1

Theoietical Aspects:
1here are some LheoreLlcal aspecLs of 8alance of aymenLs Cne Lheory glves a
vlew
"1he 8o/once of Poyments {8OPs) is o comprehensive record of economic
tronsoctions of the residents of o country with the rest of the wor/d durinq o
qiven period of time"
noLher Lheory glves Lhe vlew LhaL
"8o/once of Poyments is o tobu/otion of the credit ond debit tronsoctions of o
country with foreiqn countries ond internotiono/ institutions"

aipose:
1he maln purpose of 8Cs ls Lo provlde Lhe governmenL wlLh lnformaLlon abouL
Lhe lnLernaLlonal economlc poslLlon of Lhe counLry wlLh and Lo help make
declslons abouL moneLary and flscal lssues on Lhe one hand and abouL Lrade and
paymenLs on Lhe oLher

Balance of ayments of a Coantiy:
1he 8alance of aymenLs of a counLry can be shown ln Lwo forms
1) IerLlcally

ueblL (aymenLs) CredlL (8ecelpLs)
2) PorlzonLally


2

Iertico/
8alance of aymenL can be shown verLlcally caLegorlzed as deblL and credlL
LransacLlons When aymenL ls recelved from a forelgn counLry lL ls a credlL
LransacLlon whlle a paymenL Lo a forelgn counLry ls a deblL LransacLlon
O 1he prlnclpal lLems shown on Lhe cred|t s|de are exporLs of goods and
servlces unrequlLed or Lransfer recelpLs ln Lhe form of glfLs eLc from
forelgners borrowlngs from abroad forelgners' dlrecL lnvesLmenL and
offlclal sale of reserve asseLs lncludlng gold Lo forelgn counLrles and
lnLernaLlonal agencles
O 1he rlnclpal lLems o Lhe deb|t s|de lnclude lmporLs of goods and servlces
Lransfer of paymenLs Lo forelgners lendlng Lo forelgn counLrles
lnvesLmenLs by resldenLs ln forelgn counLrles and offlclal purchase of
reserve asseLs or gold from forelgn counLrles and lnLernaLlonal agencles
oritonto/
8alance of aymenLs can also be shown horlzonLally 1hey are dlvlded lnLo Lhree
caLegorles le
1) 1he currenL accounL
2) 1he caplLal accounL
3) 1he offlclal seLLlemenLs accounL or offlclal reserve asseLs accounL

1)1he CurrenL ccounL
lL lncludes all lnLernaLlonal Lrade LransacLlons
(of goods and servlces) le lmporLs and exporLs lnLernaLlonal servlce
LransacLlons (Lourlsm LransporLaLlon and royalLy fees) rendered and
recelved and lnLernaLlonal unllaLeral Lransfers (glfLs and forelgn ald) le
Lransfer paymenLs




3

2)1he CaplLal ccounL
llnanclal LransacLlons conslsLlng of dlrecL
lnvesLmenL and purchases of lnLeresLbearlng flnanclal lnsLrumenLs
nonlnLeresL bearlng demand deposlLs and gold comprlse Lhe caplLal
accounL
3)1he Cfflclal 8eserve sseLs ccounL
Cfflclal reserve LransacLlons conslsL of
movemenLs of lnLernaLlonal reserves by governmenLs and offlclal
agencles Lo accommodaLe lmbalances arlslng from Lhe currenL and
caplLal accounLs
ln oLher words lL measures Lhe change ln Lhe naLlon's
llquld and nonllquld llablllLles Lo forelgn offlclal holders and Lhe change
ln Lhe naLlon's offlclal reserve asseLs durlng Lhe year 1he offlclal reserve
asseLs of a counLry lnclude lLs gold sLock holdlngs of lLs converLlble
forelgn currencles and Su8s and lLs neL poslLlon ln Lhe lMl

B0s Eqailibiiam:
"qui/ibrium is thot stote of 8OPs over the re/evont time period which
mokes it possib/e to sustoin on open economy without severe unemp/oyment on
o continuinq bosis"
1ypes of 8Cs Lqulllbrlum
dlsLlncLlon has also been made beLween sLaLlc equlllbrlum and dynamlc
equlllbrlum
1)SLaLlc Lqulllbrlum
1he dlsLlncLlon beLween sLaLlc and dynamlc
equlllbrlum depends upon Lhe Llme perlod ln sLaLlc equlllbrlum exporLs
equal lmporLs lncludlng exporLs and lmporLs of servlces as well as goods


