💱 Is a Stronger Rupee Better for Pakistan?
We often hear that a lower REER (Real Effective Exchange Rate) — say below 100 — is good because it makes exports more competitive. But what if you're an import-heavy, fiscally strained, IMF-dependent economy like Pakistan?
Let’s break it down.👇
📉 When Pakistan's REER dropped below 90 in recent years:
Exports didn’t rise meaningfully (structural issues + weak demand)
Imported inflation surged (fuel, wheat, and machinery got expensive)
External debt servicing became more painful
The rupee faced speculative pressure, fueling instability
📈 A REER closer to or even above 100 might actually:
Ease inflation by making imports cheaper
Reduce pressure on SBP and interest rates
Lower the debt servicing burden
Improve investor and IMF confidence
In Pakistan’s case, the usual playbook of "weaken the currency to help exports" may backfire — unless the fundamentals are first addressed. A stable or even slightly stronger rupee, driven by reforms and reserves, may offer more macro stability than an undervalued one.
🔍 Curious to hear: Do you think Pakistan should target a REER of over 100 for stability, or maintain an undervalued REER for export competitiveness?
Let’s talk in the comments. 👇
We often hear that a lower REER (Real Effective Exchange Rate) — say below 100 — is good because it makes exports more competitive. But what if you're an import-heavy, fiscally strained, IMF-dependent economy like Pakistan?
Let’s break it down.👇
📉 When Pakistan's REER dropped below 90 in recent years:
Exports didn’t rise meaningfully (structural issues + weak demand)
Imported inflation surged (fuel, wheat, and machinery got expensive)
External debt servicing became more painful
The rupee faced speculative pressure, fueling instability
📈 A REER closer to or even above 100 might actually:
Ease inflation by making imports cheaper
Reduce pressure on SBP and interest rates
Lower the debt servicing burden
Improve investor and IMF confidence
In Pakistan’s case, the usual playbook of "weaken the currency to help exports" may backfire — unless the fundamentals are first addressed. A stable or even slightly stronger rupee, driven by reforms and reserves, may offer more macro stability than an undervalued one.
🔍 Curious to hear: Do you think Pakistan should target a REER of over 100 for stability, or maintain an undervalued REER for export competitiveness?
Let’s talk in the comments. 👇
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