Pakistan’s Real Effective Exchange Rate Drops to 85.6 in March

Pakistan’s Real Effective Exchange Rate (REER) decreased by 1 percent to 85.6 in March 2023. According to the latest monthly data released by the State Bank of Pakistan (SBP), the trend indicates a slight decrease from 86.5 recorded in February 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 85.6 suggests that exports offer better returns, but with raw material and machinery imports largely unavailable due to import restrictions, Pakistan’s exports have declined compared to last year. Another side of the REER spectrum shows that the Pakistani Rupee (PKR) is greatly undervalued. This suggests that while exports are theoretically more competitive at the current level of REER, the returns would still be marginal as a local unit has undesirably weak fundamentals. Volumetric conversion of profits to PKR would only decrease the realized value of earnings.