4

and Lhe oLher lLems on Lhe 8Cs be ln equlllbrlum buL also naLlonal
money lncomes should be ln an equlllbrlum vlsvls money lncomes
abroad 1he forelgn exchange raLe musL also be ln equlllbrlum
2)uynamlc Lqulllbrlum
1he condlLlon of dynamlc equlllbrlum for shorL
perlods of Llme ls LhaL exporLs and lmporLs dlffer by Lhe amounL of shorL
Lerm caplLal movemenLs and gold (neL) and Lhere are no large desLablllzlng
shorLLerm caplLal movemenLs
1he condlLlon for dynamlc equlllbrlum ln Lhe long run ls LhaL exporLs
and lmporLs dlffer by Lhe amounL of longLerm auLonomous caplLal
movemenLs made ln a normal dlrecLlon le from Lhe low lnLeresL raLe
conLrary Lo Lhose wlLh hlgh raLes When Lhe 8Cs of a counLry ls ln
equlllbrlum Lhe demand for domesLlc currency ls equal Lo lLs supply 1he
demand and supply slLuaLlon ls Lhus nelLher favorable nor unfavorable lf
Lhe 8Cs move agalnsL a counLry ad[usLmenLs musL be made by
encouraglng exporLs of goods servlces or oLher forms of exporLs or by
dlscouraglng lmporLs of all klnds no counLry can have a permanenLly
unfavorable 8Cs Lhough lL ls posslble Lo have a permanenLly unfavorable
balance of Lrade 1oLal llablllLles and LoLal asseLs of naLlons as of
lndlvlduals musL balance ln Lhe long run

Types anu Caases of Biseqailibiiam:
1here are several varlables whlch [oln LogeLher Lo consLlLuLe equlllbrlum ln Lhe
lnLernaLlonal economlc poslLlon of a counLry vlz naLlonal lncomes aL home and
abroad Lhe prlces of goods and facLors Lhe supply of money Lhe raLe of lnLeresL
eLc L Lhe back of Lhese varlables lles Lhe supply of facLors producLlon funcLlons
Lhe sLaLe of Lechnology LasLes Lhe dlsLrlbuLlon of lncome Lhe sLaLe of
anLlclpaLlons eLc lf Lhere ls a change ln any of Lhese varlables and Lhere are no
approprlaLe changes ln oLher varlables dlsequlllbrlum wlll resulL
1here are Lhree maln Lypes of dlsequlllbrlum whlch are dlscussed below


3

yc/ic uisequi/ibrium
Cycllc dlsequlllbrlum occurs because of Lwo reasons
O llrsL Lwo counLrles may be passlng Lhrough dlfferenL paLhs of buslness
cycle
O Second Lhe counLrles may be followlng Lhe same paLh buL Lhe lncome
elasLlclLles of demand or prlce elaslLlclLles of demand are dlfferenL lf prlces
rlse ln prosperlLy and decllne ln depresslon a counLry wlLh a prlce
experlence for lmporLs greaLer Lhan unlLy wlll experlence a Lendency for
decllne ln Lhe value of lmporLs ln prosperlLy whlle Lhose for whlch lmporL
prlce elasLlclLy ls less Lhan one wlll experlence a Lendency for lncrease
1hese Lendencles may be overshadowed by Lhe effecLs of lncome changes
of course Conversely as prlces decllne ln depresslon Lhe elasLlc demand
wlll brlng abouL an lncrease ln lmporLs Lhe lnelasLlc demand decrease
lL ls sald LhaL Lhe underdeveloped counLrles suffer ln Lerms of Lhe balance of
paymenLs boLh from low prlced ln depresslon whlch hurL exporLs and from
hlgh lncomes on prosperlLy whlch glve rlse Lo heavy lmporLs 1he developed
counLrles are hurL conslsLenLly by hlgh lmporL prlces durlng perlods of world
prosperlLy and by low lncomes abroad durlng Lhe perlods of depresslon
8emedles
a) under Lhe gold sLandard deflaLlon and unemploymenL can acL as remedles
Lo cycllc dlsequlllbrlum
b) Lxchange raLe depreclaLlon whlch mlghL cause reLallaLlon
c) lmporL resLrlcLlons
ecu/or uisequi/ibrium
1he secular or long Lerm dlsequlllbrlum ln 8Cs occurs because of long run and
deepseaLed changes ln an economy as lL advances from one sLage of growLh Lo
anoLher 1he currenL accounL follows a varylng paLLern from one sLaLe Lo anoLher


