Pakistan’s Real Effective Exchange Rate (REER) halted movement and stayed at 85.6 in April 2023.
According to the latest monthly data released by the State Bank of Pakistan (SBP), the trend indicates that the movement was static hence the same as 85.6 recorded in March 2023.
The REER index recorded at 85.6 in April 2023. For details see https://t.co/0pjvdnFNYwhttps://t.co/Ird7FDRPyG#SBPREER pic.twitter.com/h6JbMUwYBO
— SBP (@StateBank_Pak) May 16, 2023
A REER greater than 100 indicates a loss in trade competitiveness, with exports becoming more expensive and imports becoming less expensive, whereas a REER less than 100 indicates that the country’s exports are competitive.
Pakistan’s current REER value of 85.6 indicates that exports provide better returns; however, with raw material and machinery imports largely unavailable due to import restrictions, Pakistan’s exports have decreased compared to last year.
On the other end of the REER spectrum, the Pakistani Rupee (PKR) is significantly undervalued. This implies that, while exports are theoretically more competitive at the current level of REER, the returns would be marginal because the exchange rate has unfavorable fundamentals. Profits converted to PKR on a volumetric basis would only reduce the realized value of earnings.
Faced with a drop in remittances and worrying exchange rates, the country’s reserve wallet and below-par inflows are hurting prospects for trade growth.
