Pakistan's REER declines in December as trade competitiveness improves

Pakistan's Real Effective Exchange Rate (REER), a measure of the value of a currency against a weighted average of several foreign currencies, decreased to 96.74 in December 2021, as compared to 98.56 recorded in November 2021.

A REER below 100 means the country’s exports are competitive, while imports are expensive. The situation reverses when REER stands above 100 on the index.

As per the latest data by the State Bank of Pakistan (SBP), the REER decreased 1.85% on a monthly basis and is 6.21 points below its peak of 102.95 recorded in April 2021.

The index increased 0.5% in December 2021 against the value of 96.32 recorded in December 2020.

On the other hand, the Nominal Effective Exchange Rate Index (NEER) decreased by 1.50% in December 2021 to a provisional value of 54.52, from the revised value of 55.35 in November.

On a yearly basis, the NEER Index decreased significantly by 7%, as compared to 58.62 recorded in December 2020.

Pakistan’s REER declines in October as trade competitiveness improves

As per the International Monetary Fund (IMF), the decrease in REER implies that exports have become cheaper and imports more expensive; therefore, a decrease indicates a gain in trade competitiveness.

Therefore, the latest central bank latest figures suggest that Pakistan’s trade competitiveness has improved as its exports become more expensive.

Pakistan trade deficit widened by 106.4% during the first half (July-December) of the current fiscal year 2021-22 and reached $25.478 billion compared to $12.344 billion during the same period of 2020-21, revealed the Pakistan Bureau of Statistics (PBS) data.

The country’s exports increased by 24.7% and remained $15.102 billion in the first half of current fiscal year compared to $12.110 billion during the same period of 2020-21.

Whereas, imports increased by 65.94% during the first half of the current fiscal year and stood at $40.580 billion compared to $24.454 billion during the same period of the corresponding year, stated the PBS.

The higher increase in imports has put pressure on the trade deficit, which has in turn added strain on the current account.