Balance of trade and Balance of payment

Balance of trade:

                                The difference between the values of exported goods and imported goods of a country during a period of one year is called balance of trade.

If the value of exported goods is grater then the value of imported goods then balance of trade will be favorable in reverse situation balance of trade will be unfavorable.

Balance of payment:

A systematic record of the value of exported goods and services and important goods and services of a country with the rest of the world during a period of one year is called balance of payment. 

                                    If the value exported goods and services is grater then the value of imported goods and services then balance of payment will be favorable in opposite situation balance of payment will be unfavorable.

Causes of adverse balance of payment:

            Following are the causes of adverse balance of payment of Pakistan.

1.     Narrow export base:

The main cause of adverse balance of payment of Pakistan is narrow export base. It is mainly concentrated on cotton group, which contributes 60% to our export earnings.

2.     Less modernization of machinery:

Less modernization of machinery is another cause of adverse balance of payment of Pakistan. In agricultural and industrial sector of Pakistan old and outdated techniques of production are used due to which production remains low and resources are wasted.

3.     Stick industrial units:

There are large numbers of stick industrial units in Pakistan and the operating industries are not producing goods according to their full capacity, which adversely affects our balance of payment.

4.     Political uncertainty:

Political uncertainty has badly affected the production of agricultural and industrial; sector. The fall in production of goods has adversely affected the bop.

5.     Tough competition in international market:

Pakistani products are facing tough competition in international market. Which cause deficit in the bop of Pakistan.

6.     Import of oil and petrol:

Every year Pakistan imports a huge amount of oil and spends sizable foreign exchange earnings on it which has resulted deficit in bop of our country.

7.     Frequently changing police:

Due to frequent changes of governments the policies about exports and import frequently change which has badly affected our bop.

8.     Domestic situation:

Domestic situations like political uncertainty, floods, droughts etc have decreased our export and increased our import which has adversely affected our balance of payment.