fahim presentation1finaaleeee
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Causes and Remedies of
Trade Deficit
By: Fahim RiazMTO Batch XII
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Outline
International TradeExports & ImportsTrade Balance(Surplus & Deficit)Major Exports and ImportsAn overview of Pakistans Trade
Balance
Causes of Trade DeficitRemedies of Trade DeficitConclusion
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Introduction
Pakistans negative trade balance is aconstant problem since 50s and its causeslie not in international trade but mainly in
domestic factorsThe problem of a deficit coupled with high
inflation and low economic growth iscausing the balance of payments problems
to be more serious.Foreign reserves are rapidly shrinking day
by day and no worthwhile inflow tocompensate the loss is likely to be
replenished in near future.
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INTERNATIONAL TRADE
INTERNATIONAL TRADE: is exchangeof goods and services acrossinternational borders or territories
Why it is important?Without international trade, nations would
be limited to the goods and servicesproduced within their own borders.
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Export and Imports
An export is any good or commodity,transported from one country( home country )to another country in a legitimate fashion,
typically for use in trade.An import is any good or commodity,
brought into one country from anothercountry in a legal way. Import goods or
services are provided to domestic consumerby foreign producer.
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Balance of Trade andTrade DeficitTrade Balance (or net exports)
The value of a countrys exports less the value of itsimports in a particular period (quarter or year)
Deficit: In economic term relates to more expenditureand less of revenue
A negative balance of trade is known as a tradedeficit or, informally, a trade gap consists ofImports More than Exports.
A positive balance of trade is known as atrade surplus and consists of exporting morethan is imported
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Factors affecting balance
of trade
Prices of goods manufactured athome
Exchange ratesTrade agreements or barriersTax and tariffBusiness cycle at home or abroad.
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Pakistans MajorExports
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Contd.
Major Export
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Composition of Exports
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Pakistans MajorImports
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Composition of Imports
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Trade Pattern
0
2
4
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10
12
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Challenges
IndicatorRanking2007-08
Ranking2008-09
Overall
Competitiveness92 101
Infrastructure 72 85
Labour Market
Efficiency113 121
Financial Market
Sophistication65 71
Technological
Readiness 89 100
Innovation &
Sophistication Factors78 85
(Ranking among 131 countries)
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Causes of Trade Deficit
Worsening Energy CrisisImport oriented industries
Flaws in AgricultureProductivityNarrow export base
Rupee DevaluationIncrease in prices of inputsLess modernization of
machinery
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Causes of Trade Deficit
Worsening Energy CrisisSerious energy shortages, long spells of load-shedding arelooming risks to our production level and economy.
Around 25 percent of textile units have been closed , Out ofaround 1,200 textile units, 300 are closed in Punjab.
The export were down to $17.8 billion as compared to $19.2 BN
Import oriented industries Import depends upon countrys demand and production
capacity. if you are not producing in accordance with your
demand then you will have to import that.Our import aremainly consist of Consumer goods rather then Capitalgoods.
Imports totaled $22.4 bn in July-March. Was $ 32 bn in theFY 09.
Most of the raw materials of textiles and garments, whichconstitute over 50 percent of the total exports, was
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Causes of Trade Deficit
Flaws in Agriculture Productivity Main stay of our exports has been on rice, cotton etc The shortfall in cotton crop compelled textile industry to
spend $1.291 billion US to import 4.6 billion bales. The food bill paid in 2008 amounting to $4 billion Its an indicator of incompetence and lethargic attitude One such case is the export of wheat on a marginal prices
and then importing it back on higher prices.
Narrow export base: Around 50-60% of our exports consists of Cotton related
items. Bad weather or other uncertain circumstances can
adversely effect this 60% of our export. Remaining partconsist of few products like Surgical and sports items.
