bop of pakistan

8/3/2019 Bop of Pakistan

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ASSIGNMENT

ON

BALANCE OF PAYMENT OPAKISTAN

SUBMITTED TO:- SUBMITTED BY:-

N.C. RAJYALAKSHMI DUSHYANT KUMAR(19107)

SSIM MANIK KUMAR(19114)

Siva Sivani Institute of Management

KOMAPLLY


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History of Pakistan

Pakistan, along with parts of western India, contain the archeological remains ofan urban civilization dating back 4,500 years. Alexander the Great included theIndus Valley in his empire in 326 B.C., and his successors founded the Indo-Greekkingdom of Bactria based in what is today Afghanistan and extending toPeshawar. Following the rise of the Central Asian Kushan Empire in latercenturies, the Buddhist culture of Afghanistan and Pakistan, centered on the cityof Taxila just east of Peshawar, experienced a cultural renaissance known as theGandhara period.

Pakistan's Islamic history began with the arrival of Muslim traders in the 8th centurin Sindh. The collapse of the Mughal Empire in the 18th century provided a

opportunity to the English East India Company to extend its control over much of thsubcontinent. In the west in the territory of modern Pakistan, the Sikh adventureRanjit Singh carved out a dominion that extended from Kabul to Srinagar and LahoreBritish rule replaced the Sikhs in the first half of the 19th century. In a decision thahad far-reaching consequences, the British permitted the Hindu Maharaja of Kashmir, Sikh appointee, to continue in power.

Pakistan emerged over an extended period of agitation by many Muslims in thsubcontinent to express their national identity free from British colonial dominatioas well as domination by what they perceived as a Hindu-controlled Indian Nationa

Congress. Muslim anti-colonial leaders formed the All-India Muslim League in 1906Initially, the League adopted the same objective as the Congress--self-government foIndia within the British Empire--but Congress and the League were unable to agree oa formula that would ensure the protection of Muslim religious, economic, anpolitical rights.

After Independence

With the death in 1948 of its first head of state, Muhammad Ali Jinnah, and thassassination in 1951 of its first prime minister, Liaqat Ali Khan, political instabilit

and economic difficulty became prominent features of post-independence PakistanOn October 7, 1958, President Iskander Mirza, with the support of the armysuspended the 1956 Constitution, imposed martial law, and canceled the electionscheduled for January 1959. Twenty days later the military sent Mirza into exile iBritain, and Gen. Mohammad Ayub Khan assumed control of a military dictatorshipAfter Pakistan's loss in the 1965 war against India, Ayub Khan's power declinedSubsequent political and economic grievances inspired agitation movements thacompelled his resignation in March 1969. He handed over responsibility fogoverning to the commander in chief of the army, General Agha Mohammed YahyKhan, who became President and Chief Martial Law Administrator.


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General elections held in December 1970 polarized relations between theastern and western sections of Pakistan. The Awami League, which advocateautonomy for the more populous East Pakistan, swept the East Pakistan seats tgain a majority in Pakistan as a whole. The Pakistan Peoples Party (PPP), foundeand led by Ayub Khan's former Foreign Minister Zulfikar Ali Bhutto, won a majoritof the seats in West Pakistan, but the country was completely split with neithemajor party having any support in the other area. Negotiations to form a coalitiogovernment broke down, and a civil war ensued. India attacked East Pakistan ancaptured Dhaka in December 1971, when the eastern section declared itself thindependent nation of Bangladesh. Yahya Khan then resigned the presidency anhanded over leadership of the western part of Pakistan to Bhutto, who becamPresident and the first civilian Chief Martial Law Administrator.

