Ê
 

Government spending policies that influence macroeconomic conditions. These policies

affect tax rates, interest rates and government spending, in an effort to control the economy.

J Ê  
Situations in which liabilities exceed assets, expenditures exceed income, imports exceed
exports, or losses exceed profits.

Ê

 ‘
p vertical fiscal imbalance describes a situation where revenues do not match expenditures
for different levels of government. p horizontal imbalance describes a situation where
revenues do not match expenditures for different regions of the country.

To measure the fiscal imbalance, take the difference between the present value of all future
debt and the present value of all income streams.

pt any given time, there will be a fiscal imbalance for a particular government; a sustained
and positive balance will be detrimental to society and the economy. If there is a sustained
positive fiscal imbalance, then tax revenues will likely increase in the future, causing both
current and future household consumption to fall.

Ê
J Ê  ‘
Ghen a government's total expenditures exceed the revenue that it generates (excluding
money from borrowings). Deficit differs from debt, which is an accumulation of yearly
deficits.

p fiscal deficit is regarded by some as a positive economic event. For example, economist
John Maynard Keynes believed that deficits help countries climb out of economic recession.
On the other hand, fiscal conservatives feel that governments should avoid deficits in favor of
a balanced budget policy.

J Ê  
 J  Ê
 

Ghen a government's expenditures exceed its revenues, causing or deepening a deficit. This
excess spending needs to be financed through borrowing, likely from foreign governments.
The increased government spending can help stimulate the economy as more money flows in,
but the jump in borrowing can have an adverse effect by raising interest rates.

John Maynard Keynes was an advocate of deficit spending as a fiscal policy tool to help
stimulate an economy in recession. During a recession, increased government spending can
stimulate business activity, create jobs and spur consumer spending. This creates a multiplier
effect in which $1 of government spending helps increase GDP by more than $1. Some
complain that the negative effect of deficit spending is that interest rates will increase as the

c
government borrows more. The higher rates make borrowing money more expensive and can
stifle growth.

Ê
 Ê


ÊÊ
The successful implementation of the macroeconomic stabilization program in FY09 resulted
in considerable fiscal consolidation during the year. Specifically, overall fiscal deficit
dropped to Rs 680.4 billion during FY09 from Rs 777.2 billion in the preceding year. ps a
percentage of GDP, the fiscal improvement consists of a reduction in budget deficit by 2.4
percentage points to 5.2 percent during FY09. The consolidation of fiscal balance during
FY09 resulted largely from a steep deceleration in the growth in total expenditures. Total
revenues, despite exhibiting accelerated growth, declined as a share of GDP to 14.1 percent
in FY09 from 14.6 percent a year earlier.

ÊJ

  

Ê
 
! ! "
 #$%#&' '&
!

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Tax revenue 849.2 355.5
Nontax 452.2 194.0
 #$()&) *+'&(


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9


Current 1,415.5 626.1
Developmen 243.2 205.6
t
,
 '&+ +(&+



Notwithstanding the fiscal improvement, reduction in overall fiscal deficit fell short of end-
June FY09 target agreed with the IMF by Rs 118.2 billion. Quarterly trends show that
accumulation of the budget deficit remained prudent till third quarter of FY09. Thus, during
Jul-Mar FY09, total expenditures were severely limited, in line with total resources available
to the government, so as to attain end-June FY09 fiscal deficit target. However, end-June
fiscal accounts saw a large addition to the fiscal deficit in Q4-FY09. ps a matter of fact,
fiscal deficit during ppr-Jun FY09 represents 40.4 percent of the budget deficit of the entire
fiscal year. The oversized addition to fiscal deficit in Q4-FY09 was led by Rs 205.6 billion
rises in development spending during the quarter, reflecting IDP related expenditures and a
surge in development spending by the provinces.

ÿ
pnother major development during FY09 relates to the welcome shift in the composition of
budgetary financing away from extremely inflationary borrowing from the central bank. This
occurred as (1) overall budgetary borrowing requirements shrank due to absolute fall in fiscal
deficit, (2) budgetary shortfall in external financing inflows was moderate, (3) National
Savings (NSS) inflows far exceeded budgetary estimates, and (4) the government was able to
fetch Rs 186.5 billion from scheduled banks during FY09 against net retirement of Rs 134.2
billion in FY08. Large NSS inflows raised the share of non-bank in total budgetary
borrowing from domestic sources to 42.3 percent in FY09 from 16.7 percent in the preceding
year. This is in sharp contrast to FY08 where budgetary borrowings from SBP effectively
funded the entire domestic financing of the fiscal deficit for the year. Notwithstanding the
reduction in fiscal deficit during FY09 and strict limits on the government¶s budgetary
borrowing from SBP, fiscal sustainability would require persistence in fiscal consolidation.
That, in turn, hinges crucially on undertaking significant structural reforms in the months and
years ahead.

