Pakistan’s real effective exchange rate (REER) has continued to move upward, creating fresh concerns about the competitiveness of the country’s exports. The latest available data from the State Bank of Pakistan (SBP) shows that the REER reached 107.92 in July 2026, up from 106.33 in June. The July reading was also around 1.5 percent higher than the previous month.
The rising REER comes at a time when Pakistan is already facing pressure to increase exports and control its growing trade gap. Exporters have repeatedly complained about high energy prices, expensive financing, transport costs and other production expenses. These factors make it harder for Pakistani businesses to compete with suppliers from other countries.
The issue has become more important because exports are a major source of foreign exchange for Pakistan. The country needs export earnings to pay for imports, support foreign exchange reserves and meet its external payment obligations. If exports remain weak while imports continue to grow, pressure on the external account can increase.
What Is REER?
REER stands for Real Effective Exchange Rate. It is a measure used to compare the value of a country’s currency with the currencies of its major trading partners while also taking inflation differences into account.
Unlike the simple rupee-dollar exchange rate, REER does not look at the rupee against only one currency. It considers a wider group of trading partners and adjusts the comparison for changes in prices.
The International Monetary Fund explains that REER combines exchange-rate movements with inflation differences between a country and its trading partners. It is commonly used to study export competitiveness and currency trends.
A rise in REER generally means that a country’s goods are becoming relatively more expensive compared with goods from trading partners, although the index should not be treated on its own as proof that a currency is overvalued.
The SBP has also made this point clear. According to the central bank, movement of the REER above or below 100 reflects changes compared with its 2010 average. It does not mean that 100 is the exact fair or balanced value of the rupee.
This distinction is important when looking at Pakistan’s latest REER figures.
REER Reaches 107.92
Pakistan’s REER increased to 107.92 in July 2026 from 106.33 in June. According to reporting based on SBP data, the July level was around 1.5 percent higher on a monthly basis and remained well above the country’s 10-year average.
The June reading itself had already raised concerns among exporters and market analysts. Earlier in 2026, the REER had also remained above 100, with the index reaching 106.44 in June according to data reported by Topline Securities.
The continued rise suggests that the rupee’s real value, after taking inflation and trading partners into account, has been moving higher.
For exporters, this can become a problem when production costs inside Pakistan are already high.
If Pakistani companies have to spend more on electricity, gas, fuel, labour, financing and transportation, they need to keep their final prices competitive in international markets. A stronger real exchange rate can add another challenge by making Pakistani products relatively more expensive for foreign buyers.
Why Exporters Are Worried
Pakistan’s export sector has been facing several challenges at the same time.
The country’s exporters have complained about high electricity and gas costs, expensive bank financing, higher petroleum prices and rising transport expenses. These costs increase the price of locally produced goods before they even reach international buyers.
The Federation of Pakistan Chambers of Commerce and Industry (FPCCI) recently warned about these pressures. It said Pakistan’s trade deficit increased by 18.1 percent during the first two months of FY27 to $7.1 billion, compared with $6.025 billion during the same period of the previous year.
According to the FPCCI, export growth has not been strong enough to keep pace with the increase in imports. The business body linked the situation to high production costs and difficulties faced by export-oriented industries.
Energy prices are one of the biggest concerns. Factories need electricity and gas to produce goods, while exporters also need fuel and transportation services to move those goods from factories to ports.
When these costs increase, exporters face two difficult choices. They can increase their prices and risk losing foreign customers, or keep prices low and accept smaller profit margins.
Neither option is easy for businesses that are already operating under pressure.
Pakistan’s Export Base Needs More Growth
Pakistan’s goods export base remains relatively small compared with the size of the country’s economy and its long-term needs.
Finance Minister Muhammad Aurangzeb recently said Pakistan needs to significantly expand and diversify its roughly $30 billion goods export base. The government has also been looking at ways to provide exporters with more financing and risk protection.
The need for higher exports has become more important because Pakistan has a history of facing external account pressure when economic activity increases.
When the economy grows, demand for imported fuel, machinery, industrial materials, vehicles and other products can rise quickly. If exports do not increase at a similar pace, the trade deficit becomes larger.
This puts pressure on foreign exchange reserves and can create problems for the rupee.
A stronger export sector can help reduce this dependence on external financing. It can also support industrial growth, create jobs and bring more dollars into the country.
High Costs Are Already Affecting Major Exports
Pakistan’s export problems are not limited to currency movements.
The Senate Standing Committee on Commerce was recently informed that Pakistan’s exports declined in several important product categories. These included rice, sugar, cotton, onions, sesame and potatoes.
Commerce Secretary Javed Pal said Pakistan’s exports stood at $30.8 billion during the last fiscal year, while rice exports alone recorded a decline of about $1 billion. He also pointed to high domestic energy and import costs as factors making Pakistani products more expensive in global markets.
This shows that the export challenge is linked to several issues at the same time.
The exchange rate is only one part of the picture. Productivity, electricity prices, gas availability, interest rates, transport costs, taxes, technology and access to international markets all affect the final price of Pakistani goods.
