Pakistan’s Real Effective Exchange Rate Drops in January

In January 2023, Pakistan’s Real Effective Exchange Rate (REER) fell by 3.5 percent to 92.8.

According to the most recent monthly data from the State Bank of Pakistan (SBP), the trend indicates a significant decrease from 96.2 in December 2022.

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.

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

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

Steel, textile, and pharmaceutical industries are barely operating, resulting in the closure of thousands of factories and worsening unemployment.

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

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