--!."
/Ê""

billion Rupees
 Ê Ê) Ê( Ê* ,
 Ê
Ê
 & #$()&) #$+*& #$'&' #$*&+ #$*&
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Tax revenue 632.6 753.0 889.7 1,050.7 1,317.9 1,204.7
Non-tax 267.4 323.6 408.3 448.7 491.4 646.2
receipts
 #$##(& #$'#&* #$)(& +$+()& +$%#& +$%#&%


"!

Current 943.1 1,121.0 1,375.3 1,857.6 1,857.8 2,041.6
Developmen 252.5 367.1 424.7 423.4 516.6 455.7
t and net
lending
Unidentified -78.5 -86.3 -124.5 -4.4 - 34.0


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2

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Financing 217.0 325.2 377.5 777.2 582.3 680.4
through:
External 120.4 148.9 147.2 151.3 165.2 149.7
resources
Internal 68.3 79.0 158.9 624.2 391.9 529.5
resources
Banking 60.2 70.9 102.0 519.9 149.0 305.6
system
Non-bank 8.1 8.1 56.9 104.3 242.9 223.8
Privatization 28.3 97.3 71.5 1.7 25.1 1.3
proceeds


Ê
 Ê#

The Federal Board of Revenue (FBR) has failed to achieve the revenue collection target of
Rs1563.6 billion. The shortfall, according to certain sources, could be as much as Rs 65
billion. So far as targeted foreign inflows are concerned, the UpE¶s Etisalat did not oblige the
government, despite its last ditch efforts to convince the company to release at least $500
million of the $800 million remaining proceeds of the PTCL privatisation, before June 30, to
ü
contain the fiscal deficit closer to the annual target committed with the IMF. The UpE firm
took the position that it would not make this payment till the transfer of all properties to its
name promised by the government at the time of privatisation. It may be mentioned that,
because of the delayed legal transfer of land and property titles, Etisalat has been holding
back payment of almost $800 million of the $2.6 billion PTCL¶s privatisation proceeds to
Pakistan for almost three years now. Most unexpected was the fiscal behaviour of the
provincial governments. The federal government had envisaged a fiscal deficit target of 4.9
percent of the GDP at the time of the budget announcement for the year 2009-10, which was
subsequently, scaled up to 5.1 percent under the IMF programme. This target was based on
the expectation that the Federal Government¶s fiscal deficit would be around 5.8 percent of
the GDP, but a saving of about 0.6 percent from the fiscal operations of the provincial
governments would reduce the overall deficit to the targeted level. Such a premise, however,
has proved to be illusory and the provincial governments seemed to have ended up without
any surplus. ps a result, the target to achieve a saving of 0.6 percent of the GDP from this
source is not likely to materialise and the overall fiscal deficit target, set at Rs 763 billion for
the last financial year, may actually turn out to be closer to Rs 870 billion or a little over 5.8
percent of the GDP.

The country may have some valid reasons to miss the fiscal target by a huge margin of over
Rs 100 billion, or nearly 0.7 percent of the GDP, but the consequences of this failure are
really going to be alarming. The IMF would give a tough time to the Pakistani authorities for
missing an important performance criteria agreed earlier under the Stand-By prrangement.
The present programme may not be derailed due to the highly sympathetic attitude of the
world community at this point of time, but the credibility of the country would certainly be
eroded further. Larger recourse to bank borrowings to finance higher budget deficit has
accelerated the growth rate of the money supply, which is likely to push up the inflation rate
in the coming months. The exchange rate of the rupee is also coming under increasing
pressure, due largely to fiscal lapses.

The overall scenario is likely to force the State Bank to maintain a tight monetary stance and
keep the interest rates at high levels. The most worrying aspect is that we are still not
prepared to attune our fiscal policy to the new realities. The country is almost in a state of
war, but no section of society or sector of the economy is prepared to pay its due taxes.

In fact, demands for exemptions or avoidance of taxes are pushing down the tax-to-GDP ratio
further. Provincial governments do not make any efforts to mobilise the higher level of
revenues and the recent NFC award seems to have made them more complacent. Our friendly
countries admire us day and night for our courage to fight terrorism, but their financial
contribution to our effort is not significant. pll of this must change and soon, if we want to

·
stabilise and rehabilitate the economy. The estimated fiscal outcome for the outgoing year
should be a warning signal for the authorities to rethink the fiscal strategy more realistically
and particularly, in a way that our dependence on foreign sources to finance the budget deficit
is reduced to the minimum over time.

-
 Ê
 4
The balance of payments (BoP) means a systematic record of all the economic transactions between
residents of a country with the rest of the world during a given period of time. It covers exchange of
visible (merchandise) and invisible (services) items.

5 
Ê 
6
J Ê    Ê


Pakistan was caught in vicious deficit balance of payments trap after the pre-plan period. During pre-
plan period (1948-49 to 1954-55), Pakistan's performance in the foreign trade sector was reasonably
good. Its exports exceeded the imports and formed 114 per cent of total imports. It had surplus BoT
up to 1954-55. The year 1955-56 was the last year in which Pakistan had a favourable balance of
trade. Since that time, Pakistan has been facing a serious problem of deficit in her BoT and BoP. The
present article is aimed to review the performance of each government in BoP situation after the
separation of the former East Pakistan.

