Trade

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Definition of 'Balance Of Payments - BOP'

A record of all transactions made between one particular country and all other countries during a specified period of time. BOP compares the dollar difference of the amount of exports and imports, including all financial exports and imports. A negative balance of payments means that more money is flowing out of the country than coming in, and vice versa. Balance of payments may be used as an indicator of economic and political stability. For example, if a country has a consistently positive BOP, this could mean that there is significant foreign investment within that country. It may also mean that the country does not export much of its currency. This is just another economic indicator of a country's relative value and, along with all other indicators, should be used with caution. The BOP includes the trade balance, foreign investments and investments by foreigners. The balance of trade is the relationship between a nation's imports and exports of goods and services. Any imbalance in these trade implies implies an equal and opposite imbalance in asset trade. A positive balance of trade is known as a trade surplus and consists of exporting more than is imported; a negative balance of trade is known as a trade deficit or, informally, a trade gap. A trade deficit (more properly labeled as a current account deficit) means that exports are insufficient to pay for imports and a trade surplus is the opposite of it -corresponding to the capital account deficit. Trade deficit risks jeopardizing nation’s economic growth because current account deficit leads to net selling of international assets. Hence, current account trade surplus increases country’s international asset position correspondingly and a trade deficit decreases the net international asset position accordingly. The balance of trade is generally affected by the factors like: Prices of goods manufactured at home, trade agreements, tariffs and non-tariff barriers, exchange rates, state of business cycle at local or international market.

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Exports of Pakistan

1. Primary Commodities Rice,Raw Cotton Fish & Fish Preparations Fruits,Vegetables,Tobacco,Wheat,Spices Oil Seeds, Nuts and Kernels 2. Textile Manufactures Cotton Yarn Cotton Fabrics Knitwear Bed Wear Towels Readymade Garments

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3. Other Manufacturers Carpets & Carpeting Petroleum and Petroleum Products Sports Goods, Leather Manufacturers Surgical & Medical Instruments Cutlery, Chemical and Pharmaceutical Products Engineering Goods Gems, Jewellary Furniture,Molasses Exports of Pakistan

It is not only in agriculture that we have excelled in; Pakistan has a reasonably strong industry base. In many areas, our industry not only fully meets the local requirements but also earns valuable foreign exchange for our country. Textile Products. Our textile products are famous world wide which account for more than 50%

of our total exports. There are over 500 Textile Mills producing high quality textile products. Majority of our textile industry is based in Faisalabad while units do exist in other parts of the country also. Fertilizers Industry. Pakistan is one of major exporters of fertilizers with one of the world’s

biggest fertilizer plant in recently constructed our country. Being an agricultural country the consumption of fertilizers is a direct indicator of the growth of the agricultural sector. Overall industry capacity is approx 7.5million tons per annum Cement Production. Total of 30 cement industrial units are meeting the local and regional

requirements and contributes approx 30 billion Rs in the form of taxes. Our cement industry has a production capacity of 20 million tons out of which we exported approx 11 million tons of cement which earned 700 million US$ of foreign exchange. More than 150,000 people are employed in cement sector. Sports Goods. Located in Sialkot our sports goods industry has earned very good name for the

country as well as foreign exchange. Our exports in year 2009 were than 35 million US$. Made in Pakistan footballs, soccer balls, gloves are famous all over the world.

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Leather Products. Leather good are the second major export items of Pakistan after

textiles. Pakistan exports are approximately 700million US$ annually. Italy is a major importer of our leather jackets, gloves and handbags. Surgical Instruments. Based in Sialkot, our surgical industry has a history of more than 100

years. In 2009 Pakistan exported nearly 250Million US$ worth of surgical instruments to the world. Electrical Appliances. Our industr industries ies in in Gujrat Gujrat,, Gujranwala and Shiekhopura are producing

good quality electrical appliances like fans, room coolers, air conditioners, washing machines etc. These are export quality products which have established good reputation over a period of time. These appliances are exported to regional and other friendly countries. Causes for negative balance of payments 1.Pakistan's balance of payments is highly dependent on workers

remittances but these remittances cannot be sustained over a long period of time. 2.One major structural problem of exports is that it is based on relatively low value added products. Pakistan's exports are highly concentrated in cotton group, leather group, rice, synthetic textiles and sports goods. 3.Although Pakistan is trading with large number of countries but her exports are highly concentrated in few countries. More than half of Pakistan's exports are concentrated in USA, Germany, Japan, UK, HongKong, Dubai and Saudi Arabia. Such a high degree of geographicconcentration of exports is dangerous as it renders the economyvulnerable to the manipulation of the importing countries. 4.Imports are concentrated on a limited number of commodities namely machinery, petroleum & petroleum products, chemicals, transport equipments, edible oil, iron and steel, fertilizer and tea. 5.Agriculture-related exports constitute a high ratio of the total exports. In FY02-03, 73 per cent of export earnings came from the export of cottonand cotton products, leather and rice. Such a high degree of dependencyon agriculture-related products is an element of uncertainty in exportearnings. 6.Although Pakistan is trading with a large number of countries, yet major portion of imports comes from a few selected countries. Almost 50 percent of imports come from USA, Japan, Kuwait, Saudi Arabia, Germany,the UK and Malaysia. Such a high degree of geographic concentration ofimports is undesirable and is in favor of exporting countries. 7.Pakistani societies make heavy expenditure on their rituals, weddings etc which are useless. 8.The main cause or we can say that the biggest problem is political uncertainty.