Bhutto moved decisively to restore national confidence and pursued an activforeign policy, taking a leading role in Islamic and Third World forums. AlthougPakistan did not formally join the Non-Aligned Movement until 1979, the position othe Bhutto government coincided largely with that of the non-aligned nations

Domestically, Bhutto pursued a populist agenda and nationalized major industrieand the banking system. In 1973, he promulgated a new Constitution accepted bmost political elements and relinquished the presidency to become prime ministeAlthough Bhutto continued his populist and socialist rhetoric, he increasingly relieon Pakistan's urban industrialists and rural landlords. Over time the economstagnated, largely as a result of the dislocation and uncertainty produced bBhutto's frequently changing economic policies. When Bhutto proclaimed his owvictory in the March 1977 national elections, the opposition Pakistan NationaAlliance (PNA) denounced the results as fraudulent and demanded new electionsBhutto resisted and later arrested the PNA leadership.

Pakistan Economic Conditions.

As per information on Pakistan economic conditions in financial year 2008, valuof Pakistani rupee has decreased in value because of political and economiinstability. Pakistan is known to have one of fastest developing economies in worldThough it is a poor country, Economic conditions in Pakistan point out that growtrate has been better than global average growth rate.

Fiscal deficit as targeted in 2009 is 5.5 percent of GDP, which was 7.4 percent i2008 fiscal. Pakistan economic conditions are not going to get any better in 200


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as it has been estimated that inflation will get down to 20 percent by July 2009. has been found out in first quarterly review that condition stabilized and huge sumwas borrowed from central bank.

Economy of Pakistan is going through political and economical turmoil at presentAfter Mumbai attacks, this country went through financial crisis as there werinternational pressures. Karachi Stock Exchange in 2009 experienced a great blowwith five percent off in a single day. This has been recorded as worst single-day acin last 32 months. Political upheaval also forces economy of Pakistan to depend oInternational Monetary Fund (IMF). It has been recorded that Pakistan economi

conditions suffered worst hit during October 2007 to October 2008 as there was 2percent inflation and from international reserves about 10 billion dollars had to btaken off. Economic managers of Pakistan approached IMF to stabilize economicrunch. A stand by loan of 7.6 billion dollars was approved by IMF to pull Pakistaout of economic crisis.

According to present economic conditions of Pakistan, GDP purchasing poweparity has been estimated to be $454.2 billion in fiscal 2008. $160.9 billion waGDP official exchange rate. Real growt

rate to GDP has been at rate of 4.7 percent in 2008. $2,600 has been contributeto per capita GDP. There were 50.58 million workers in Pakistan.

Pakistan - Balance of payments

This paper analyzes the balance of payments for Pakistan through monetarapproach for the period 1980-2008. This study utilizes the reserve flow equationCo-integration test and error- correction model to analyze whether glut monesupply influence a disturbance variable or not. The results have shown that the rolof monetary variables for Pakistans balance of payment do not determinempirically. Three significant relationships have found between Gross DomestProduct Growth Rate (GDPG) and net foreign assets (NFA) is considered as positive relationship while between Domestic Credit (DOM_CREDIT) extension anNFA is considered as a negative relationship, and the relationship between interesrate (INTEREST) and NFA is considered as a negative relationship as mentioned bthe monetary approach to balance of payments. Some variables propose thamonetary approach plays a significant role but monetary actions are not onloptions for authorities to correct the Balance of payments disequilibrium.

Pakistan's payments problems have been chronic since the 1970s, with the cosof oil imports primarily responsible for the trade imbalance. The growth of exportand of remittances from Pakistanis working abroad (mostly in the Middle Easthelped Pakistan to keep the payments deficit in check. Since the oil sector boombegan subsiding in the early 1980s, however, remittances declined. Remittance


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from overseas workers peaked at $2.9 billion in 1982/83, then dropped to $1.billion by 1997/98 and $1 billion from 1999 to 2001. This trend especiallaccelerated during the Gulf War, when nearly 80,000 Pakistanis in Kuwait and Iralost their jobs. Only about 25% of these jobs had been regained a year after thend of the conflict. Increased imports and softer demand for Pakistan's textiles anapparel in major markets also caused the current account deficit to furtheincrease. The balance of payments position weakened in 1995/96 as imports grewby 16% and exports by only 6%. The rupee was devalued by 11% during 1995 an1996 to encourage exports. Nevertheless, foreign reserves fell to around $80million by mid-1997. By 2000, foreign debt equaled 100% of GDP. The governmen