In 1971, Pakistan's exports decreased considerably and its imports surged, especially of capital goods,
thus creating a trade deficit. Gorkers¶ remittances, especially from the Middle East countries,
increased tremendously which helped a great in stabilizing the BoP. The deficit in BoT was $836
million on an average while current account deficit in BoP was $699 million on an average between
1971-72 and 1977-78 (the tenure of late Mr. Z. p. Bhutto). The trade deficit as percentage of GNP
remained 6.3 per cent while current account deficit in BoP remained 5.6 per cent on an average during
1971-72 to 1977-78.

The inflow of workers remittance increased 1080 per cent from 1971-72 to 1977-78.The magnitude of
workers' remittances increased from $107 million in 1971-72 to $1156 million in 1977-78. The BoP
position deteriorated during Zia's regime (1978-79 to 1984-85). p deficit in BoT increased to $2958
million on an average from 1978-79 to 1984-85. Current account deficit in BoP increased to $993
million on an average during 1978-79 to 1984-85.

The inflow of workers¶ remittances continued increasing, especially from the Middle East, from 1977-
78 to 1982-83 and reached a peak level of $2886 million in 1982-83. This inflow gradually decreased
in the last two years of his regime.

The magnitude of workers' remittances from 1978-79 to 1984-85 was $1849 million on an average.
The trade deficit as percentage of GNP rose to 9.9 per cent while current account deficit in BoP on an
average decreased to 3.7 per cent in this period.

The Table shows that the external BoP gained strength during Junejo's period from 1985-86 to 1987-
88. Exports grew on an average by 33 per cent while imports decreased during first two years while
increased in the last year.

Export remained at a level of $3601 million on an average during this period. Deficit in the balance of
trade decreased to $2631 million and current account deficit in the BoP decreased to $1211 million on
an average during these years. The trade deficit as percentage of GNP declined to 6.9 per cent while
the current account deficit in balance of payment declined to 3.1 per cent during 1985-86 and 1987-
88. Gorkers' remittances showed a declining trend from $2595 million in 1985-86 to $2013 million in
‰
1987-88. The magnitude of workers¶ remittances on an average between 1985-86 and 1987-88 was
$2295 million.

The BoP position witnessed a significant improvement during first tenures of both Ms. Benazir Bhutto
(1988-89 to 1990-91) and Mohammad Nawaz Sharif (1991-92 to 1993-94). The deficit in BoT
decreased to $2728 million on an average between 1988-89 to 1990-91 and to $2501million on an
average between 1991-92 to 1993-94.

The current account deficit in BoP fell to $1998 million on an average between 1988-89 to 1990-
91and to $2333 million on average between 1991-92 and 1993-94. This reveals that BoP and BoT
remained stabilized during the first tenures of both- Benazir and Nawaz Sharif - (1988-89 to 1993-
94). Trade deficit as a percentage of GDP stabilized on an average around 4.7 per cent during
Benazir's and Nawaz's tenures. The current account BoP as a percentage of GDP on an average was
4.7 per cent in Benazir's period while 4.6 per cent in Nawaz's period.

Pakistan's external balance of payment deteriorated in the second tenure of Ms. Benazir (1994-95 to
1996-97). The deficit in BoT and current account deficit in BoP increased to $3128 million and $3635
million on an average between 1994-95 and 1996-97 respectively.

Trade deficit as a percentage of GDP on an average was 4.7 per cent while deficit in current account
balance of payments increased to 5.8 per cent. There was a sudden upsurge in the inflow of workers¶
remittances from Kuwait and were $1866 million in 1994-95.

This inflow could not maintain its momentum and was reduced in the following two years of
Benazir's government. The magnitude of inflow of workers¶ remittances from 1994-95 to 1996-97 on
an average was $1578 million.

This adverse performance in foreign balance of payment was due to the weak macroeconomic
management and lack of commitments to undertake difficult structural reforms.

The overall balance of payment position during the second tenure of Nawaz Sharif (1997-98 to 1999-
00) witnessed a significant improvement despite the adverse external environment.

Both current account deficit in BoP and BoT decreased in this period. The deficit in the balance of
trade decreased to $1788 million while current account in the BoP decreased to $1833 million during
1997-98 and 1999-00 despite the sanctions imposed by the G-8 countries on bilateral and multilateral
lending as a consequence of Pakistan's nuclear tests in May 1998.

The deficit in the balance of trade as a percentage of GDP and current account deficit in balance of
payments as a percentage of GDP also showed the same trend. The deficit in the balance of trade as
percentage of GDP on an average declined to 2.5 per cent while current account deficit in balance of
payments declined to 2.9 per cent on an average during 1997-98 and 1999-00. Gorkers' remittances
exhibited a declining trend during these years. The magnitude of workers remittance on an average
was $1178 million.

The economy started showing signs of improvement with the start of Musharaf's regime. His
government launched a comprehensive set of economic stabilization and structural reform measures.

