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Balance of Payments

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Balance of Payments

  1. 1. BALANCE OF PAYMENTS by Akash Ijaz
  2. 2. Balance of Payments Balance of payments is systematic record of total transactions of a country with rest of the world in a given period of time usually a year. These transactions include payments for the country's exports and imports of goods & services, financial capital, and financial transfers.
  3. 3. Types of Balance Of Payments Surplus/favorable Balance Of Payment:  If the receipts of a country are greater than its payments the result is Surplus. Receipts > Payments Deficit/adverse/unfavorable balance of payments:  If the receipts of a country are less than its payments the result is Deficit. Receipts < Payments
  4. 4. Causes of Deficit In The Bop  Increase in imports: The heavy import of capital goods and machinery has considerable increased the import bill.  Decrease in Exports: Pakistan’s major exports are rice, cotton, raw wool, leather, fish etc so our export base is narrow. It is concentrated in relatively low value added products.
  5. 5. Causes of Deficit In The Bop Less Modernization of Machinery: There have been less modernization, balancing and replacement of machinery in the private industrial sector. The fall in production and decline in the quality of products has adversely affected exports. Consumption Oriented Society: Due to rapid rise in population and increased consumption habits, the domestic manufactured goods are mostly consumed in the country .
  6. 6. Causes of Deficit In The Bop Increase in Prices of Inputs: The costs of both imported capital goods and industrial raw material, the inflationary impact of the rise in the prices of inputs are not helping in achieving the export targets. Tough Competition: There is availability of higher standard goods at lower prices in international market. It causes reduction in exports, which result in deficit in BOP.
  7. 7. Causes of Deficit In The Bop Political Uncertainty: Due to political uncertainties the efficiency of the industries and the fall in the volume of production, has reduced export earnings. So BOP is unfavorable. Defense Needs: We have to purchase modern weapons for our defense at a very high cost like 275 billion, which increases burden on our BOP and it becomes adverse.
  8. 8. Causes of Deficit In The Bop Foreign Debts Servicing: Pakistan pays interest on these loans regularly. It paid $ 7.8 billion as debts services charges during 2010-11. The interest payment has adversely affected the balance of payment.
  9. 9. Measures To Correct Deficit in the BOP Increase the Exports: By giving subsidies to the exporters and granting of loans at reduced rates to the exporters as well as providing insurance facilities and shipment services etc. Decrease the imports: By imposing restrictions on imports, by increasing the import duties, imposition of exchange control etc.
  10. 10. Measures To Correct Deficit in the BOP  Manufactured Goods: Instead of exporting primary goods like raw cotton, Pakistan should export manufactured goods like textiles and garments, leather goods, food products and electrical goods.  Reduction in Export Duties: If we reduce export duties the foreigners will prefer to import from Pakistan because of low prices.
  11. 11. Measures To Correct Deficit in the BOP Quality Products: Pakistan is needed to improve the quality of its products like electric fans, cycles, electric motors, shoes, ball pens, crockery etc according to international standard.  Deflation: By adopting tight fiscal policy by decreasing Govt. expenditures and increasing taxes income and expenditures of people will decrease. In this way, there will be a deflation in the economy. As a result the imports will decrease and exports will increase.
  12. 12. Measures To Correct Deficit in the BOP Packing: High quality packing is essential for promoting exports. Import of Only Essential Items: Only essential items should be imported which are needed for our industrial production. Import of luxuries should be banned. Population Control: Many of our problems are arising due to fast increase in population. Sincere efforts should be made to decrease growth rate of population.
  13. 13. Measures To Correct Deficit in the BOP Decrease in Consumption: Taxes should be imposed to reduce the consumption of many items. Rich people in our country are spending freely on unnecessary imported consumer items. Labour Intensive Industries: Labor intensive industries should be established, because labor is cheaper in Pakistan, these industries can be set up at lower cost.
  14. 14. Measures To Correct Deficit in the BOP Devaluation:  Devaluation refers to deliberate attempt made by monetary authorities to bring down the value of home currency against foreign currency.  When a country devalues its currency, exports becomes cheaper and imports become expensive which causes a reduction in the BOP deficit.  International Monetary Fund (I.M.F): IMF has initiated a lot of and with the help of these farcicalities them member of IMF who faces deficit in BOP, can get loan from IMF and use it to remove its deficit.

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