took steps in the early 2000s to liberalize and deregulate the exchange anpayments regime. Pakistan moved to a dual exchange rate system in 2000. Aincrease in liquid foreign exchange reserves in 2001 was due in part to outrighpurchases from the kerb market and inflows from international financiainstitutions. Export growth in 2000/01 was primarily due to higher exports oprimary commodities such as rice, raw cotton, and fish, and other manufacturesuch as leather, carpets, sporting goods, and surgical instruments. Importincreased in 2000/01 primarily due to higher imports of petroleum and petroleumproducts, and machinery.

The US Central Intelligence Agency (CIA) reports that in 2001 the purchasin

power parity of Pakistan's exports was $8.8 billion while imports totaled $9.2 billioresulting in a trade deficit of $399.9 million.

The International Monetary Fund (IMF) reports that in 2001 Pakistan had exportof goods totaling $9.13 billion and imports totaling $9.74 billion. The services credtotaled $1.46 billion and debit $2.33 billion. The following table summarizePakistan's balance of payments as reported by the IMF for 2001 in millions of Udollars.

Current Account1,

880

Balance on goods -608

Balance on services-

871

Balance on income-

2,079

`Current transfers5,4

38Capital Account


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Financial Account-

399

Direct investmentabroad

-31

Direct investment inPakistan

383

Portfolio investmentassets

Portfolio investmentliabilities

-192

Other investmentassets

54

Other investmentliabilities

-613

Capital Account

Financial Account-

399

Pakistan Current Account

Pakistan reported a current account surplus equivalent to 604 Million USD in thesecond quarter of 2011. Pakistan exports rice, furniture, cotton fiber, cement, tilesmarble, textiles, clothing, leather goods, carpets and rugs and food productsPakistan imports mainly petroleum, petroleum products, machinery, plasticstransportation equipment, edible oils, paper and paperboard, iron and steel and

tea. Its main trading partners are: European Union, China, The United ArabEmirates and The United States. This page includes: Pakistan Current Accountchart, historical data and news.


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About current accountCurrent Account is the sum of the balance of trade (exports minus

imports of goods and services), net factor income (such as interest and

dividends) and net transfer payments (such as foreign aid). The balance

of trade is typically the most important part of the current account. This

means that changes in the patterns of trade are key drivers in the

current accounts of most of the world's economies. However, for the few

countries with substantial overseas assets or liabilities, net factor

payments may be significant. Positive net sales to abroad generally

contributes to a current account surplus; negative net sales to abroad

generally contributes to a current account deficit. Because exports


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generate positive net sales, and because the trade balance is typically

the largest component of the current account, a current account surplus

is usually associated with positive net exports. The net factor income or

income account, a sub-account of the current account, is usually

presented under the headings income payments as outflows, and

income receipts as inflows. Income refers not only to the money

received from investments made abroad (note: investments

are recorded in the capital account but income from investments is

recorded in the current account) but also to the money sent by

individuals working abroad, known as remittances, to their families back

home. If the income account is negative, the country is paying more

than it is taking in interest, dividends, etc. For example, the United

States' net income has been declining exponentially since it has allowed

the dollar's price relative to other currencies to be determined by the

market to a point where income payments and receipts are roughly .


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reezing of FCAs, Hub Power Dispute and Politicalncertainty eroded the confidence in the economy.

xtraordinary restrictive measures had to be put in placewhich included administrative controls on foreignxchange and introduction of multiple exchange rates.

Debt rescheduling and new inflows from IMF, Worldank and Asian Development Bank in January, 1999

elped build up the reserve situation to comfortableevels by end June, 1999.

A unified exchange rate was re-introduced in May, 1999.nderlying structural problems were not attacked during

he breathing period to enable the country to exit fromescheduling..urrent Situation (Table II) (October 1999 Onwards)

oreign exchange regime was liberalised and allestrictions on foreign investment outflows removed.

table exchange rate maintained until June, 2000 and theremium over open market rate was stable 4 to 5%.