Î
Pakistan's exports increased from $7.8 billion in 1999-00 to $9.2 billion in FY00-01. The deficit in
BoT decreased to $1269 million while current account BoP decreased to $513 million in FY00-01.
The real improvement in BoP started after the event of September 11, FY01. The post-September 11
events helped a great deal in ameliorating Pakistan's chronic external deficit in balance of payments.

Significant reduction in the trade deficit, more than doubling of foreign remittances, and budgetary
support from coalition partners in the war against terror enabled Pakistan to run a current account
surplus for the first time since 1956-57.

There was a sharp decline in trade deficit in FY01-02. The trade deficit fell by 75.5 per cent to $286
million over the level of $ 1338 million of FY00-01. The current account deficit in balance of
payment emerged with a surplus of $913 million in FY01-02.

The current account BoP remained in surplus from FY01-02 to FY03-04.The magnitude of surplus in
current account BoP for FY01-02 was $1338 million, for FY02-03 $ 3165 million and for FY03-04
(July-March FY03-04) was $1369 million.

The conclusion drawn from the analysis of the BoT and BoPbehaviour during different governments
between 1971-74 and FY03-04 envisaged that BoT and BoP improved during the governments of
Bhutto and Junejo (1971-72 to 1977-78 and 1985-86-1987-88) while BoT and BoP deteriorated
during Zia's regime (1978-79 to 1984-85.

The BoT and current account BoP stabilized during the first tenure of both Benazir and Nawaz Sharif
while deteriorated in her second tenure while BoT and BoP stabilized in Nawaz Sharif's second
period.

The performance of Benazir in first tenure was better than in her second era despite the workers¶
remittances from abroad increased considerably during her second tenure. Performance of Musharaf's
government is much better than the previous governments either military or democratic since 1971-
72. Causes: * Pakistan's balance of payments is highly dependent on workers¶ remittances but these
remittances cannot be sustained over a long period of time. Gorkers' remittances increased after 1971-
72.

There was a sudden upsurge in the workers¶ remittances in late seventies and early eighties. They
grew up from $107 million in 1971-72 to a peak level of $2989 million in 1982-83 and exceeded the
total merchandise export of $2627 million.

However, these inflows began tapering off since 1982-83, excluding inflows from Kuwait in 1994-95.
This year workers¶ remittances were $ 1866 million. pfter 1994-95, workers¶ remittances depicted a
declining trend.

In 1999-00 workers¶ remittances were reduced to $ 983 million. pfter the event of September 11,
FY01 workers¶ remittances increased tremendously especially from USp, UK and other European
countries and reached to $4237 million in FY02-03. The remittances could not maintain their
momentum in FY03-04 and decreased to $3.6 billion.

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.

 
These five categories of exports accounted for 82.6 per cent of the total exports during 2002-03.
pmong these five categories cotton group alone contributed around 63.3 per cent of total exports,
followed by leather (6.2 per cent) and synthetic textiles (5.1 per cent) and rice (5.0 per cent). Such a
high degree of concentration of exports in few items has led to instability in export earnings.

plthough 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 USp, Germany, Japan, UK,
Hong Kong, Dubai and Saudi prabia. Such a high degree of geographic concentration of exports is
dangerous as it renders the economy vulnerable to the manipulation of the importing countries.

Imports are concentrated on a limited number of commodities namely machinery, petroleum &
petroleum products, chemicals, transport equipment¶s, edible oil, iron and steel, fertilizer and tea.

These eight categories of imports accounted for 75.5 per cent of total imports during FY03-04 while
machinery, petroleum and its products and chemicals accounted for 58.7 per cent of total imports in
the same year.

pgriculture-related exports constitute a high ratio of the total exports. In FY02-03, 73 per cent of
export earnings came from the export of cotton and cotton products, leather and rice.

Such a high degree of dependency on agriculture-related products is an element of uncertainty in

export earnings. pgriculture in Pakistan is still a gamble in rainy season. p poor crop of cotton would
seriously affect balance of trade. Terms of trade are declining against agriculture-based exports.

Terms of trade with base year 1990-91 have showed a declining trend except few years. It was as low
as 90.9 in 1991-92 but improved in 1997-98 when it reached a level of 123.5. Thereafter it continued
to decline and was recorded at 79.5 in FY03-04.

The unit value index for all exports increased from 100 in 1990-91 to 276 in FY03-04 while the unit
value index for all imports increased from 100 to 347.3. This increase in the unit price index of all
import goods especially palms oil, chemicals and iron & steel had adverse impact on Pakistan's terms
of trade.

plthough Pakistan is trading with a large number of countries, yet major portion of imports comes
from a few selected countries. plmost 50 per cent of imports come from USp, Japan, Kuwait, Saudi
prabia, Germany, the UK and Malaysia. Such a high degree of geographic concentration of imports is
undesirable and is in favour of exporting countries.

