvement of reserve position of the country during the period.
  29. 29.  More recently, Pakistan’s foreign reserve increased substantially from $ 12.4 billion in end- June 2009 to $ 15.0 in April 2010. Benefits: This improved position of reserves benefited from lower current account deficit and higher remittances. Improvement in reserves brought relative stability in the exchange rate and subsequent increase in foreign currency deposits. Quarterly analysis shows that bulk of accumulation in reserve was concentrated in first quarter of 2009-10, while reserve increased only marginally in subsequent quarter. Reason: Substantive part of the reserve during first quarter owned to SDRs allocation and disbursement by IMF under SBA. The reserves held by SBP stood at $11.2 bn with the banking system holding $3.9 bn in reserves by end-April 2010.Improvement in the SBP’s reserves during the period mainly owned to inflows from IFIs, lower current account deficit and reduced market support. The rise in commercial banks’ reserves was primarily on account of increased FCDs and retirement of foreign currency loans.
  30. 30.  Increase in both of them was owning to expectation of exchange rate depreciation. Owing to improved position of reserves and decline in imports, the import coverage ratio increased from 21.1 weeks as of end-June 2009 to 26.5 weeks in march 2010. End-Period Total Liquid Foreign Exchange Reserves
  31. 31. Exchange Rate After remaining at stable position for more than four years, Pak rupee started to lose significant value against US dollar and it depreciated by 22% in the period of Jan-Nov 2008. This depreciation was attributed to factors like substantial loss of foreign exchange reserves, political uncertainty, speculative activities in foreign exchange market and trade related outflows. Due to Pakistan’s entry in standby agreement with IMF in Nov 2008 along with market conditions at that time, Pakistan adopted a more flexible exchange regime, due to which country witnessed a slow down in exchange rate depreciation of 2.5% during Dec-Jun 2008-09. More recently, owing to the overall external account improvement and stable reserve position, Pakistan’s currency vis-à-vis US dollar depreciated by 3.9% during July-Mar 2009-10 compared to sharp decline of 16.2%in the corresponding period last year. Volatility in the kerb- market however, remained substantial throughout the July-Mar 2009-10, initially on account of Hajj related demand and later due to shifting of oil payment.
  32. 32.  Demand for the US dollar in the Kerb-market was particularly high in Jan-Feb 2010, which led to substantial rise in Kerb premium and volatility in the exchange rate. Average Exchange Rate and Premium 140 120 100 80 Inter Bank Rate 60 Open Market Rate Premium (%) 40 Rs / Euro 20 0 -20
  33. 33.  The improvement in inflows on account of portfolio investment and workers’ remittances backed Pak rupees, consequently, Pak rupee regained some of the ground it lost in February. Rupee appreciated by 1.01% vis-à-vis US dollar between end-February and- March 2010. The rupee showed relatively better performances against the Euro and Pound, Euro and Pound depreciated by 1.8% and 6.3% respectively against Pak rupee during July- March 2009-10. Rupee appreciated against Euro and Pound was primarily driven by the relative strength of dollar against Euro and Pound, and rupee stability against the US dollar during the period under review. Nominal Effective Exchange rate (NEER) witnessed 4.6% depreciation during July-March 2010 as compared to depreciation of 6.4% during the same period last year. However, due to rise in inflationary pressure as evident from the 8.7% increase in Relative Price Index, Real Effective Exchange Rate (REER) appreciated by 3.5% during July-March 2009-10.
  34. 34. CONCLUSION
  35. 35. SALIENT FEATURE OF STRATEGIC TRADE POLICY FRAMEWORK 2009-12 Realizing the need for developing and effectively implementing a national export competitiveness programme,the ministry of commerce has developed a three year Strategic Trade Policy Framework(STPF) 2009-12. The over all objective sustainable high economic growth through exports with the help of policy and support intervention by the government, industry, civil society and donors.
  36. 36. The STPF 2009-12 is based on six pillar namely Supportive Macro Policy and Services Enhancing Product level in Pakistans Exports Enhancing Firm level Competitiveness Domestic Commerce Reform and Development Product and Market Diversification Making Trade Work for the Sustainable Development in Pakistan. Moreover, Ministry of Commerce has set the export growth target of 6.0 percent for 2009-10 percent and 10.0 percent for each of the successive years.
  37. 37. The major measures to achieve the above objectives are: Support for opening exporters offices abroad. In previous years, government announced 50 percent support for various quality, environmental and social certifications. The support was progressively increased to 100 percent of the cost of certification . It is proposed that surgical instruments, sports goods & cutlery sector would be granted 25 percent subsidy on brand promotional expenses like advertisement in recognized trade journals, certification cost etc. In order to increase the sophistication level & realize true potential of light engineering sector , a special fund would be created for product development & marketing for light engineering sector. Leather apparel export would be provided 50 percent subsidy for on the floor export advisory and matching grant to establish design studios or design centers in their factories .
  38. 38.  A freight subsidy at 25 percent would be extended on air shipments of live seafood products. Processed food exports would be supported initially by reimbursing research &development cost at 6 percent of the exports. Sharing 52 percent financial cost of design up of design centers and labs in the individual tanneries . Industrial importers would be allowed to import new, refurbished and upgraded machinery on the basis of trade-in with old, obsolete machinery. Likewise, export of their old machinery for trade in with new, refurbished or upgraded machinery would also be allowed. The natural pearls and others synthetic or reconstructed previous or semi previous stones are being increasingly used in jeweler products; they would also be exempted from customs duty and sales tax.
  39. 39.  Limit for physician’s samples would be enhanced to 20 at the time of launch with first shipment. Engineering units would be allowed Export Oriented Units (EOU) facility on export of 50 percent of their production for the first three years. After that, engineering units would be this facility on export of 80 percent of their production. In order to encourage use of computers by low income segment of population , the import of old &used components would be allowed.