Q-6 = What are causes of persistent deficit in balance of payments.
CAUSES OF DEFICIT IN BALANCE OF PAYMENTSMain causes of deficit in balance of payments of Pakistan are as under: -
1. Decrease in exports
2. Increase in imports 3. Lack of modernization of export oriented industries
4. Import restrictions by developed countries
5. Increase in invisible expenditures
6. Unfavorable terms of trade
7. Devaluation of currency
8. Fall in workers foreign remittances
1. DECREASE IN EXPORTSExport earnings of Pakistan for the most part rely on the fare of couple of horticultural items, for example, crude cotton, cotton items and rice. Prices of which are continuously decreasing in international market. Pakistan has to face severe competition with Egypt, India and China for the export of cotton, cotton textiles and rice. The exportable raw material is deteriorating in quality and quantity because of the backwardness of our agricultural sector. Pakistan has not yet extended its export base and is depending on few items. Due to increase in rate of inflation, prices of exportable goods are also increasing, making it difficult to compete in international market. Political uncertainty, lack of law and order situation, strikes and lockouts resulted in production losses and exports could not be increased, hence foreign exchange earnings have reduced.
2. INCREASE IN IMPORTS Pakistan’s imports on account of machinery, industrial raw material, vehicles pharmaceuticals, electronic goods, spare parts are persistently increasing. Due to rapid increase in population demand for food grains is also increasing and Govt. have to import, wheat, edible oil, tea, spices, and even sugar. Moreover increased domestic demand and price rise of petroleum is a great pressure on foreign exchange resources of Pakistan.
3. LACK OF MODERNIZATION OF EXPORT ORIENTED INDUSTRIES Due to lack of planning, we could not set up import substitution industries in the country. Value added goods factories are very less and development of industrial sector is unorganized. No attention is being paid on modernization of existing industries. Number of sick industries is gradually increasing. Nationalized factories are running into losses. These factors result in high cost of production and sub-standard quality, which give us low price in the international market and reduces foreign exchange earnings.
4. IMPORT RESTRICTIONS BY DEVELOPED COUNTRIESMany countries have imposed anti-dumping duties on our cotton and cotton products. Propaganda about exploitation of child labor has also resulted in handmade product’s export. Moreover European countries have developed substitutes of cotton products such as synthetic textiles causing reduction in our exports.
5. INCREASE IN INVISIBLE EXPENDITURESInvisible expenditures i.e. expenses on embassies, foreign education, increasing number of pilgrims for Hajj and Umra, interest and service charges of foreign banks, insurance companies, higher freight charges of shipping companies etc. are increasing foreign exchange liability of Pakistan.
6. UNFAVORABLE TERMS OF TRADEPrices of export-goods are decreasing whereas prices of import-goods are increasing in international market, which means that terms of trade are going against Pakistan. Pakistan has to export more goods for the import of the same quantity of goods.
7. DEVALUATION OF CURRENCY Pakistan has devalued its currency many times, which resulted in increase in of import bill (expenses on foreign exchange) whereas our export bill (earnings of foreign exchange) could not increase. Devaluation thus has badly affected balance of payments of the country.
8. DECREASE IN WORKERS FOREIGN REMITTANCESFor the last many years workers remittances from foreign countries are continuously decreasing due to the fact that construction programs have reduced in Middle East and Pakistani labor is no more needed there. Moreover very cheap labor is available to Middle East countries from India, Bangladesh, Sri-Lanka and Philippines; they therefore, are not demanding Pakistani workers.
CAUSES OF DEFICIT IN BALANCE OF PAYMENTSMain causes of deficit in balance of payments of Pakistan are as under: -
1. Decrease in exports
2. Increase in imports 3. Lack of modernization of export oriented industries
4. Import restrictions by developed countries
5. Increase in invisible expenditures
6. Unfavorable terms of trade
7. Devaluation of currency
8. Fall in workers foreign remittances
1. DECREASE IN EXPORTSExport earnings of Pakistan for the most part rely on the fare of couple of horticultural items, for example, crude cotton, cotton items and rice. Prices of which are continuously decreasing in international market. Pakistan has to face severe competition with Egypt, India and China for the export of cotton, cotton textiles and rice. The exportable raw material is deteriorating in quality and quantity because of the backwardness of our agricultural sector. Pakistan has not yet extended its export base and is depending on few items. Due to increase in rate of inflation, prices of exportable goods are also increasing, making it difficult to compete in international market. Political uncertainty, lack of law and order situation, strikes and lockouts resulted in production losses and exports could not be increased, hence foreign exchange earnings have reduced.
2. INCREASE IN IMPORTS Pakistan’s imports on account of machinery, industrial raw material, vehicles pharmaceuticals, electronic goods, spare parts are persistently increasing. Due to rapid increase in population demand for food grains is also increasing and Govt. have to import, wheat, edible oil, tea, spices, and even sugar. Moreover increased domestic demand and price rise of petroleum is a great pressure on foreign exchange resources of Pakistan.
3. LACK OF MODERNIZATION OF EXPORT ORIENTED INDUSTRIES Due to lack of planning, we could not set up import substitution industries in the country. Value added goods factories are very less and development of industrial sector is unorganized. No attention is being paid on modernization of existing industries. Number of sick industries is gradually increasing. Nationalized factories are running into losses. These factors result in high cost of production and sub-standard quality, which give us low price in the international market and reduces foreign exchange earnings.
4. IMPORT RESTRICTIONS BY DEVELOPED COUNTRIESMany countries have imposed anti-dumping duties on our cotton and cotton products. Propaganda about exploitation of child labor has also resulted in handmade product’s export. Moreover European countries have developed substitutes of cotton products such as synthetic textiles causing reduction in our exports.
5. INCREASE IN INVISIBLE EXPENDITURESInvisible expenditures i.e. expenses on embassies, foreign education, increasing number of pilgrims for Hajj and Umra, interest and service charges of foreign banks, insurance companies, higher freight charges of shipping companies etc. are increasing foreign exchange liability of Pakistan.
6. UNFAVORABLE TERMS OF TRADEPrices of export-goods are decreasing whereas prices of import-goods are increasing in international market, which means that terms of trade are going against Pakistan. Pakistan has to export more goods for the import of the same quantity of goods.
7. DEVALUATION OF CURRENCY Pakistan has devalued its currency many times, which resulted in increase in of import bill (expenses on foreign exchange) whereas our export bill (earnings of foreign exchange) could not increase. Devaluation thus has badly affected balance of payments of the country.
8. DECREASE IN WORKERS FOREIGN REMITTANCESFor the last many years workers remittances from foreign countries are continuously decreasing due to the fact that construction programs have reduced in Middle East and Pakistani labor is no more needed there. Moreover very cheap labor is available to Middle East countries from India, Bangladesh, Sri-Lanka and Philippines; they therefore, are not demanding Pakistani workers.