 

[
 Ê

Ê 
0#(#(+ +%'2
0
"
72


!
",


83J 

Years Exports Imports Trade Gorkers Current Current

(F.O.P) (F.O.P) Balance Remittance a/c BOP p/c Balance
1971-72 619 946 - 327 107 - 443 - 3.8*
1972-73 707 891 - 184 124 - 130 - 2.0*
1973-74 1020 1493 - 473 138 - 549 - 6.1*
1974-75 978 2114 - 1136 212 - 1168 - 10.3*
1975-76 1162 2139 - 977 339 - 949 - 7.*
1976-77 1132 2418 - 1286 578 - 1051 - 6.7*
1977-78 1283 2751 - 1469 1156 - 605 - 3.1*
1978-79 1644 3816 - 2172 1397 - 1114 - 5.3*
1979-80 2341 4854 - 2513 1748 - 1140 - 4.5*
1980-81 2798 5563 - 2765 2097 - 991 - 3.2*
1981-82 2318 5641 - 3373 2225 - 1530 - 4.7*
1982-83 2627 5616 - 2979 2886 - 554 - 1.8*
1983-84 2663 6002 - 3334 2737 - 1028 - 3.1*
1984-85 2700 6263 - 3563 2750 - 1593 - 3.5*
1985-86 2942 5984 - 3042 2595 - 1234 - 3.4*
1986-87 3498 5792 - 2294 2278 - 719 - 1.9*
1987-88 4362 6919 - 2557 2013 - 1682 - 4.0*
1988-89 4634 7207 - 2573 1897 - 1934 - 4.8
1989-90 4634 7411 2483 1942 - 1891 - 4.7
1991-92 6131 7619 - 3128 1848 - 2171 - 4.8
1992-93 6762 8998 - 2236 1468 - 1346 - 2.8
1993-94 6685 8685 - 2000 1446 - 1965 - 3.8
1994-95 7759 10296 - 2537 1866 - 2484 - 4.1
1995-96 8311 12015 - 3704 1461 - 4575 - 7.2
1996-97 8096 11241 - 3145 1409 - 3846 - 6.2
1997-98 8434 10301 - 1867 1490 - 1921 - 3.1
1998-99 7528 9613 - 2085 1060 - 2429 - 4.1
1999-00 8190 9602 - 1412 983 - 1143 - 1.6
2000-01 8933 10202 - 1269 1087 - 513 - 0.7
2001-02 9140 9434 - 294 2389 - 1338 + 1.9
2002-03 10889 11333 - 444 4237 3165 + 3.8
2003-04 9175 993283 - 757 2875 1369

 

c

  
   
J   



    

Current account deficit recorded 65.9
percent YoY contraction during Jul-ppr
FY10 compared with a 20.1 percent
decline in the same period last year. In
absolute terms, this is the lowest deficit
for the Jul-ppr period in the last four
years (see Ê,!
)&%).

Ghile all components of the current

account deficit recorded YoY
improvement during the period under
review, a major impetus came from a fall
in imports and a strong increase in
current transfers, which together
contributed around 54.5 percent of the
overall improvement. Fall in payments
on account of repatriation of dividends,
interest on debt, freight on merchandise imports and lower outflows from foreign exchange
companies were other major contributory factors behind the contraction in the current account deficit
during the period under consideration.

Quarterly analysis, however, shows that a large part of the YoY improvement in current account
deficit was concentrated in H1-FY10 as it has shown deterioration during Q3-FY10 (see Ê,!
)&%/)

 

J 

1.‘ Pakistan should try to establish more domestic as well as international industries
inside the country to increase the domestic productions. This step will not only help to
satisfy the domestic demands but also increase the exports. Focus should be made on
those industries where we have the genius comparative advantages and raw material
availability in the domestic markets i.e. increase investment in the gem stone, jewelry,
leather industries, textile manufacturing, surgical instruments, and sports goods.
2.‘ Pakistan must make greater investments in the area of research and development
(R&D). Effective marketing strategies should be adopted to capture and maintain the
large global market share. This step will also help the invention of new products and
improve the efficiency of work and productivity in long run.
3.‘ Effort must be make to increase labor productivity through education, on-the-job
training, continued education opportunities for the worker and management, technical,
and vocational training. This step will help to increase domestic production and
reduce per unit cost. China has captured the global market share through large scale
manufacturing and cutting down per unit labor cost.
4.‘ Pakistan must take various steps to increase foreign direct investment. It will increase
local production and will also provide employment opportunities and will increase
export volume. Policies should be made to provide production facilities like

