Pakistan’s Real Effective Exchange Rate (REER) jumped by 1.5 percentage points to 87.1 in May 2023.

According to the latest monthly data released by the State Bank of Pakistan (SBP), the trend indicates a big increase from 85.6 recorded in April 2023.

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 87.1 suggests that exports offer better returns, but with raw material and machinery imports currently ‘unreachable’ due to import restrictions, local production is next to nothing.

Pertinently, Pakistan’s current account posted a surplus of $255 million in May 2023, significantly higher than the surplus of $18 million (revised to $78 million) posted in April 2023. The surplus is on the back of import restrictions imposed by the government since 2022.

Another side of the REER spectrum shows that the Pakistani Rupee is greatly undervalued. This suggests that while exports (restricted) are more competitive at the current level of REER, the returns would still be marginal as the rupee has undesirably weak fundamentals.

Volumetric conversion of profits to PKR would only decrease the realized value of earnings.

Source: Pro Pakistani