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 r ole in the growth of the economy. 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) Promotio Promotion n of labor-inte labor-intensive nsive industries industries.. Pakistan has to
give priority to the development of those industries which are labo laborr inte intens nsiv ive. e. The The chea cheap p labo labour ur comp compar ared ed to many many othe other r deve develo lopi ping ng and and deve develo lope ped d coun countr trie iess of the the worl world d can can give give a comparativ tive advantage in the prod roduction and export of commodities. The export earnings, therefore, can increase and help in restoring restoring equilibrium equilibrium in the persistent persistent adverse balance balance of payments of the country.
(2) (2)
Dive Divers rsif ific icat atio ion n
of
expor xports ts..
Paki Pakist stan an's 's
expo export rtss
sinc sincee
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 produce value added goods for gaining diversify our exports and and produce 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, industry, cigarettes industry, 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 grea greate terr incr increa ease se in nati nation onal al cons consum umpt ptio ion n 6f vari variou ouss 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.
The sick sick indu indust stri ries es in the the (5) Resto Restorat ration ion of sick sick indust industrie ries. s. The nationalized public sector should be transferred to their owners. The The priv privat atee sect sector or has has the the capa capaci city ty to reac reacti tiva vate te the the dyin dying g industrial units and increase production for use at home. It can thus increase exports to earn the much needed foreign exchange. Reduct ctio ion n in expo export rt duti duties es,, (6) Redu Reducti ction on in expo export rt du duti ties es.. Redu publicity of locally manufactured goods in the foreign markets and and adeq adequa uate te prov provis isio ion n of cred credit it to the the priv privat atee sect sector or for 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.
The expor xports ts can also also be pus pushed hed up by (11) (11) Joint Joint ventur ventures. es. The establishing industries with joint ventures of foreign investors. The The prod produc ucts ts of thes thesee indu indust stri ries es can can be sold sold in the the fore foreig ign n 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. 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 Balan Ba lance ce 0 1974- 75
1979- 80
1984- 85
1989- 90
1994- 95
1999- 2000
2004-05
-500
-1000
) n o i l l i M-1500 $ S U ( e -2000 c n a l a B -2500 e d a r T -3000
-3500
-4000
Years
The trade balance has remained negative in the past 32 years. Byand-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 technologyoriented products.
Suggestions to improve the BOP Position:
Reaffirming the efficient export-led growth can make a significant contribution to reducing Pakistan’s 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, industry, as well as improving quality standards; 5. improve access to credit for exporters through the establishment of an Export Credit Wing 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.