Out of a total of over 5,000 items being traded in the world,
Pakistan has hardly 1,400 items
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Causes of Trade Deficit
Rupee Devaluation: Devaluation may be a cure for some countries balance of
payments deficits but not for all. It may work better forindustrialized countries rather than developing countriesmain examples is China. The dispute is the low value of yuan
as compared to dollar The constant increase in import bill is putting pressure on
Pakistans forex reserves and fast depleting reserves arecausing depreciation of our currency. Which is increasing ourimport bill.
Increase in prices of inputs High inflation rate in the past many years has seriously
damaged our cost competitiveness. The major investor are shifting their investment to other low
cost areas like China, Bangladesh.
Imposition of VAT is also a major threat that can increase thecost of doing in Pakistan.
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Causes of Trade Deficit
Less modernization of machinery Industries specially SMEs are facing the problem of less
modernization of machinery. The main problem here is thelack of finance available.
This impacts the quality of the goods to be exported. Theother barriers are taxes and other fee levied by thegovernment. We were rated 100th in terms oftechnological readiness.
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Remedies
Diversifying the Export Base:Cost Competitiveness
Clustering of IndustryInternational Standards(Quality/Environment/Social)
Improving Technical SkillsRegional and Bilateral TradeRole of SME
Revitalizing Agriculture Base
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Remedies
Diversifying the Export Base: We will have to diversify the range of exportable products to
make Pakistan less dependent on textile. The need is to put in place a more effective marketing
mechanism aimed at finding new markets for the countrys
export products Pakistan stands 85th in terms of innovation. The government should setup some R&D department that
can help us in coming out with new products for new &existing market
Cost Competitiveness: Unless the cost of doing business is lowered, the drive toboost our exports and to reduce the trade deficit is likely toflounder
We were ranked 101st in overall competitiveness in theworld.
The government will have to reduce the pressure of inflation
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Remedies
Clustering of Industry Clustering is the process of combining five to ten small ormedium enterprises . This Help them to pool their resourcesfor improving productiontechniques, cutting down onunnecessary expenditure, take up research anddevelopment and come out with a better product in
domestic and export market. Industrial Cluster Development Program has achieved
considerable success in consolidation of industriesproducing electric fans, cutlery in Wazirabad, and garmentsin Lahore
International Standards: The reluctance of Pakistans exporter to ensure compliance
with environmental and labor standards agreed underinternational codes and agreements also hits their exportsadversely particularly in the areas of fish and fish
preparation and sport item Example of Nike canceling their contract in Pakistan. They
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Remedies
ImprovingTechnical Skills: Quality production with differentiation requires technical
skills to people entering in the industry For enhancing education level and technical expertise it is
suggested that the government should set up a chain of
polytechnics we one can learn technical skills. An international survey carried out a few years ago found
that the productivity of the average Japanese female factoryworker was four times higher than the productivity of theaverage Pakistani male factory worker
Regional and Bilateral Trade: The Government should also enter into such Free TradeAgreement (FTAs) in order to increase our export andreduce the barriers.
Successful implementation of the agreements alreadyentered like
Tokyo Round Agreements, Multi- Fiber Arrangement (MFA)
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Remedies
Role of SMEs: SME play a very important role inrevitalizing the economy of a country.
Govt. has taken some step in order to boost SMEsperformance by setting up Gujranwala Business Center
(GBC) and Sialkot Business & Commerce Centre(SBCC) in order to provide business developmentservices in the areas of product design, productquality and international standards and packaging.
Sports Industries Development Centre (SIDC), Sialkotis being established to facilitate technology up-gradationand human resource development of sports industry
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Remedies
Revitalizing Agriculture Base: Pakistan economy is mainly agriculture centered and
strengthening agriculture base would strengthen oureconomy accordingly.
Pakistan can earn foreign exchange by improving productionand storage techniques, up gradation of forms to marketroad network, and establishment of cool chains for diarymilk and other perishables .
Agro Food Processing Facilities Center (AFPC) ,Multan.
This Centre comprises of fruit processing (Mango and GuavaPulp), vegetable processing (Tomato paste/puree), FreshFruit/Vegetable Grading and Packing
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Conclusion