6

ln Lhe lnlLlal sLages of developmenL domesLlc lnvesLmenL exceeds domesLlc
savlngs and lmporLs exceed exporLs
ulsequlllbrlum arlses owlng Lo lack of sufflclenL funds avallable Lo flnance
Lhe lmporL surplus or Lhe lmporL surplus ls noL covered by avallablecaplLal from
abroad 1hen comes a sLage when domesLlc savlngs Lend Lo exceed domesLlc
lnvesLmenL and exporLs ouLrun lmporLs ulsequlllbrlum may resulL because Lhe
longLerm caplLal ouLflow falls shorL of Lhe surplus savlngs or because surplus
savlngs exceed Lhe amounL of lnvesLmenL opporLunlLles abroad L a sLlll laLer
sLage domesLlc savlngs Lend Lo equal domesLlc lnvesLmenL and long Lerm caplLal
movemenLs are on balance zero
tructuro/ uisequi/ibrium
SLrucLural dlsequlllbrlum can be furLher blfurcaLed lnLo
1)SLrucLural ulsequlllbrlum aL Coods Level
SLrucLural
dlsequlllbrlum aL goods level occurs when a change ln demand or supply of
exporLs or lmporLs alLers a prevlously exlsLlng equlllbrlum or when a
change occurs ln Lhe baslc clrcumsLances under whlch lncome ls earned or
spenL abroad ln boLh cases wlLhouL Lhe requlslLe parallel changes
elsewhere ln Lhe economy Suppose Lhe demand for aklsLanl handlcrafLs
falls off 1he resources engaged ln Lhe producLlon of Lhese handlcrafLs
musL shlfL Lo some oLher llne or Lhe counLry musL resLrlcL lmporLs
oLherwlse Lhe counLry wlll experlence a sLrucLural dlsequlllbrlum
deflclL arlslng from a sLrucLural change can be fllled by lncreased
producLlon or decreased expendlLure whlch ln Lurn affecL lnLernaLlonal
LransacLlons ln lncreased exporLs or decreased lmporLs cLually lL ls noL so easy
because Lhe resources are relaLlvely lmmoblle and expendlLure noL readlly
compresslble ulslnflaLlon or depreclaLlon may be called for Lo correcL a serlous
dlsequlllbrlum


7

2) SLrucLural ulsequlllbrlum aL lacLors Level
SLrucLural
dlsequlllbrlum aL Lhe facLor level resulLs from facLor prlces whlch fall Lo
reflecL accuraLely facLor endowmenLs le when facLor prlces are ouL of
llne wlLh facLor endowmenLs dlsLorL Lhe sLrucLure of producLlon from Lhe
allocaLlon of resources whlch approprlaLe facLor prlces would have
lndlcaLed lf for lnsLance Lhe prlce of labour ls Loo hlgh lL wlll be used
more sparlngly and Lhe counLry wlll lmporL goods wlLh a hlgher labour
conLenL 1hls wlll lead Lo unemploymenL upseLLlng Lhe balance ln Lhe
economy

akistan Balance 0f ayments (B0s)
We have been havlng a Lrade deflclL ln almosL all years excepL
?ears
O 19471948
O 19301931
O 19721973
now we wlll dlscuss Lhe reason of surplus ln Lhese years one by one
1) 194748 Surplus was because Lhe exporLs of Lhe newly born aklsLan
were qulLe hlgh
2) 19S0S1 1hls surplus was due Lo korean War when excess exporLs of our
coLLon and [uLe Lurned Lhe deflclL lnLo a surplus
3) 197273 1he reason behlnd Lhls surplus was masslve devaluaLlon of
currency ln 1972 Lhe rupee was depreclaLed from 8s 476 Lo 8s 11 per
dollar 1he exporLs lncreased slgnlflcanLly and Lhe share of exporLs ln Cu
rose Lo 149 percenL



8

lndusLrlallzaLlon ln Lhe counLry consumed Lhe avallable raw maLerlals and as such
Lhelr exporL from aklsLan also decllned uue Lo Lhe lnLroducLlon of LxporL 8onus
Ioucher scheme ln 1939 Lhere was a greaL lncrease ln our exporL whlch accordlng
Lo Lhe avallable flgures rose by 80 per cenL 1he raLe of voucher varled from 130
Lo 200 percenL whlch ralsed Lhe prlces of lmporLed goods

urrent position

CCMCNLN1S CI 8ALANCL CI AMLN1S (AS LkCLN1 CI
GD)
eai Expoit

Impoit Tiaue
Beficit
Woikeis
Remittances
Caiient
Accoant
Beficit
- .8 . 9. .8 .
-8 . . .8 .9 8.
8-9 .9 . . .8 .
9-* 9. . . . .
Source: FBS, SBP & E.A.Wing, Finance Division
8ased on Lhe daLa complled by l8S
# 8ased on Lhe daLa complled by S8
* rovlslonal






