Pakistan Studies

Trade (Exchange of goods and service)

Types Of trade

Internal (Domestic)
External (international)

Functions of Trade:

Utilization of domestic resources for export items

Creation of employment opportunity.
Transfer of IT.
Economies of scale available.
Promote industrialization.
Technology.
Production of value added goods.

Benefits Of trade

Utilized of domestic resource for exports

It promotes Industrialization.
Production of value added goods
Creation of job opportunities
It may rise GNP
It may promote economies of scale on large scale production
Transfer of I.T
Products of specialization
Link between two areas

Measurement of trade

Balance of trade = value of export import

Balance of payment = export import + services

Written and Compiled by Sir Hamza Mohammad Ali

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Exports of Pakistan

Pakistan exports has increased but fluctuating through out the year
Pakistan increases in terms of prices not by volume
Little rise in exports is due to :
(a) diversification in goods & markets
(b) Simplified procedures
(c) Improve quality products
(d) Financial Assistance .
Primary products : rice , raw cotton , fish , shrimps , meat , fruits .
Semi manufactured goods : cotton yarns
Manufactured goods : garments , fruits , sports goods , surgical instruments , leather goods , bed
sheets , carpets e.t.c.
DIRECTION OF PAKISTANS EXPORTS:

Pakistan exports have registered some growth with period of fluctuations.

The increase in value of exports is due to prices rather than volume.

Imports of Pakistan
Pakistan imports had risen sharply since 1947
Rise in import is due to :
(a) devaluation & depreciation of rupee
(b) the rise in petroleum prices.
Pakistan imports are mainly capital goods , raw materials , machinery , transport equipments , iron
and steel .
With a rapid increase in population Pakistan has to import food grains (wheat , addible oil , dry milk
and tea)
Spare parts
Food grains (Wheat,Pulses and Tea)
Air crafts
Iron ore, manganese etc.

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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 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 nations economic growth because
current account deficit leads to net selling of international assets. Hence, current account trade
surplus increases countrys 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.

Reasons for the negative balance of trade and payment

Lack of standards among the Pakistani goods

Strong competition in the world market with respect to price and quality
Rise in oil prices (80 % imported crude oil)
Heavy imports of capital goods , raw material , machinery (82% bill import)
Imports of food grains (wheat , pulses , addible oil , tea)
High tariff rate especially in European countries.
Un favorable foreign rates
High value of imports and low value of imports.
Pakistans main exports highly depended on agriculture (cotton , fruits , rice e.t.c) with un
favorable weather conditions decline the export of Pakistan
Liberal import policies of Pakistani government

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Steps taken to improve negative balance of trade

To increase exports and to decrease imports

Improve the quality of products
More industrialization
To find raw materials in the world
Diversification of the goods
Value added products
Strick policies of government
Smuggling should be stop
To make more dry ports and more export processing
More incentives to export i.e. export bonus scheme
Stable political conditions .
Favorable government trade policies
Simplify export procedures

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 worlds
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 industries in 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 countrys
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 Pakistans 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
Pakistans 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 Pakistans 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.

Written and Compiled by Sir Hamza Mohammad Ali

03452833634

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