cc
 availability of capital, infrastructure, cheap labour and peaceful atmosphere to attract
foreign investors. China and India are good examples as they have attracted large
foreign direct investments by providing them extraordinary production facilities.
5.‘ Pakistan should sign joint ventures with other neighboring countries. This will not
only increase the local production but will also be helpful for increasing exports.
Transportation, especially shipping lines, tourism, textile, machinery, plants,
garments, and construction sectors are those areas where Pakistan has a competitive
advantage. Cheap Pakistani labour and availability of raw materials will help in
signing joint ventures. Turkey is a good example in the field of construction with
projects worth $50 billion in 55 countries [10].
6.‘ The government must provide facilities for the establishment of small and medium
scale industries. In this regard, loans should be provided by government and private
sectors (banks & financial institutions) to The Sixth Guhan International Conference
on E-Business MInternational Finance Track««««««««1807 new and sick
industries. Focus should be made on small home industries like textile, sports, carpets
and other home equipments. This step will help in satisfying domestic demand and
reducing the burden of imports.
7.‘ Increase in foreign reserves will not only help to finance the net result obtained from
the current account and capital account but also enhance the confidence of
international lending authorities. Increase in international tourism activity is one
major source of increase in foreign reserves. Effort must be made by the government
to attract more tourists by provide them extraordinary traveling and touring facilities.
8.‘ Gith the help of anti inflation fiscal policy authorities must try to increase the interest
rate at a certain level so that it will attract foreign investors. This step will help in
increasing the gross domestic saving and controlling capital outflow. puthorities must
also adopt the policies that will help in controlling inflation.
9.‘ The inflow of workers remittance in any country depends upon the political and
economic situation of the country. The Pakistan government must stabilize the
political and economic situation to build up the confidence of outside Pakistani and
enhance workers remittance. This step will help to reduce the current account deficit.
10.‘If Pakistan wants to improve the quality of products, increase competition and exports
volume then some steps must be taken to liberalize the trade regime, minimize tariffs,
import quotas, and exchange rate control. In this regard Pakistan must take a lesson
from psian developing countries such as China, South Korea and India.

cÿ
 Ê J 

The balance of trade (net exports) is the difference between the monetary value of exports
and imports of output in an economy over a certain period (one year). It is the relationship
between a nation's imports and exports. p positive or favorable balance of trade is known as a
trade surplus if it consists of exporting more than is imported; a negative or unfavorable
balance is referred to as a trade deficit or, informally, a trade gap. The balance of trade is
sometimes divided into a goods and a services balance.

Early understanding of the functioning of balance of trade informed the economic policies of
Early Modern Europe that are grouped under the heading mercantilism. pn early statement
appeared in Discourse of the Common Geal of this Realm of England, 1549: "Ge must
always take heed that we buy no more from strangers than we sell them, for so should we
impoverish ourselves and enrich them."

The balance of trade forms part of the current account, which includes other transactions such
as income from the international investment position as well as international aid. If the
current account is in surplus, the country's net international asset position increases
correspondingly. Equally, a deficit decreases the net international asset position.

The trade balance is identical to the difference between a country's output and its domestic
demand (the difference between what goods a country produces and how many goods it buys
from abroad; this does not include money re-spent on foreign stock, nor does it factor in the
concept of importing goods to produce for the domestic market).

Factors that can affect the balance of trade include:

3‘ The cost of production (land, labor, capital, taxes, incentives, etc.) in the exporting
economy vis-à-vis those in the importing economy;
3‘ The cost and availability of raw materials, intermediate goods and other inputs;
3‘ Exchange rate movements;
3‘ Multilateral, bilateral and unilateral taxes or restrictions on trade;
3‘ Non-tariff barriers such as environmental, health or safety standards;
3‘ The availability of adequate foreign exchange with which to pay for imports; and
3‘ Prices of goods manufactured at home (influenced by the responsiveness of supply)
3‘ p faster GDP growth than trade partners' ones usually results in trade deficit, since
imports are elastic to GDP (they rise more than proportionally)
3‘ pn overvaluation of the domestic currency can lead to deep trade deficits on most
products and with most countries

In addition, the trade balance is likely to differ across the business cycle. In export-led growth
(such as oil and early industrial goods), the balance of trade will improve during an economic
expansion. However, with domestic demand led growth (as in the United States and
pustralia) the trade balance will worsen at the same stage in the business cycle.

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Ghen Pakistan came into being her economy was completely based on agriculture. The
experts consisted of agricultural products only. For the economic development of the country
there was need for diversification of her trade and a change in her pattern. The government of
Pakistan decided to industrialize the country as rapidly as possible. Export promotion was
regarded as one of the highest national commitments by the government. Various measures
were adopted for export improvement. Pakistan participated in International Trade
Conferences and Fairs. The Export Promotion Bureau and Export Promotion Council were
set up to provide assistance and information to potential foreign buyers. p large number of
concessions and incentives were given to the export trade section etc. ps a result the pattern
of trade in Pakistan changed. Experts increased and now these include industrial finished
products as well as raw materials. In spite of the different measures taken by the government
for boosting the export, still our imports are greater than the exports. The balance of trade is
unfavorable and deficit.

5 Ê 


Ê 


Following are the main items which may be included in our export list:

#&‘  

Cotton ranks at the top of the export list of Pakistan. Pakistan occupies first position in psia
and second position in the world as an exporter of cotton and cotton products. Export of Raw
cotton, cotton cloth and cotton yarn together contribute approximately 40 to 42% to the total
export earnings of Pakistan. Karachi with the cotton growing hinterland has almost the
monopoly of the trade.