9

MCk1 LkCk1 AND 1kADL 8ALANCL

eai Expoit Impoits Balance
- ,9, ,8,8 -8,9
-8 ,9,8 ,, -,,
8-9 ,8,8 ,, -,9,8
8-9 }aly-
maich
,, ,,99 -98,
9-(pio) ,,88 ,8, -9,


Caases of Biseqailibiiam in B0 with
Refeience to akistan:
lollowlng are Lhe maln causes of dlsequlllbrlum ln 8C wlLh reference Lo
aklsLan
-orrow export bose
Cur exporL durlng lasL flve years ls lncreaslng Powever lL ls noL growlng Lo Lhe
deslred exLenL 1he reason ls our exporL base ls narrow lL ls malnly concenLraLed
on coLLon
kise in oi/ prices
1he sharp rlse ln oll prlces parLlcularly ln 70s and onward ls Lalklng a blg chunk of
Lhe forelgn exchange earnlngs 1he Culf crlsls furLher worsened Lhe slLuaLlon




10

ncreose in import poyments for ferti/iters
uue Lo lncrease ln prlces of ferLlllzers machlnery edlble oll eLc 1here ls a
sharp lncrease ln Lhe lmporL paymenLs Lo ouLslde world 1he balance of paymenL
ls Lherefore adversely affecLed
iqher poyments for freiqht insuronce
aklsLan has Lo make hlgher paymenLs for non facLor servlces such as frelghL
lnsurance LransporL eLc
uec/ine in term of trode
ln aklsLan Lhe lmporL unlL values are hlgher Lhan Lhe exporL unlL values for
Lhe lasL over Lhree decades' decllne ln Lerm of Lrade causes lmbalance of
paymenL
verincreosinq demond for imports
Cur socloeconomlc seLup ls lmporL and ulLra lmporL blased eople have
craze Lo purchase lmporLed goods ccordlngly Lhe demand for lmporLed
vehlcles consumer durables elecLronlcs eLc ls lncreaslng day by day Moreover
Lhe lncreased populaLlon urbanlsaLlon and demonsLraLlon effecL has necesslLaLed
Lhe lncrease ln demand for lmporLed goods
1rode restrictions of deve/oped countries
1he Lrade barrlers ralsed by developed counLrles agalnsL Lhe lmporL of
manufacLures especlally on agrlculLural producLs by Lhe developlng counLrles ls
one of Lhe lmporLanL facLors prevenLlng greaLer producLlon and exporL by some
lndusLrles ln aklsLan parLlcularly Lhe coLLon LexLlle lndusLry 1he dlsmanLllng of


11

Lhese barrlers Lhrough negoLlaLlons can go a long way ln lncreaslng aklsLan's
exporLs of manufacLured goods
nf/otion
lnflaLlonary condlLlons are a serlous obsLacle Lo Lhe promoLlon of exporLs
lnflaLlon resulLs ln a rlse ln Lhe domesLlc cosL of producLlon so LhaL Lhe goods
produced cannoL compeLe ln Lhe world markeL lf Lhe raLe of exchange ls noL
sulLably ad[usLed So Lhe conLrol of lnflaLlon ls essenLlal for keeplng aklsLanl
goods compeLlLlve and for promoLlng exporLs lL has noL been posslble Lo conLrol
lnflaLlon ln aklsLan even ln recenL years
Po/itico/ instobi/ity
1he developmenL of Lhe economy depends on Lhe pollLlcal clrcumsLances of
LhaL counLry aklsLan has been chronlcally suffered from dlfferenL pollLlcal
shocks slnce her lndependence Cur exporLs and 8C are Lhe clear reflecLlon of
Lhese pollLlcal lnsLablllLles

aYYestions to Coiiect Biseqailibiiam in
B0:
1he followlng sLeps should be Laken ln order Lo remove Lhe deflclL or
dlsequlllbrlum ln balance of paymenL of aklsLan
(l) 1he proportion of monufoctured qoods is increosed and LhaL of
prlmary and semlmanufacLured goods be decreased


