Pakistan's Real Effective Exchange Rate (REER), a measure of the value of a currency against a weighted average of several foreign currencies, increased marginally to 97.91 in February 2022, as compared to 97.04 recorded in January 2022, data released by the State Bank of Pakistan (SBP) showed.
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 SBP, the REER increased 0.89% on a monthly basis but stands 5.04 points below 102.95 recorded in April 2021.
The index registered a year-on-year increase in February 2022 against the value of 97.22 recorded in February of the previous year.
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.
In February, the country’s C/A deficit sharply declined by 78% during February 2022 compared to January 2022, mainly due to a lower import bill. Cumulatively, CAD stood at $12.1 billion during the eight-month period of the ongoing fiscal year (July-February of FY22), compared to a surplus of $994 million during the same eight months of the previous fiscal year (FY21), showed SBP data.
The SBP reported that the country posted a current account deficit of $545 million for the month of February 2022 as against $2.531 billion in January 2022, depicting a decline of $1.986 billion.
The deficit in February is the lowest in FY22 and only one-fifth the level of January 2022.