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urrent account deficit has been reduced from 3.8% to.6%. Export growth recovered to 10% in 1999-2000fter a long time.

As inflows from international financial institutions almostried up, purchases from open market enabled the countryo meet its payment obligations. $ 1.3 billion of debt reliefnder Paris Club was eroded by increase in oil prices.

ince June 2000, rupee has been put on free float andhere has been depreciation of almost 12% with greaterolatility and fluctuations.

n 1999-2000 cash payments of $ 3.6 billion were paid onxternal debt servicing in addition to rescheduling of debtTable III).

xternal Cash outflows exceeded inflows during 1999-000 despite purchases from the market and exceptional

nancing putting pressure on foreign reserves. There wasdraw down of almost $ 400 million from the reserves bynd June 2000 (Table IV).


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he present government has initiated a number of keytructural reforms which had been postponed for a longme. Introduction of agriculture income tax, extension of

GST on Retail Trade and Services, aligning prices of gas,etroleum products to international prices, documentationnd survey to widen tax base will reduce fiscal deficit andence further narrow the current account deficit andxternal borrowing requirements in future.

urrent account deficit is likely to narrow further in 2000-001 as exports are projected to rise by 14% and importsy 8%.

xceptional financing requirements are expected to beeduced from 4 billion annually in 1998-99 and 1999-000 to $ 2.2 billion in 2000-2001. Reserve target for end

une 2001 is $ 1.7 billion.

Workers remittances are down by $ 400 million, and

oreign Investment by $ 500 million -compared to there-1998 trends. If these flows are reinstated, oil pricesecline, and export growth is further accelerated the gapetween inflows and outflows will narrow and the needor further rescheduling will be reduced.


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uture Evolution

fficientmportubstitutionfurnaceilyomestically produced natural gas in thermal power

eneration and enhanced refinery capacity will lower themport bill for petroleum products and improve theurrent account deficit. Thus new investment in gasxploration,ransmissionipelinendistributionystems will have a large pay off both to the macro-conomy as well as the investors. The government hasherefore identified oil and gas as one of the four priorityectors for economical revival strategy.

oreign Direct Investment is preferred to debt creatingows as it not only brings capital but also technology and

managerialkills.

Multinationalorporationselpromote competition in the sector by their improved

orporate governance standards and practices which haveo be emulated by the domestic companies to stay afloat.

rofits, Dividends and Remittances account for only amall fraction of our external payments. In 1999-2000 theotal payments on this account were only $ 430 millionompared to $ 3.6 billion account of external debtervicing obligations.

f FDI flows to Pakistan are doubled and payments onccount of dividends, profits etc., rise in the same

roportion we will have no difficulty in servicing them.


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nder this scenario, the FDI inflows will lead to aiminution in external borrowing and hence our debtervicing would consequently decline. The investors willet a remunerative return on their investment which theyan remit abroad without much difficulty while theountry is able to reduce its dependence on foreign loansnd the conditionalities associated with them. In fact,oreign investors will remit only if they are able toenerate positive earnings for the economy unlike the

xternal creditors who have to be paid fixed chargesrrespective of the fact whether their loan has createdositive cash flow or not.

akistan has suffered in the past due to perception of poorovernance and reneging of contracts. This governmentas taken actions to introduce transparency, predictability,ule of law and accountability in the system. Even the

worst critics of this government do recognise that theverall governance has improved although a lot ofeforms are either underway or planned to strengthenudiciary, police, civil service and other institutions.

n Oil and Gas Sector, the government has moved out ofunning commercial operations and decided to privatisell publicly owned assets in this sector. Foreign Investorsave a great opportunity to own these assets, make themperationally and financially efficient and earn profits.


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akistan is open for foreign investors and as you can seehe measures being taken by the government will furthertrengthen the balance of payments situation in the future.his should provide comfort to the potential investorsbout the security, return and transferability of their

nvestment.