12

(ll) ln addlLlon Lo manufacLured exporLs Lhe nontroditiono/ exports llke
food processlng dalry farmlng vegeLables and frulL cannlng and dry
frulLs be promoLed
(lll) More and more delegaLes are senL abroad so LhaL new markeLs could
be explored 1he export exhibitions ond foirs are arranged ln Lhe blg
Lradlng cenLres of Lhe world 1he esLabllshmenL of Lxpo CenLres ln
karachl and Lahore ls a good sLep Such expo cenLres should also be
esLabllshed ln 8awalplndllslamabad lalsalabad eshawar and Lhe
fuLure clLy of Cwadar
(lv) 1he quo/ity ond cost of the export qoods be improved
ManagemenL phllosophles llke ConLlnuous lmprovemenL 1CM
kalzen and 3Ls' are adopLed
;) 1he imports of /uxurious items shou/d be restricted 1he
CovernmenL can lmpose heavy Larlffs on forelgn goods or even ban
Lhe lmporLs of cerLaln forelgn goods LhaL are deLerloraLlng Lhe 8C
slLuaLlon
(vl) 1he imports of copito/ qoods ond enqineerinq qoods shou/d be
o//owed whlch are necessary for Lhe economlc developmenL
Moreover Lhe CovernmenL should also allow Lhe lmporLs of Lhose
goods duLyfree LhaL are used ln Lhe producLlon of exporL goods
ncreose in nvisib/e keceipts ond uecreose in
nvisib/e Poyments
1he efforLs are made Lo reduce Lhe lnvlslble expendlLures ln Lhls respecL
Lhe expendlLures faced ln respecL of forelgn embassles and forelgn Lours are
decreased 1he faclllLles of hlgher educaLlon regardlng sclence and Lechnology
medlclne and surgery buslness and economlcs performlng arLs eLc are provlded
for forelgn sLudenLs especlally from lndla fghanlsLan lran Srl Lanka Saudl


13

rabla 8angladesh lndependenL Musllm sLaLes of 8ussla and uL ln Lhls way we
can earn a loL of forelgn exchange and remove Lhe deflclL ln balance of paymenL
Moreover Lhe domesLlc alrllnes shlpplng servlces locomoLlves recreaLlonal
places lncludlng resorLs hlsLorlcal places shopplng places eLc should be made
aLLracLlve for forelgn LourlsLs MosL of Lhe counLrles are earnlng Lhrough Lhelr
Lourlsm and culLural secLor for example Srl Lanka Maldlves Malaysla lndonesla
Slngapore 1halland uL LgypL 1urkey eLc
ndustrio/itotion ond enqineerinq
8educLlon of 8C depends on our rapld lndusLrlal producLlon and Lhe
quallLy of our producLs We need Lo fully uLlllse Lhe exlsLlng capaclLy of our
lndusLrles and Lo promoLe Lhe process of lndusLrlallsaLlon and developmenL of
englneerlng secLor 1he CovernmenL can esLabllsh more Lechnlcal and
englneerlng lnsLlLuLes and allow forelgn faculLles 1he CovernmenL can also
reduce sales Lax or even allow Lax exempLlons on producLlon and sale of
machlnerles and heavy englneerlng goods lncludlng elecLrlc generaLors
xp/ore new vistos
1he dlsequlllbrlum ln 8C can also be correcLed by explorlng new vlsLas and
dlverLlng Lhe resources Lo Lhe producLlon and sale of such new exporLable goods
and servlces lor example Lhe CovernmenL can flnd handsome exporL earnlngs
ln Lhe new flelds of geneLlc englneerlng l1 anLlLerrorlsm Lechnology compuLer
gamlng (llke ln SouLh korea) compuLerbased surgery or even ln Lhe fleld of
fashlon deslgnlng arL and culLure lncludlng sporLs






14

Conclasion:
fLer havlng an undersLandlng of 8alance of aymenLs of aklsLan we've come Lo
a concluslon LhaL aklsLan has been faclng a SLCuL8 ulSLCulLl88luM aklsLan
ls havlng Lrade deflclL ln almosL all of Lhe years due Lo lneffecLlve pollcles and due
Lo pollLlcal lnsLablllLy 1he pollcles change from Llme Lo Llme and LhaL's why Lhere
ls a negaLlve lmpacL on Lrade 1here should be sLablllLy ln Lhe pollcles so LhaL
aklsLan's 8alance of aymenLs may have Su8LuS once agaln and prosper