Table of content

Executive summary -------------------------------------------------------------------------------02

Introduction -----------------------------------------------------------------------------------------03
Trade Deficit ----------------------------------------------------------------------------------------03
An overview of Pakistans economy ------------------------------------------------------------04
Major exports of Pakistan in 2014 ---------------------------------------------------------------04
Exports of goods and services percentage of GDP --------------------------------------------07
Major imports of Pakistan ------------------------------------------------------------------------11
Imports of goods and services percentage of GDP --------------------------------------------11
Net trade --------------------------------------------------------------------------------------------13
Reasons behind trade deficit in Pakistan -------------------------------------------------------16
o Energy crisis ------------------------------------------------------------------------------16
o Increase in imports -----------------------------------------------------------------------17
o Low domestic saving --------------------------------------------------------------------17
o Poor utilization of resources ------------------------------------------------------------18
o Conclusion --------------------------------------------------------------------------------18
References ---------------------------------------------------------------------------------------19

Executive Summary
The purpose of this paper is to examine the trade deficit in Pakistan, the main causes or what
factors affects trade in Pakistan in different periods. In this study, we took data of last 44 years
from 1967 to 2011 and we did analysis of balance of trade from 200 to 2014. Trade deficit
explains the negative trade balance of a country when its net imports exceed its net exports for a
particular period. There exist economists with two schools of thoughts on trade deficits. One
school of thought, which is in the favor of trade deficit, argued that it increases the standard of
living of people. The rest of the economists argued that continuously trade deficit is a bad thing
for the economy. Since the independence of Pakistan, balance of trade is mostly remains
negative. The highest trade deficit, which is seen in Pakistan economic history, is from 2009 to
2013. The highest trade deficit faced by Pakistan is 280964.00 million rupees in 2014. The
highest trade surplus was in 2003 is 6457.00 million rupees. Trade deficits occur due to
inefficient local industry, loose monetary policy, export raw material and import finished goods.
However, achievement of reducing trade deficit is difficult, but not impossible. Government
should take appropriate measures, which are mentioned in the paper to take care of such
situations and to grow the economy smoothly.

Introduction:

The action of buying and selling of goods and services is called trade. In other words, we can
say that the exchange of something for something else i.e. typically a commercial transaction is
called trade. Trade refers to the buying and selling of goods and services for money or moneys
worth. It involves transfer or exchange of goods and services for money or moneys worth. The
manufacturers or producers produces goods, and then move on to the wholesaler, then to the
retailer, and finally to the ultimate consumer.
Trade is essential for satisfaction of human wants, trade is conducted not only for the
sake of earning profit but it also provides service to the consumers. Trade is an important social
activity because the society needs uninterrupted supply of goods forever increasing and ever
changing but never ending human wants. Trade has taken birth with the beginning of human life
and shall continue as long as human life exits on the earth. It enhances the standard of living of
consumers. Thus we can say that trade is a very important social activity.

Trade deficit:
The trade deficit is defined as the amount, by which the cost of a country's imports
exceeds the value of its exports, is called trade deficit. The balance of trade is the relationship
between a nation's imports and exports of goods and services. Any imbalance in these trade
implies an equal and opposite imbalance in asset trade. A positive balance of trade is known as a
trade surplus and consists of exporting more than is imported, while a negative balance of trade
is known as a trade deficit or, informally, a trade gap. A trade deficit means that exports are
insufficient to pay for imports and a trade surplus is the opposite of it -corresponding to the
capital account deficit. Trade deficit risks have threaten nations economic growth because
current account deficit leads to net selling of international assets. Hence, current account trade
surplus increases countrys international asset position correspondingly and a trade deficit
decreases the net international asset position accordingly. The balance of trade is generally
affected by the factors like: Prices of goods manufactured at home, trade agreements, tariffs and
non-tariff barriers, exchange rates, state of business cycle at local or international market.

An overview of Pakistans economy:

Pakistan is facing continual trade deficit for more than half century except two fiscal years. In
1951 Pakistan earned foreign exchange by the export of raw jute and cotton and trade surplus
was Rs.176 million this increase in export demand was due to Korean War. In year 1972/3,
Bhutto Government devalued rupee by 56% and imposed high tariff on imports of luxury goods.
Trade surplus was Rs.153 million that year. Although Pakistan balance of trade remained
negative for most of the years, because of negative current account Pakistan has obliged to
remain dependent on the foreign donors such as International Monetary Funds (IMF) and
creditors to pay for the short fall of its balance of payment. Due to depending on external
financial liabilities, the debt service payments had put on barriers in front of national
developmental goals. The debt burden and social development deteriorated to such an extent that
Pakistan's external debt and liabilities stood at $61.8 billion as of March 31, 2014.