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Solution 1.Government should formulate a strategy to be free of the country’s

dependency on workers’ remittances. 2.The emphasis should be on the export of the high value goods and the services. 3.Pakistan should expand its international market. 4.The country has to expand its export base that is too narrow. 5.The industrial sector should be the major sector of the economy. 6.The trend of saving should be promoted. 7.Economic system has to change. 8.Political stability should exist. 9. Foreign investments should be encouraged IMPROVEMENT IN THE BALANCE OF PAYMENT

1. Increase in Exports by Providing Different Incentives First important step for improving balance of payments of Pakistan is to increase its exports. It is suggested that following steps should be adopted in this regard. Decrease in cost of production, for which interest rate for new industries should be reduced. Cost of transport particularly railway freight should be minimized. Custom duties on the export-oriented industries should be reduced. Cost of transport particularly railway freight should be minimized. Modern techniques of production should be used. Instead of exporting raw material, value added goods should be produced and exported. Those industries should be encouraged and set up which use locally produced raw material. Labor productivity should be enhanced by imparting education, training and providing different types of facilities of life. Goods of different varieties keeping in view the demand and requirement of foreigners should be developed, produced and exported. 2. Decrease in Imports by Setting up Key Industries Second important requirement for improving balance of payments is to decrease imports. It is suggested that after adopting following steps imports will be decreased. Import substitution industries should be set up. For production of edible oils, seeds should be grown locally. Tea consumption should be discouraged. Production of food grains such as wheat should be increased. Import of luxurious items should be banned or heavily taxed. Basic and key industries should be developed which can produce machinery and spare parts for manufacturing industries. 

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3. Increase in Invisible Earnings Thirdly, for improving balance of payments expenses on invisibles are to be decreased and to increase exports. After adopting following steps, invisibles balance can be improved. National shipping company should be strengthened for assisting the international trade. Freight charges of this company will become a source of saving of foreign exchange. Domestic commercial banks and insurance companies should be strengthened and be given task for facilitating Pakistan’s international trade. Expenses on our embassies abroad, which involve foreign exchange should be reduced. VIP culture should put to an end and unnecessary tours and medical expenditure of high government officers and politicians in foreign countries hospital should be disallowed. Foreign countries visits by the general public should be discouraged in order to save the precious foreign exchange of the country. The efficiency of Trade Attaches of Pakistan Embassies should be improved. It is their duty to do their best for developing markets of Pakistani products in the countries they are posted. 4. Search of New Markets Fourth important requirement for improving the balance of payments is the expansion of trade relations. After adopting the following steps trade relations will be expanded. Govt. officials and business community should participate in trade fairs arranged by foreign countries. Trade Agreements with different countries should be made. Seminars and Trade Exhibition should be arranged within country in which foreign delegates should be invited to participate. Booklets, brochures, pamphlets about Pakistani products and economy of Pakistan should be distributed to foreign business community. Research for marketing should be conducted. 5. Quality and Packaging of International Standard Exportable Goods should be of international standard; their packaging should meet the same standard. Good packaging provides safety and security of the product and is not destroyed during handling and shifting process. 6. Revival and Restoration of Sick Industries Sick industries should be revived. This will increase output of industrial goods, which will result in the decrease of prices. The cheap goods will become a good market for buyers and they will import more from Pakistan, thus the export proceeds of the country will increase. 7. Foreign Joint Ventures Pakistan’s exports can be pushed up after collaboration of foreign investors. The foreign partners have more contacts in foreign markets and in order to increase profitability of industry, foreign partners will market the products in their countries hence Pakistan’s exports will increase. 8. Promotion of Labor Intensive Industries Small and cottage industries are labor-intensive. Products utilizing more cheap labor with have a 

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comparative cost advantage which will help in decrease in cost. Industries such as, leather goods, readymade garments, surgical instruments sports goods should be developed for export purpose. Benefits of Trade Develop a broader market Obtain greater benefits Leads to an increase in international ties. Leads to specialisation among countries, and thus improve efficiency in production which in turn is the mother of the need for technology innovation. Increase standard of living among trading nations.

Trade

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