A Real Effective Exchange Rate below 100 means a country’s exports are competitive, while imports are expensive
Pakistan’s REER falls to 93.2 in July. Pakistan’s Real Effective Exchange Rate (REER), a measure of the value of a currency against a weighted average of several foreign currencies, decreased marginally as it clocked in at 93.2 in July 2022, down from 93.98 in June this year, data released by the State Bank of Pakistan (SBP) showed on Wednesday.
A REER below 100 means the country’s exports are competitive, while imports are expensive.
As per the latest data, the REER decreased 0.83% on a monthly basis. In July 2021, however, the REER stood at 99.57. It’s also down 9.5% from its peak in April 2021, when it stood at 102.95.
The decrease conveys that Pakistan’s exports have become competitive in the international market. However, the development has not translated into an increase in outward shipments as total export of goods and services declined 26% in July.
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Meanwhile, Pakistan’s current account deficit registered a massive 45% month-on-month decrease, clocking in at $1.21 billion in July 2022 in comparison to a deficit of $2.2 billion (revised figure) in June, showed central bank data.
However, the narrower deficit is more due to lower imports than higher exports. In July, Pakistan’s import bill of goods and services decreased to $6.175 billion, down from $8.35 billion in June, a decrease of 26%.
On the other hand, Pakistan’s exports also registered a massive decline during the month of July, clocking in at $2.825 billion, down from $3.77 billion in June, a decrease of 25%.
Pakistan has struggled to attract non-debt creating foreign exchange inflow with the government now keen on securing funding from several avenues.