Major exports of Pakistan in 2014:

o Raw cotton
o

o Readymade garments

Leather and leather products

o Vegetable, fruit and fish

o Carpets and rugs, Tents

o Textile

o Sports goods

o Rice

Pakistan exports its products to large number of countries including USA,

Germany, Japan, UK, Hong Kong, Dubai, Saudi Arabia and Afghanistan.

The value for Exports of goods and services (current US$) in Pakistan was
$29,756,880,000 as of 2011. Over the past 44 years, the value for this
indicator

has

fluctuated

between

$29,756,880,000

in

2011

and

$678,985,800 in 1967.

Table:

Year
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011

Value
$678,985,800
$740,984,600
$747,984,300
$778,983,700
$757,234,100
$1,096,084,000
$855,556,200
$1,200,200,000
$1,230,800,000
$1,430,100,000
$1,404,400,000
$1,646,700,000
$2,107,300,000
$2,958,200,000
$3,461,200,000
$3,055,881,000
$3,419,646,000
$3,448,628,000
$3,246,344,000
$3,796,228,000
$4,414,018,000
$5,227,069,000
$5,576,987,000
$6,216,943,000
$7,725,444,000
$8,442,739,000
$8,394,305,000
$8,449,778,000
$10,132,270,000
$10,703,070,000
$10,040,500,000
$10,252,210,000
$9,668,691,000
$9,940,179,000
$10,600,270,000
$11,007,710,000
$13,917,670,000
$15,350,080,000
$17,195,690,000
$19,418,010,000
$20,320,950,000
$21,056,880,000
$20,808,540,000
$23,955,250,000
$29,756,880,000

Exports in US $ (billion)
35

30

25

20
Exports in US $ (billion)

15

10

Exports of goods and services (% of GDP):

Exports of goods and services (% of GDP) in Pakistan were 14.16 as of 2011.

Its highest value over the past 44 years was 17.36 in 1992, while its lowest
value was 7.14 in 1971.

Table

Year
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983

Value
9.17
9.16
8.66
7.77
7.14
11.77
13.53
13.68
10.85
10.72
9.28
9.24
10.69
12.49
12.32
9.95
11.92

1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011

11.07
10.42
11.90
13.23
13.59
13.88
15.54
17.00
17.36
16.31
16.28
16.71
16.90
16.08
16.48
15.35
13.44
14.66
15.22
16.72
15.67
15.69
15.23
14.19
12.85
12.86
13.57
14.16

10

Exports % of GDP
20

18

16

14

12

10

Exports % of GDP

Source: World Bank national accounts data, and OECD National Accounts data files.

11

List of Major Imports of Pakistan 2014:

o Vehicles and spare parts.

o Iron ore and steel.

o Edible Oil.

o Pharmaceutical products.

o Plastic material.

o Tea

o Machinery

o Chemical

o Paper Board

o Petroleum

Pakistan import product from the countries including USA, Japan, Kuwait, Saudi Arabia,
Germany, UK and Malaysia. The exports of last 44 years are shown in the table below

Table
Years
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992

Value
$1,340,972,000
$1,194,975,000
$1,196,975,000
$1,470,969,000
$1,355,999,000
$1,580,919,000
$1,031,186,000
$1,822,800,000
$2,539,300,000
$2,584,200,000
$2,877,100,000
$3,293,000,000
$4,485,001,000
$5,709,197,000
$6,466,601,000
$6,687,354,000
$6,592,699,000
$7,048,454,000
$7,105,458,000
$7,230,436,000
$7,005,030,000
$8,337,114,000
$8,735,975,000
$9,350,912,000
$8,434,857,000
$9,984,114,000

12

1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011

$11,552,190,000
$9,883,123,000
11,777,210,000
$13,567,630,000
$12,967,600,000
$10,900,340,000
$10,684,440,000
$10,862,330,000
$11,361,300,000
$11,073,080,000
$13,423,660,000
$14,337,310,000
$21,441,920,000
$29,603,690,000
$30,555,710,000
$39,137,640,000
$33,030,000,000
$34,300,240,000
$40,423,580,000

13

import in Us $ (billion)
45

40

35

30

25
import in Us $ (billion)
20

15

10

Source: World Bank national accounts data, and OECD National Accounts data files.

Imports of goods and services (% of GDP):

14

Imports of goods and services (% of GDP) in Pakistan were 19.23 as of 2011.

Its highest value over the past 44 years was 24.10 in 1980, while its lowest
value was 12.79 in 1971.

Table

Year
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010

Value
18.11
14.77
13.87
14.67
12.79
16.98
16.30
20.78
22.39
19.37
19.2
18.48
22.76
24.10
23.01
21.76
22.98
22.63
22.81
22.67
21.00
21.67
21.75
23.37
18.56
20.53
22.44
19.04
19.42
21.43
20.77
17.53
16.97
14.69
15.71
15.31
16.13
14.63
19.56
23.22
21.34
23.88
20.41
19.44

15

2011

19.23

16

Imports % of GDP
30

25

20

15

Imports % of GDP

10

Source: World Bank national accounts data, and OECD National Accounts data files.

