Pakistan’s Real Effective Exchange Rate (REER), which was 87.7 in June 2023, increased by 0.4 percentage points.
The State Bank of Pakistan (SBP) has recently provided monthly data, and the trend shows a little increase from the 87.3 reported in May 2023.
A REER of 100 or higher implies a decline in trade competitiveness, with export prices rising and import prices falling; whereas a REER of 100 or less shows that the country’s exports are competitive.
Pakistan’s current REER value of 87.7 indicates that exports presently offer greater returns, but it will take some time for local manufacturing to resume because import restrictions have caused a decline in raw material and machinery imports.
Recently, the federal government removed all import prohibitions, but it will be some time before the local sector receives the proper volume to restart production.
Relevantly, Pakistan’s current account showed a surplus of $334 million in June 2023, which was a major increase from the surplus of $225 million in May 2023.
The governments imposed import limitations beginning in 2022 are what led to the surplus.
A different aspect of the REER spectrum demonstrates how severely undervalued the Pakistani Rupee is. This implies that even while restricted exports are more competitive at the current REER level, the profits would still be small.
Volumetric translation of profits to PKR will only result in a reduction in realized earnings as the rupee’s value has been declining this week against the US dollar.