This is why a discussion about REER needs to be viewed in the wider economic context.
Trade Deficit Is Another Warning Sign
Pakistan’s growing trade deficit adds to the concern.
During the first two months of FY27, imports increased faster than exports, according to FPCCI data reported by Dawn. The resulting trade deficit reached $7.1 billion, compared with $6.025 billion in the same period a year earlier.
A larger trade deficit means more foreign currency is being spent on imports than is being earned through exports of goods.
Pakistan can manage this situation for a period through remittances, foreign investment, borrowing and other sources of foreign exchange. However, stronger exports are important for creating a more stable long-term position.
This is one reason why the government has placed greater focus on export growth.
Government Pushes for More Exports
The government has recently increased its focus on improving Pakistan’s export performance.
Prime Minister Shehbaz Sharif said on September 15 that exports should become a foundation of Pakistan’s economic growth. He called for more industries and sectors to enter international markets instead of relying heavily on traditional export products.
The prime minister also stressed the importance of improving product quality, meeting international standards and increasing value addition.
This is important because simply increasing the quantity of exports may not be enough. Pakistan also needs to sell higher-value products that can generate more foreign exchange.
The government wants exporters to use modern technology, research and innovation to improve their products and production processes.
At the same time, Deputy Prime Minister Ishaq Dar has emphasized trade facilitation, stronger market access and diversification of exports. The government is also looking at better use of opportunities under the European Union’s GSP+ scheme.
Agriculture Can Play a Bigger Role
Agricultural exports are another area where Pakistan is trying to increase its presence in global markets.
The government recently said agricultural exports reached $5.18 billion during the last fiscal year. Major products included rice, fisheries, halal meat, potatoes, sesame, tobacco, mangoes and maize.
Officials are now focusing on value addition and the development of stronger supply chains.
For example, instead of exporting agricultural products in basic form, Pakistan can potentially earn more by processing, packaging and branding them for international consumers.
Better storage, transport, quality control and certification can also help Pakistani agricultural products reach more markets.
This approach could help reduce the country’s dependence on a small number of traditional export products.
REER Is Not the Only Reason for Weak Exports
It is important not to blame the rising REER for all of Pakistan’s export problems.
The exchange rate can influence competitiveness, but exports also depend on global demand, production capacity, productivity, energy prices, taxes, financing costs, trade agreements and business conditions.
The World Bank has previously noted that Pakistan’s exports respond differently to changes in the real exchange rate. Its research found that exports can fall more quickly when the REER appreciates than they rise after a depreciation. It also highlighted supply-side problems that limit the ability of exporters to respond to currency changes.
This means that simply changing the exchange rate may not solve the country’s export problem.
If factories continue to face expensive electricity, costly loans and supply problems, a weaker rupee alone may not be enough to make Pakistani products competitive.
A broader improvement in the business environment is therefore important.
SBP Data Shows the Trend
The State Bank continues to publish monthly data on Pakistan’s nominal and real effective exchange rates. Its latest available REER dataset currently covers data through July 2026.
The central bank also warns against treating the 100 level as a direct measure of whether the rupee is fairly valued.
This is an important point because REER is an index, not a simple target exchange rate.
The number is useful for understanding changes over time and comparing currency movements with trading partners. However, determining whether a currency is properly valued requires a wider analysis of inflation, trade, productivity, fiscal conditions and other economic factors.
What Pakistan Needs to Do
Pakistan’s export challenge requires more than one solution.
First, exporters need a stable and predictable business environment. Companies are more willing to invest when they know what energy prices, taxes and government policies will look like over the coming years.
Second, production costs need to become more competitive. High electricity, gas and transport costs make it difficult for Pakistani companies to compete with manufacturers in other countries.
Third, exporters need easier access to financing. Modern machinery, better technology and expansion require investment. Expensive credit can prevent companies from upgrading their factories and increasing production.
Fourth, Pakistan needs to diversify its export markets and products. Depending heavily on a limited number of sectors can leave the country vulnerable to changes in international prices and demand.
Technology and services also offer opportunities. IT exports, digital services, engineering, healthcare and other knowledge-based sectors can provide additional sources of foreign exchange.
A Long-Term Export Strategy Is Needed
Pakistan’s rising REER has brought renewed attention to the competitiveness of the rupee and the country’s export sector. The July 2026 REER reading of 107.92 shows that the index has continued to move higher.
At the same time, exporters are dealing with high energy prices, financing costs, fuel expenses and other production challenges.
The government has recognized the need to increase exports and is now calling for greater diversification, better quality, more value addition and wider access to international markets.
The bigger challenge will be turning these plans into practical improvements for businesses.
Pakistan needs exporters that can compete on price, quality and reliability. It also needs new products, new markets and stronger industries capable of generating steady foreign exchange.
A rising REER is therefore an important signal, but it is only one part of a much larger export story. For Pakistan, improving competitiveness will require coordinated action on exchange rates, energy costs, financing, productivity, technology, infrastructure and trade policy.
If these areas improve together, Pakistani businesses will have a better chance of competing in global markets and increasing the country’s export earnings over the long term.
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