Net trade:
Net trade is the difference between exports and imports of a country.
Net trade = Net exports Net imports

Net trade of Pakistan from 1967 to 2011:

Table

Year
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999

Exports Imports
678,985,800-1,340,972,000
740,984,600-1,194,975,000
747,984,300-1,196,975,000
778,983,700-1,470,969,000
1,355,999,000-757,234,100
1,096,084,000-1,580,919,000
855,556,200-1,031,186,000
1,200,200,000-1,822,800,000
1,230,800,000-2,539,300,000
1,430,100,000-2,584,200,000
1,404,400,000-2,877,100,000
1,646,700,000-3,293,000,000
2,107,300,000-4,485,001,000
2,958,200,000-5,709,197,000
3,461,200,000-6,466,601,000
3,055,881,000-6,687,354,000
3,419,646,000-6,592,699,000
3,448,628,000-7,048,454,000
3,246,344,000-7,105,458,000
3,796,228,000-7,230,436,000
4,414,018,000-7,005,030,000
5,227,069,000-8,337,114,000
5,576,987,000-8,735,975,000
6,216,943,000-9,350,912,000
7,725,444,000-8,434,857,000
8,442,739,000-9,984,114,000
8,394,305,000-11,552,190,000
8,449,778,000-9,883,123,000
10,132,270,000-11,777,210,000
10,703,070,000-13,567,630,000
10,040,500,000-12,967,600,000
10,252,210,000-10,900,340,000
9,668,691,000-$10,684,440,000

Net Trade
-661986200
-453990400
-448990700
-691985300
598764900
-484835000
-175629800
-622600000
-1308500000
-1154100000
-1472700000
-1646300000
-2377701000
-2750997000
-3005401000
-3631473000
-3173053000
-3599826000
-3859114000
-3434208000
-2591012000
-3110045000
-3158988000
-3133969000
-709413000
-1541375000
-3157885000
-1433345000
-1644940000
-2864560000
-2927100000
-648130000
-1015749000

2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011

9,940,179,000-$10,862,330,000
10,600,270,000-$11,361,300,000
11,007,710,000-$11,073,080,000
$13,423,660,000-13,917,670,000
$14,337,310,000-15,350,080,000
17,195,690,000-$21,441,920,000
19,418,010,000-$29,603,690,000
20,320,950,000-$30,555,710,000
21,056,880,000-39,137,640,000
20,808,540,000-33,030,000,000
23,955,250,000-34,300,240,000
29,756,880,000-40,423,580,000

-922151000
-761030000
-65370000
-494010000
-1012770000
-4246230000
-10185680000
-10234760000
-18080760000
-12221460000
-10344990000
-10666700000

Net trade
5

-5

Net trade

-10

-15

-20

The net trade of Pakistan during last 6 years in million rupees:

Table
Year
2009-10
2010-11
2011-12
2012-13
2013-14

Exports
1,617,457.6
2,120,846.7
2,110,605.5
2,366,477.8
2583463.2

Imports
2,910,975.3
3,455,285.6
4,009,093.0
4,349,879.5
4630520.8

Net trade
-1293517.7
-1334438.9
-1898487.5
-1983401.7
-2047057.6

6
5
4
3
2

Exports
Imports
Net trade

1
0
2009-10

2010-11

2011-12

2012-13

2013-14

-1
-2
-3

Source: World Bank national accounts data, and OECD National Accounts data files.

Reasons behind trade deficit in Pakistan:

Energy Crisis:
Energy sources in Pakistans current energy mix include hydel, thermal (coal, gas and furnace
oil) and nuclear. Pakistan does not produce enough energy to meet demand due to which it
currently has an electricity shortfall of approximately 5,000 megawatts (MW) per day. Energy
shortfall in Pakistan reflects years of underinvestment where power consumption has risen 80
percent, but supply has fallen to maintain this pace, around 30 percent of the population does not
have access to grid electricity, with around one-third of the population meeting its energy needs

