MACRO ECONOMICS

FINAL PROJECT REPORT

PAKISTAN’S TRADE DEFICIT

Submitted by:

Farman Ali (30017)

Submitted to: Mam Maleeha Rizwan

Submission date: Jan 14, 2021

 Contents

1. Describe Pakistan’s Trade Deficit.

2. What are the causes of Pakistan’s Trade Deficit?

3. What effect does the Pakistan Trade Deficit have on

Pakistan’s economy?
4. Propose solutions/strategies to tackle Pakistan’s Trade

Deficit. What steps/measures can the Government of

Pakistan take to resolve or lessen the problem?
5. References
Q1. Describe the problem “Pakistan’s Trade Deficit”.
Ans.
Pakistan is facing a problem of trade deficit from last two decades due to high Imports over the
Exports. In December, 2020 a trade deficit of PKR 430507 Million is recorded by Pakistan.
Pakistan trade with multiple countries over the globe but the value of Imports is very high
Exports is low this is resulting as a trade deficit. Pakistan is having a good relation with China
from the past years and China has appeared as the largest trading partner of Pakistan. Pakistan
records the biggest trade deficits with the Imports partner’s countries like China, Saudi Arabia,
India, Malaysia and Kuwait where the positive trade balance was with Afghanistan, United
Kingdom, Germany and United States.

In the year 2014-2015 the Pakistan international trade was about US $ 66 Billion from that US $
41.4 Billion was Imports where US $ 24.6 Billion was exports. So Pakistan is facing a trade deficit
issue since 2003. Trade deficit issue should be fixed by the government to avoid the foreign
depts. Pakistan needs to improve political relations with the countries which are trade partners
of Pakistan and there should also be good political relations with them.

Pakistan usually export in the European region ,East Asia and South Asia where we should also
explore the markets of Central Asia, Middle East and South America for the better trade results
and increase in the value of exports.

In December 2020, Pakistan has trade deficit of US $ 2.7 Billion while in the Nov, 2020 trade
deficit was recorded about US $ 2.1 Billion. Pakistan has an average value of trade deficit of US
$ 212.6 Million from January 1968 to December 2020. In November 2020 total increase in
exports was 22.5% where in Oct 2020 total increase in imports was 29.7 %.

Pakistan's Trade Balance from Jan 1968 to Dec 2020 in the chart:
Q2. What are the causes of Pakistan’s Trade Deficit?
Ans. Pakistan has faced a lot of challenges in order to maintain a positive trade balance. Trade
deficit is consistently being recorded in trade balance so, some of the major causes of trade
deficit as decline in the exports of Pakistan are:

1. High Cost For Doing Business

In Pakistan it’s really difficult to operate a business due to high cost. High cost is the
main reason that the Pakistani exports are not competing in the world market. High cost
Raw materials, utilities, cost of finance and unskilled workers are the some major factors
of high cost of business.

The above chart shows us that Pakistan was ranked 96 in the “ease of doing business” in
2011 where in 2015 it become even worse and moved to 128. Pakistan competitors like
China India Bangladesh were also not in good position meanwhile their export was
increasing. Only Vietnam was the only one which increased its rank in ease of doing
business.
2. Poor Trade Facilitation
In 2012 Pakistan was ranked 116 out of 132 countries according to the Global Enabling
Trade Index. Pakistan takes more time than the countries in the region like India,
Malaysia and Thailand. Pakistan needs to become needs to develop simple modified
export procedures because Pakistan was more time taking and it was a lengthy
procedure in terms of documents also that results decline in the exports.
In the given table there is a short comparison of export efficiency between Pakistan and
other countries in the region in 2012.

So these are the two major causes of the decline in the exports of Pakistan and Trade
Deficit in Pakistan.
Q3. What effect does the Pakistan Trade Deficit have on Pakistan’s economy?

Ans.

Pakistan has been facing a Trade Deficit for a long time. Trade Deficit is being recorded from the
past years and this is due to the lack of good work from the policy makers that is impacting on
the economy of Pakistan very badly.

Foreign investment in Pakistan is decreasing due to trade deficit because in this country foreign
investors are not investing due the bad business policies that forces every investor to invest
somewhere else even our Pakistani investors are investing in other countries. We have a lot of
products to sell in the foreign markets and can increase the value of exports but our marketers
don’t compete in the foreign market always. Country’s foreign exchange is also dependent on
the borrowed money which is resulting in the increase of foreign depts. So this is also damaging
our national economy.

Industries in Pakistan are getting decreasing because government has made bad business
policies that people don’t want to produce products here. Less production is forcing us to
import more and by importing more is resulting increase in the foreign depts. Our national
economic growth is not increasing and we are getting even in worse position.

