Measures For Correcting The Adverse Balance of Payments

Measures for correcting the Adverse Balance of Payments:
Pakistan cannot afford to run a persistent deficit in the balance of

payments on current account as it does not have unlimited reserves
of gold and foreign currencies. It can neither persistently borrow
from the rest of the world. There is, after all, a limit of
accumulation of debt which may be for the development purpose.
The adverse balance of payments can be decreased in three ways:

(i) The foreign earnings should be increased by
export led growth.
(ii) The imports should be curtailed to essential
items only.
(iii) The expenditure on invisible imports should
be minimized.
Export Led Growth:
Export plays an important role in the growth of the economy. It is

regarded a key factor in the economic development. As regards
Pakistan, it has rich manpower and real resources. If they are
properly exploited and utilized, there can be significant
improvement in exports and foreign exchange earnings. The
following measures need to be adopted for increasing exports and
alleviating the balance of payments problems:
(1) Promotion of labor-intensive industries. Pakistan has to

give priority to the development of those industries which are
labor intensive. The cheap labour compared to many other
developing and developed countries of the world can give a
comparative advantage in the production and export of
commodities. The export earnings, therefore, can increase and
help in restoring equilibrium in the persistent adverse balance of
payments of the country.
(2) Diversification of exports. Pakistan's exports since

Independence have been showing heavy concentration on a few
primary commodities. If there is a recession in the international'
market for cotton and rice or Nature is not kind, the production
declines and exports are greatly reduced and have a damaging
effect on the balance of payments. We shall, therefore, have to
diversify our exports and produce value added goods for gaining
competitive strength in the international market.
(3) Development of industries having low capital output ratio.

Pakistan with low foreign exchange earnings cannot afford to
import heavy machinery. If Pakistan like China, Korea, Taiwan;
Hong Kong, Singapore, takes up lines of production having a
low capital output ratio, it can lead to fast growing export. The
exports of carpet and rug industry, cigarettes industry, sports
industry, leather industry, etc., have considerably increased the
export earnings of Pakistan in the past few years and have
decreased strain on the balance of payments.
(4) Decrease in consumption. In spite of rapid rise in prices, there

is a greater increase in national consumption 6f various
commodities product at home and imported from abroad. The
higher consumption of locally manufactured goods is reducing
the exportable surplus and consequently the foreign earnings to
the country. People shall have to be motivated to adopt simple
living and austerity for bridging the resource gap.
(5) Restoration of sick industries. The sick industries in the

nationalized public sector should be transferred to their owners.
The private sector has the capacity to reactivate the dying
industrial units and increase production for use at home. It can
thus increase exports to earn the much needed foreign exchange.
(6) Reduction in export duties. Reduction in export duties,

publicity of locally manufactured goods in the foreign markets
and adequate provision of credit to the private sector for
development of industries can greatly help in increasing export
earnings and relieving the pressure on balance of payments.
(7) High quality goods. In order to capture foreign markets, it is

necessary that high quality goods at minimum cost should be
produced in the country.
(8) Pricing of goods. For increasing exports, it is necessary that

goods should be produced under optimal conditions and offered at
competitive prices in the international market.
(9) Packing. For promoting exports, high quality packing is

essential. If packing is not attractive and durable, it will not capture
foreign markets.
(10) Creation of export agencies. For break through in exports;

export agencies should also be created in the private sector,
following suit of China and other recently industrialized countries.
(11) Joint ventures. The exports can also be pushed up by

establishing industries with joint ventures of foreign investors.
The products of these industries can be sold in the foreign
markets and the country can earn sizeable foreign exchange.
Current Account Balance
4000
3000
2000
1000
0
1974-75 1979-80 1984-85 1989-90 1994-95 1999-2000 2004-05
-1000
-2000
-3000
-4000
-5000
Y ears
The only reason the current account balance has come into the
positive is because of the role of remittances after 9/11. The level
of remittances rose sharply due to the insecurity of non-resident
Pakistanis in keeping their hard-earned money abroad. So, this
increased the amount of remittances entering into the country. This
is why there is a steep curve in the years after 2001. However, the
increase in the level of imports and the huge rise in the trade deficit
offset this increase in remittances in the recent years. The increase
in imports has largely been due to the imports of machinery and oil
for the country.
Trade Balance
0
1974-75 1979-80 1984-85 1989-90 1994-95 1999-2000 2004-05
-500
-1000
Trade Balance(US $ Million)
-1500
-2000
-2500
-3000
-3500
-4000
Years
The trade balance has remained negative in the past 32 years. By-
and-large, it is due the factors already highlighted above such as
the narrow export base, export in primary products, concentration
in exports, and reliance on foreign products in the technology-
oriented products.
Suggestions to improve the BOP Position:
Reaffirming the efficient export-led growth can make a significant

contribution to reducing Pakistan’s trade deficit and external
financing needs, the measures which government should adopt are:
1. Highest priority to improvements in export unit values and
export quality through enhanced fiscal concessions, the
development of technology institutions, and trade houses;
2. a more effective and comprehensive system of export
compensation;
3. a fundamental change in export quota policy for textiles so as to
maximize value addition;
4. a significant casing of access to imported raw materials and
modern machinery to facilitate quick modernization and
technical upgrading of export industry, as well as improving
quality standards;
5. improve access to credit for exporters through the establishment
of an Export Credit Wing in the State Bank of Pakistan, greater
emphasis of product design and marketing strategies by
enhancing financial resources of the Export Market
Development Fund;
6. Special steps to accelerate the development and modernization
of power-loom sector; simulating export competition through
the induction of the private sector in the export of rice and
cotton;
7. Removal of all restrictions on the textile sector including
permission for the free import of high quality yarn;
8. Forging a closer link between export and import flows through
trade diplomacy and special incentives for the export of
engineering goods;
9. Establishment of efficient mechanisms for implementing and
monitoring export-specific measures.

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What are some of the measures Pakistan can take to increase its exports and alleviate its balance of payments problems?

What are some of the measures Pakistan can take to increase its exports and alleviate its balance of payments problems?

What factors have contributed to Pakistan having a persistently negative trade balance over the past 32 years?

What factors have contributed to Pakistan having a persistently negative trade balance over the past 32 years?

Measures for correcting the Adverse Balance of Payments:

Pakistan cannot afford to run a persistent deficit in the balance of

The adverse balance of payments can be decreased in three ways:

Export Led Growth:

Export plays an important role in the growth of the economy. It is

(1) Promotion of labor-intensive industries. Pakistan has to

(2) Diversification of exports. Pakistan's exports since

(3) Development of industries having low capital output ratio.

(4) Decrease in consumption. In spite of rapid rise in prices, there

(5) Restoration of sick industries. The sick industries in the

(6) Reduction in export duties. Reduction in export duties,

(7) High quality goods. In order to capture foreign markets, it is

(8) Pricing of goods. For increasing exports, it is necessary that

(9) Packing. For promoting exports, high quality packing is

(10) Creation of export agencies. For break through in exports;

(11) Joint ventures. The exports can also be pushed up by

Reaffirming the efficient export-led growth can make a significant

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