Pakistan’s Real Effective Exchange Rate Drops in January

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Pakistan’s Real Effective Exchange Rate (REER) decreased by 3.5 percent to 92.8 in January 2023.

According to the latest monthly data released by the State Bank of Pakistan (SBP), the trend indicates a big decrease from 96.2 recorded in December 2022.

A REER above 100 indicates a loss in trade competitiveness with exports becoming more expensive and imports getting cheaper, while a REER below 100 means the country’s exports are competitive.

Pakistan’s current REER value of 92.8 suggests that exports offer better returns, but with raw material and machinery imports currently ‘unreachable’ due to import restrictions and SBP’s embargo on letters of credit (LCs), the trade backdrop is facing a real challenge.

Faced with dangerously low forex reserves, Pakistan has barred all imports except essential food and medicine until a $1.1 bailout agreement with the International Monetary Fund (IMF) is reached.

Steel, textiles, and pharmaceutical industries are barely operating, forcing thousands of factories to close and worsening unemployment.

Pertinently, the steel industry has already issued a severe supply-chain warning due to a scarcity of scrap metal, which is melted down and turned into steel bars. The prices of these bars have reached all-time highs in recent weeks.

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