Balance Of Trade And Balance Of Payment

BALANCE OF TRADE :
Balance of trade is difference between the various exports and imports of visible goods of a country during a given period of time. If the value of visible items exports exceeds then the value of visible goods imports then the balance of trade is said to be favourable.


BALANCE OF PAYMENT :
Balance of payment is a record of economic transaction between the residents of the one country and the rest of the world during the period of one year. Under balance of payment we include visible as well as invisible goods.


FAVOURABLE BALANCE OF PAYMENT :
if the total value of imported goods and services exceeds than the total value of exported goods and service, during a year the balance of payment is said to be unfavorable. In case of opposite situation it will be unfavorable.


CAUSES OF UNFAVOURABLE


BALANCE OF PAYMENT IN THE LESS DEVELOPED COUNTRIES LIKE PAKISTAN :
Since independence of pakistan balance of payment condition was not satisfactory. Accept few years pakistan is facing deficit in her balance of payment. the deficit in her balance of payment. The deficit is met by the loans. The deficit is increasing day by day.


IMPORT OF MACHINERY :
Developing countries are importing machines and technology to improve the industrial sector. It has made the balance of payment unfavourable because the value of capital goods in increasing day by day and we want to industrialize our economy.

EXPORT OF RAW MATERIAL :
Exports of pakistan depends upon raw material and semi manufactured goods. The prices of raw material are very low in the world market. So our balance of payment remains unfavourable. For instance the product of cotton reduced in 1995 due to virus so it also affected adversely our balance of payment because we imported cotton instead of exporting.


DEPENDENCE OF AGRICULTURE :
Many countries like pakistan mainly rely on the exports of primary goods like rice and cotton. If climate is unfavourable then production of agriculture sector decreases which affects the balance of payment badly.


PAYMENT FOR FOREIGN SERVICE :
Every year pakistan pays a lot of foreign exchange for various service like transport. Insurance and exports. It makes our balance of payment unfavourable.


UNFAVOURABLE TERMS OF TRADE :
Pakistan paying higher prices of imports as compared to the price at which it gest from export.


POLITICAL UNREST :
Many less developed countries like pakistan are facing political unrest which is the main cause of low production. Ultimately balance of payment remains unfavourable. In this situation investor fears to do the investment.


ADVANCED COUNTRIES POLICY :
The import policy of advanced countries is not favourable for the poor countries. They impose restrictions on the imports and create problems for the poor countries. They have also created unions against developing countries.

IMPORT OF WHEAT :
Pakistan is facing the food shortage problem and spending a huge amount of foreign exchange on its import. In the past we imported many times like wheat and it has affected our balance of payment.


AFGHAN REFUGEES PROBLEM :
Afghan inflow was a heavy burden on our economy. It reduced our exports and increased our imports.


DOMESTIC PROBLEMS :
Floods trabela dam problem and nationalization of industries reduced the production and export of the countries reduced the production and exports of the country. Up till now majority of afghan refugees is living in pakistan and most of them have got the national identity cards in pakistan.


FALL IN FOREIGN REMITTANCES :
During the year 1984-85, pakistan working abroad sent 2.88 dollars to pakistan. Now with the passage of time it is falling day by day.


DEVALUATION:
In 1972 pakistan devalued its currency upto 131%. This devaluation also increased the deficit in the balance of payment. Delinking in 1982 and now there is gradual fall in the value of currency.