2‘    5

Cotton fabrics are at the top of our export list. Ge export a large amount of cotton cloth every
year. Due to increasing demand, its export has gone higher enough. Some of the customers of
cotton cloth are U.K, U.S., U.S.S.R., Hong Kong, Japan, Singapore, G. Germany and Sudan.

/2‘  

It is another important export item of our country. Its export is increasing every year.
Important Customers are Japan, U.K, Hong Kong, G. Germany, U.S.p., Sri Lanka, and
Burma.

2‘ 9  

Pakistan grows surplus amount of best quality long staple pmerican Upland Cotton which is
very much demanded all over the world. Our main customers of raw cotton are U.K., China,
Japan, Hong Kong, Belgium, Indonesia, Italy, Singapore and Bangladesh.
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+&‘   

Pakistan has emerged as one of the leading exporters of rice .In the previous few years rice
was at the top of our export list but due to fluctuation in the world market, its demand has
decreased. Best qualities like Basmati and Irri-6 are exported. Pakistan exports rice to almost
all the Gulf States and Middle Eastern, European, East psian and some pfrican countries.

%&‘ 
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Pakistan earns a large amount of foreign exchange by exporting very fine quality carpets
(both hand and machine made) rugs and mats. Due to heavy competition in world's market
their demand is increasing. U.S.p. is an important buyer of Pakistani carpets, rugs and mats.
Other customers are mostly European countries including France, U.K., Italy, Switzerland,
G. Germany, Belgium etc.

'&‘ Ê
5J Ê
5  


Fish is exported, fresh, canned and dried. Shrimps are exported to Japan and U.S.p. canned
fish finds its market mostly in G. Europe. Middle Eastern and South psian countries
(especially Sri Lanka) are also important customers of Pakistani fish and fish preparation.

&‘   5 J 5 J


Pakistan produces hides and skin worth approximately 2 crore every year of which 40 % are
exported. Now, because of leather industries in our country export of hides and skin Italy,
Spain, Japan, France, China, Romania, G. Germany etc. are important markets in this
regard.

)&‘
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Pakistani Synthetic Textile Products are popular in various foreign countries. These are
mainly exported to Middle Eastern, pfrican and South pmerican countries.

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 J


Pakistan has a worthy name in exporting sports goods to more than 100 countries, principally
to G. Germany, U.K., Italy, U.S.p., France etc.

*&‘
  





Pakistan is also exporting surgical equipments to China, Japan, pmerica and Canada.
Besides the above mentioned items, Pakistan exports a number of miscellaneous items like
raw wool, Tobacco, Fruits, Vegetables etc. to various countries.

 

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5 Ê
 

Ê 


Following are the main items of our country

#&‘
   

Our country is not self sufficient in our mineral oil requirements. The present oil production
of our own country meets only about 24% of the country's requirements. So to meet the
deficiency, we have to import a large amount of mineral oil from other countries. Ge import
mineral oil from Saudi prabia, Iran, U.p.E and other Middle East countries.

+&‘
5  

ps our country is in its developing stage, we have to import different kinds of machinery to
meet the demands of various industries. The machines are usually imported from Japan,
U.S.p. and European countries.

%&‘ J    

The production of edible oil is not sufficient to meet the demand of our Ghee industry.
plthough the government has taken various measures to boost up the production of oil seeds,
but inspite of those our country is still deficient in edible oil so we have to import enough
amount of edible oil e.g. soya bean oil from U.S.p. and Palm oil from Malaysia and
Indonesia.

'&‘ 5

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The economy of our country mainly depends on agriculture, so to get higher yield from
different crops spray of various chemicals is essential. Thus to meet all these demands of our
agricultural sector, we have to import various kinds of chemicals and drugs from other
countries. The chemicals and drugs are mainly imported from Japan, Germany, U.S.p., U.K.,
and other European countries.

&‘ J
J 


Various Industries of our country use a number of dyes and colors as raw material in their
products such as textile, inting etc. so to meet the demand of all these industries, various
kinds of colors and dyes are imported. These colors and dyes are mainly imported from
Japan, U.K., and U.S.p. etc.

)&‘ 

Our country produces a very small quantity of tea which is sufficient to meet the demand of
our country. So various tea companies in Pakistan import huge amount of tea. Tea is mainly
imported from Sri Lanka, Bangladesh, India and Kenya.

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Different kinds of electrical goods are needed in our country .The local industries are not in
the position to meet the required demand so we have to import a large number of electric
goods from Japan, S.p., U.K. and other European countries.

*&‘ 
   



Our country needs different kinds of transport equipments e.g. buses, cars, rickshaws,
motorcycles. So demands of these are high and hence they are imported from Japan, Italy and
other countries.

&‘  J  J


Before 1971, we had a number of paper mills our eastern wing and our requirements were
fulfilled from the eastern. plthough, after 1971 some paper mills were set up in the western
wing, are still deficient in paper especially in paper for newspaper industry. Ge have to
import a large amount of news print paper and other kinds of paper from Canada, Japan,
Sweden, U.S.p. etc.