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AKISTAN : BALANCE OF PAYMENTSABLE 1 : HISTORICAL PRESPECTIVEBillion

994-95

rade Balanceervices (net).W.Interesturrent Transfers (Net)

Workers RemittanceCAs Residentsfficials

urrent Account Balanceong Term Capital (Net)) Official) PrivateFDI

fficial AssistanceMedium ST Loans)oreign Currency Depositson Residentsverall Balance.2.32.52.30.9.7.8

.4.32.1.5.7.8.50.1995-963.73.21.0

.6.4

.7

.24.3.4.7.7.3.3996-973.1


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3.60.9.2.4.3.33.5.2.7.5.0

0.3997-981.83.20.9.4.5.5.21.7.3.6

.7.8

.6998-991.82.51.0).7.0.5.21.6

.4.1

.3

.3)1.4.0.20.72.30.41.00.33.3

inancing

et International Reservesse of Fund Creditxceptional Financing0.3.1

.4


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.20.2

.1

.2

1.2.4.1


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AKISTAN : BALANCE OF PAYMENTSABLE II : CURRENT SITUATIONUS$ Million)9-2000

0-2001ectionrade Balanceervices (net)

.W.Interesturrent Transfers (Net)Workers RemittanceCAs Residentsfficialsurchases

urrent Account Balanceapital Account Balanceong Term Capital (Net)) Official

) PrivateDI

fficial AssistanceMedium & ST Loans)oreign Currency Deposits Non Residentsverall Balance

23813894183

105014352766171519783223663410042890212

4928046426239668412423107121429871787


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195inancing

et International Reservesse of Fund Creditxceptional Financing09289965977239266

Pakistan Current Account


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ABLE IIIakistans External Debt Servicing1999-2000)US$ Million)ctual Paid

Interest Payments) LT Public) ST Public) Private) SBP Deposits, FCBC,C Bonds) IMF Charges

rincipal Repayments) LT Public) ST Public) Private) Euro Bonds) FE-45 Deposits) SBP Deposits) NBP Deposits) FCBC/FEBC) IMF Repurchases9965589123

46

765

1348452

100870000

015

90988424323103330000765610


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36556203802escheduled8181

otal Accrual74637203802RAND TOTAL: 3595


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A Reserves at the begning of the yearB Inflowsof whichExportsServicesRemittances

PurchasesForeign InvestmentExceptional FinancingC Outflowsof whichImportsServices(Interest Payments)AmortizationEurobondsForeign Currency DepositsD Reserves at the end of the year17402087381581505983163454640252125597314285(1776)3231

61023821358

TABLE IV

Pakistans External Cash Flow Position

(1999-2000)

(US$ Million)


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Trade Balance 6According to exchange data, the trade deficit during FY03 widened by US$ 242 million relativeto

preceding year to reach US$ 536 million, as the impact of impressive 19.1 percent export growthwasmore than offset by a 21.1 percent growth in imports. The highest contribution in exportgrowth wasagain made by the textile sector, which witnessed a 25.0 percent growth during FY03. All themajorvalue added textile categories contributed significantly to the exports growth on the account ofrising


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trade volumes and higher unit values. Non-textile exports also grew by 17.2 percent duringFY03.The import bill increased by 21.1 percent mainly due to the higher oil and machinery imports.

Services Account

There is a remarkable stability in service account as the deficit has averagedabout US$ 2669 millionannually over the last five years. The 17 percent improvement in FY03 hasoccurred mainly due toexceptional receipts of US$ 847 million on account of flows from US forlogistic support. If thisamount is excluded, the deficit reverts close to its 5-year average. Theinvisibles account improvement was supported by a smaller, US$ 112 million,decline in theFY03 investment income outflows. This latter improvement owes to a sharp

decline in interest paidon external debt and liabilities which, in conjunction with interest received onthe countrysburgeoning forex reserves, helped more than offset a US$ 253 million jumpin outflows ofinvestment income(excluding interest payments).

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