BALANCE OF PAYMENTBALANCE OF PAYMENT

ZOHAIB AMAN LASI ( 55904 )MURTAZA HUSSAIN ( 55718 ) SAFI DAR ( 55730 )SAJJAD HAIDER ( 56583 )

The balance of a payment is a systematic record of all its monetary transections with other countries of the world in a given period of time. i.e 1 year

when we say “a country’s balance of payments” we are referring to the transactions of its citizens and government.

Balance of Trade V/s Balance Balance of Trade V/s Balance of Paymentof Payment

The Balance of Payment takes into account all the transaction with the rest of the worlds

The Balance of Trade takes into account all the trade transaction with the rest of the worlds

BCA + BKA + BRA = 0whereBCA = balance on current accountBKA = balance on capital accountBRA = balance on the reserves account

Under a pure flexible exchange rate regime,

BCA + BKA = 0

TYPES OF BALANCE OF TYPES OF BALANCE OF PAYMENTPAYMENTThe Balance of Payments

statement comprises four major categories

Current AccountCapital AccountReserve AccountsErrors & Omissions

Current AccountCurrent AccountIncludes all imports and exports of

goods and services.Includes unilateral transfers of

foreign aid.If the debits exceed the credits,

then a country is running a trade deficit.

If the credits exceed the debits, then a country is running a trade surplus.

Capital AccountCapital Accounton receipts side, short term and

long-term capital inflow receipts of foreign direct investment and foreign debts are posted

Same items are written in payment side while making payment.

Reserve AccountsReserve AccountsIt shows the foreign exchange

position of a countryOfficial reserve account has the

records of foreign official holding and increase reserves of gold and foreign currencies

Errors & Omissions Errors & Omissions

The entries under this head relate mainly to leads and lags in reporting of transactions

It is of a balancing entry and is needed to offset the overstated or understated components.

IMPORTANCE OF BALANCE IMPORTANCE OF BALANCE OF PAYMENTOF PAYMENTIt helps1) State of International economic

relationship of country2) A guide to its

monetary.fiscal.exchange & other polices.

3) Inform govt about the international economic position of the country, to assist in reaching decissions on the monetary and fiscal polices

The balance of payments analysis shows:-

whether it is paying for its

import through exporting goods, drawing down its foreign assests or receiving donations

DISEQUILIBRIUM IN THE DISEQUILIBRIUM IN THE BALANCE OF PAYMENTS BALANCE OF PAYMENTS

A disequilibrium in the balance of payment means its condition of Surplus Or deficit

CAUSES OF DISEQUILIBRIUM CAUSES OF DISEQUILIBRIUM IN THE BOPIN THE BOP

Cyclical fluctuationsShort fall in the exportsEconomic DevelopmentRapid increase in populationStructural ChangesNatural CalamitesInternational Capital Movements

MEASURES TO CORRECT MEASURES TO CORRECT ADVERSE BALANCE OF ADVERSE BALANCE OF PAYMENTPAYMENT

EXPORT LED GROWTHa)Instead Of exporting Raw

material should export Finished Goods

b)Reduction in Export Dutiesc)Export Quality Products

MEASURES TO CORRECT MEASURES TO CORRECT ADVERSE BALANCE OF ADVERSE BALANCE OF PAYMENTPAYMENT

• REDUCTION IN IMPORTS

a)Import of Only Essential Itemsb)Exchange Controlc)Substitutes for Imported Items

MEASURES TO CORRECT MEASURES TO CORRECT ADVERSE BALANCE OF ADVERSE BALANCE OF PAYMENTPAYMENT

MISCELLANEOUS

a)Population Control

b)Decrease in Consumption

c)Control of Smuggling

THANKSTHANKS