Government is not making full use of our natural resources. If our government make the full
use of your natural resources then our GDP will increases as well as our exports will increase
too. Pakistan always lacks in exports due to not adding value to the products and don’t try do
innovation. If we utilizes our resources properly then we can innovate new products in the
foreign markets and can compete easily that will also help us to increase our boost our
economic growth.

Trade deficit effects the income of the domestic workers who works in the industries or
somewhere else. This result them as out of money and this also impacts badly to the economy
of a family.

The major impact of Trade Deficit on an economy is that due to more imports there is more
money to spend and even borrow as depts. This result as decrease in the savings of a country
and Budget decreases automatically. This will force country to import higher level of capitals to
increase the production in the country that high level of imports also impacts the economic
growth.
By Importing more is damaging our domestic goods and services. The value of our goods and
services are becoming low as many people are pursuing imported goods so we should look into
this in order to add value to our domestic products more than foreign products this is also
damaging our economy.

Trade deficit also results as it lowers our country’s currency and that also causes even more
expensive import then because the more the value of your currency will down the more your
depts. and your imports expenses will increase and when you export your products that will
also effect due to your low rate of currency.
Q4.Propose solutions/strategies to tackle Pakistan’s Trade Deficit. What
steps/measures can the Government of Pakistan take to resolve or lessen the
problem?
Ans.
There are certain solutions or steps that government should take to reduce trade deficit and
increase the exports of Pakistan.

1. Hire Skill Full Workers

Government should first look for the skill full people around the country to hire them for
jobs in order to get more and more outcome from that people.
2. Low Cost Raw Materials
Pakistan have low cost raw materials, we should focus on the high tech industries and
goods for exports.
3. Industrial Infrastructure
There should be good Industrial Infrastructure in the country.
4. Utilizing Agriculture
Government should utilizes the agriculture and get more and more production so that it
can be helpful in increasing crops.
5. Making Good Use of Natural Resources
Government should make full use of natural resources and add value to the goods of
our own country in order to compete in the foreign markets to improve our economic
growth.
6. Target the Ignored Countries for Exports
Government should also focus on the markets that are ignored try to trade their also in
order to boost the exports of a country.
7. Look for Nearest Countries
Our Policy makers should think that they can trade with the nearest countries that can
be less time taking and we can export more in short time they should also evaluate the
nearest regions as well.
8. Look for Great Opportunities of International Trade
We should look for the Australia and African continent for the trade they had good
opportunities and great future of trade.
9. Reduce the Imports
We import the huge amount of petroleum products. We should reduce the imports of
oil and search for some alternative to reduce the imports rates.
10. Government Should Impose Taxes on Foreign Products
Our government should increase the taxes on the foreign products so that people
should not import foreign products and it will reduce the value of imports and will be
helpful for the economic growth.
11. Ban on Cat Foods and Other Things
We know that in our society the upper class families usually have pets whom feed are
being imported from foreign countries. Government should band such products from
importing in order to reduce the negative trade.
12. Promote our Own Products
We along with the government should pursue our own products instead of looking for
the products that are being imported we should add value to our products because
every individual of this society have responsibility to think for the economic growth.
13. Limitations on the number of Imports
Government should make policy in which they can allow specific number of imports for
any products limited number of imports will leads to not increasing the trade deficit
where government should also increase the value of exports to grow economy.
14. Export More Traditional Clothes
Government should make a policy that in which there should be maximum numbers of
production in the textile industries so that we can export that textiles in the foreign
countries and increase our exports as well as there will be value added to our products.
15. Government Should Reduce Business Costs
Government should lower the cost of doing business and making easy for the exporters
to do business so that they can produce more and better to export.
16. Good Trading System
Pakistan is usually well known for the bad trade in this our government should improve
the trading procedures and time consuming deliveries. Government should look into the
documents procedure and improve the time taking service so that there should be more
number of exports.
 References

1.
 CEIC Express
 Pakistan Trade Balance
 2020
 https://www.ceicdata.com/en/indicator/pakistan/trade-balance

2.
 Dr. Muhammad Hanif
 An Analysis of International Trade of Pakistan: With a Focus on Exports
 2018
 https://mpra.ub.uni-muenchen.de/55540/1/MPRA_paper_55540.pdf

3.
 Dr Aftab Afzal
 Causes and Effect of Trade Deficit
 2015
 https://customstoday.com.pk/cause-and-effects-of-trade-deficit/?

4.
 Dr Abdul Ghafoor Awan & Sheeza Sadia Mukhtar
 Cause and Impacts of Trade Deficit on the Economic Growth
 2019
 https://www.researchgate.net/publication/334443223

5.
 Government of Pakistan, Ministry of Commerce, National Tariff Commission
 Reasons of Decline in Exports of Pakistan
 2015
 https://ntc.gov.pk/wp-content/uploads/2016/05/Study-on-Reasons-of-Decline-in-
Exports.pdf