through noncommercial sources. As more of these people seek access to grid electricity, demand
for electricity will increase.
According to the government of Pakistan, power shortages are estimated to cost the economy
2 percent of its GDP every year, although some observers have suggested the figure is higher.
Major shortfalls were in evidence in 2011, with even some urban areas, which has suffered
fourteen to eighteen hours without power per day, while some of the areas have suffered by
greater ratio of load-shedding. The government has previously estimated that approximately $10
billion is required to meet the countrys immediate energy needs, and at least twice this is needed
for its longer-term energy plans.
Currently, Pakistan has also a gas supply shortage of approximately 20 percent. Natural
gas supplies fell 33 percent in 2010 when compared with figures from 2009. This situation
prompted the government in December 2011 to announce gas rationing in an attempt to counter
the deficit. Domestic oil and gas supplies are forecast to be exhausted by 2025 and 2030
respectively. Already Pakistan imports around 30 percent of its energy supplies (mainly from
Iran). Recovery Report and Plan for Pakistan has suggested that in 20089 energy imports
totaled more than $10 billion, which it argued could rise to as much as $38 billion by 201516 if
there is a failure to take action to increase indigenous resources.
Gas shortage has caused a rise in oil imports, which in turn has both increased
inflationary pressures and placed added strain on the budget deficit. As for employment, it is
estimated that 4.1 million jobs and employment opportunities have been lost due to the countrys
energy problems, roughly 7.5 percent of the workforce.
Increase in imports:
Pakistans trade deficit is widening as imports grow fast while exports are moving up
slowly, since 1950 Pakistan is importing more than it is exporting , this import depends upon
countrys demand and production capacity. The inability of local producers in the production of
enough goods and services has also increased the level of imports in fulfilling the domestic
demand. Further lowering of tariffs as per IMF and WTO requirements has actually led to an
increase in imports, and an infiltration of consumer goods produced in the developed world.
Pakistans economy during 2007-08 registered imports worth was about $40billion while its

exports was only at around $20billion. In its trade policy for the fiscal year 2007-08, the
government had targeted imports at $29.6billion and exports at $19billion with a trade deficit of
$10.6bn but due to high import oil bill the trade deficit ended up with $20 billion. A high volume
of imports especially capital goods, and diminishing exports is one of the major causes of
Pakistans trade/ current account deficit.
As Pakistan is an agricultural country, about 70% of the population depends on
agriculture, but the decline trend in agriculture growth that ranged from 1.5% to 6.5% during the
last few years had threatened our food security, instead of giving boost to export and add to our
current accounts. Pakistans total imports for food group are reported at $4.21 billion in 2008
against 2007 imports of $2.74 billion.
Low domestic saving:
Higher the rate of consumption lowers the rate of domestic savings evaporates the money
available for domestic investment which causes inflow of foreign investment. Pakistan has set
new record of consumption during the last few years and gravitated huge imports resulted in to
widening state of trade deficit and shrinking current account. Pakistan is earning less foreign
exchange through exports and spends almost double on imports, with the result that there was
precarious trade deficit of $20 billion last year. If sum of $5.5 billion of remittances by expatriate
Pakistanis and foreign direct investment of $3.5 billion is taken into account, still there is current
account balance of $10 billion. It is high time to cut and curtail imports substantially. Reportedly,
Pakistani politicians, industrialists and businessmen have at least $125 billion stashed in foreign
banks or invested in bonds and real estate in the US, UK, Spain and other European countries.
The nation expects of them to bring their money back to the country so that we could overcome
the financial crisis. They have to realize that in the event of international economic crisis and
recession, their dollars would not hold much value.
According to Economic Survey of Pakistan 2010-2011, real GDP is estimated to grow at
2.4 percent based on the performance of services sector which is lower than its target of 4.5
percent. Such slow growth is because of the slower growth in the manufacturing and agricultural
sector.

It is also observed in table 1that there is positive association in savings and investment, if the
savings rates are high, the investment is high or vice versa. Both the savings and investment
jointly determine the growth rate of economy. Therefore, the present study provides the empirical
analysis of the determinants of the saving in Pakistan considering the globalized economy.
Poor utilization of resources:
Pakistan is one of resource rich countries in the world having a large amount of coal, gas,
gemstones, copper and gold reserves. Other resources also included oil, iron, titanium and
aluminum which are a necessity for any growing economy. In Pakistan the utilization of
resources is improper due to which our imports have been increased over exports. The utilization
of resources is inefficient because of our political instability.

Conclusion:
Minimizing trade deficit for Pakistan is difficult but not impossible. Pakistan can minimize its
deficit balance through proper use of its resources by improving its infrastructure. With the
implementation of high import duties we can reduce our imports and by encouraging our export
and our industries. It can achieve through installing import substitution and export promoting
industries. Government should control and check the import of luxuries.

References:
o
o
o
o

http://www.indexmundi.com/
http://www.pbs.gov.pk/
http://www.sbp.org.pk/
http://www.ead.gov.pk/

o Mohammad Asif(2011) Impact of devaluation on trade balance of Pakistan

o Abdul Rauf, Dr Abdul Qayyum (2011) An empirical study to find the relationship
between Trade deficit and Budget Deficit in Pakistan, Academic Research International
Vol.I, Issue 3. November 2011.
o Aurangzeb, Anwar ul Haq (2012) Factors affecting the trade balance in Pakistan.

o Sulaiman D Mohammad(2010) Determinants of Trade deficit: Case study of Pakistan.