 Ê J Ê#Ê#

For decades, Pakistan¶s balance of trade remained negative, though not as high as now.
Imports have exceeded exports in almost every year since 1950, and Pakistan had a deficit on
its balance of trade each year from FY 1973 through FY 2008. Resultantly, Pakistan with
negative current account was obliged to remain dependent on the foreign donors, and
creditors to pay for the short fall of its balance of payment. Piling up of external financial
liabilities and debt service payments had put on constant constraint to appropriate resources
from the national developmental goals. The debt burden and social development deteriorated
to such an extent that today our foreign debts are standing at $44.5 billion and would reach to
the tune of over $52 billion US with the addition of $7.6 billion of IMF loan. Substantial
chunk of foreign reserves are siphoned off at alarming rate in debt servicing. Inflation is
running at nearly 25 percent on average and about 25 percent of the population of 169 million
is living below the poverty line of $1 a day. Following the policy of liberalization,
deregulation and privatization instead of containing imports, Pakistan went for µcheap¶
imports not realizing that this addiction could lead to lethal after-effects even on economies
like the US. In 1996-97 it touched $ 3.52 billion; then it doubled to $6.183 billion in 2004 -05,
in 2005-06 the trade deficit doubled again to $12.011 billion, and in 2006-07 it rose further
and in FY 2007-2008 it was a staggering figure of $20.75 billion6. The deficit widened to
$20.746 billion in 2007-08 from $13.563 billion in fiscal 2006- 07 sets very alarming
indicators for economic policy makers of Pakistan. In FY 2008-2009 was $17 billion and
$16.3 billion in FY 2009-2010.


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pccording to Viqar phmed and Rashid pmjad in their book ³Management of Pakistan
Economy´ gives theoretical basis for trade policy. In which they have taken two scenarios.
First is import and local production, which refers that you import production equipment or
machinery to support your local production. Second is to export and domestic consumption it
refers that you export primary good in case of agrigarian economy and domestic consumption
through imports and agri products. These two scenarios will be foundation of our policy
making. Instead of Import & Local Production, Export & Domestic Consumption Ge must
go for Import & Export to Incash Gawadar port.

Following step should be taken to raise our export to international market.

Pakistan exports are concentrated in the few items. More than 75 percent of the exports are
originating from the cotton, leather, rice and sport goods. There is need to diversify our
exports by moving gradually to the exports of steel, electronics, chemicals and other
engineering goods. The psian economies like Japan, Taiwan, Hong Kong, Malaysia, India
and Korea started with the sharp increase in the exports of textile and then progressively
shifted to the capital intensive production of electronics and other light and heavy
engineering goods.

3‘ Foreign Direct Investment in the export sector plays key role in export promotion.
The foreign investors are integrated into the marketing, distribution and supply
management networks of their home countries thereby helping to capture the
international market. China¶s clothing industry, through large inward FDI is heavily
integrated into the global distribution systems and has direct involvement of
Organization for Economic Co-operation & Development (OECD) retailers which
give it a comparative edge over its competitors. Today FDI in Pakistan is concentrated
in the oil and gas sector, telecommunication and financial sector. The attraction of
FDI in the export sector can be beneficial in ter ms of technology transfer, skill
development of the local labor and marketing.

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3‘ The Government should provide the strong infrastructure to the exporters like
transport and communication, roads highways, powers and well functioning ports.
The weaknesses in the infrastructure like the transportation failures and frequent
power break down interrupt the production processes making it difficult for the
exporters to meet their delivery time lines.
3‘ The countries across the world are engaging themselves in the different regional and
bilateral trading agreements to get the preferential or free market access. The
Government should also enter into such Preferential Trade pgreement (PTps) and
Free Trade pgreement (FTps) along with successful implementation of the
agreements already entered.
3‘ The increase in the per capita productivity has become necessary in the textile and
clothing sector to compete with China and India in the Post Multi fiber prrangement
(MFp) period. The increased education facilities, on-the job training, skill up
gradation and dissemination of new knowledge and techniques go a long way in this
regard.
3‘ The reluctance of Pakistan¶s exporter to ensure compliance with environmental
standards and labor standards agreed under international codes and agreements also
hits their exports adversely particularly in the areas of fish and fish preparation. They
should become fully compliant with the requirements of the advanced economies
buyers and governments.
3‘ The anecdotal evidence suggests that cost of doing business in Pakistan is relatively
high as compared to its major competitors mainly on account of the high utility
charges. In particular the high value added textile items have started showing signs of
slow down in the international market on account of tough competition from China
and India. pccording to the market sources Pakistan¶s competitor countries are
subsidizing their exports at the rate higher than that of Pakistan. Pakistan should also
simplify the tax and tariff regime for exporters and consider other subsidizing
measures to provide level playing field to its exporters.
3‘ The Small and Medium enterprises (SMEs) in Pakistan are playing a key role in
production of exports. Their performance can further be improved by integrating them
into an organized production network for exports. The formal sector, through strategic
alliances, subcontracting, and outsourcing can help the SMEs to materialize
productivity gains.

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