Page 67 - CMA Journal (May-Jun 2026)

ECONOMY

O T H E R F E A T U R E S

WATCH The Uraan Pakistan Test REER can reduce import costs, but the real bene t will

come only if cheaper imports support investment,
The REER trend is important for Uraan Pakistan because
productivity and export capacity. Therefore, imports of
the plan places exports at the center of Pakistan’s
economic transformation. Its objective is to raise foreign machinery, technology, raw material and intermediate
goods should be closely linked with sectors that can
By: ICMA Research and Publication Department exchange earnings, improve global trade positioning and generate export growth.
shift the economy toward a more competitive growth
path. In this context, a stronger REER creates a policy test: First, REER should be monitored alongside export
Can Pakistan use cheaper imports to build export volumes, import composition and sector-wise
REER Trends and the Uraan Pakistan Ambition capacity, or will cheaper imports mainly increase productivity indicators. A rising REER is manageable if

domestic demand for imported goods? exports remain strong and imports are linked with
production. Second, policy support should prioritize
Introduction Cheaper Imports, Pressured Exports REER appreciation is not always negative. If lower import exporters through timely tax refunds, competitive energy
costs help rms buy machinery, technology, raw material pricing, export nance, technology upgradation, and
Pakistan’s Real E ective Exchange Rate (REER) rose to The REER is an important competitiveness indicator and intermediate inputs, it can support productivity and faster customs clearance. Third, import growth should be
106.15 in May 2026, reaching its highest level in nearly 92 because it combines exchange-rate movements with value addition. However, if imports rise mainly in assessed by quality, not only quantity. Productive
months. A stronger REER can reduce the rupee cost of relative in ation against trading partners. When the REER consumption goods or non-productive categories while imports that support value addition should be
imports, especially for fuel, machinery, raw material and rises, domestic goods generally become relatively more exports remain weak, the economy may move away from encouraged, while non-essential import demand should
intermediate inputs. However, it can also make exports expensive in foreign markets, while imports become the export-led direction that Uraan Pakistan aims to remain carefully monitored.
relatively less competitive if productivity, energy costs, relatively cheaper in the domestic market. For Pakistan, achieve. Between April and May 2026, REER remained
logistics and value addition do not improve at the same this matters because the economy depends on imported above 105, imports stayed above US$5.6 billion, and For Uraan Pakistan, the key lesson is clear: exchange-rate
pace. The issue is therefore not simply whether the rupee fuel, machinery, raw material and intermediate inputs, exports remained below US$2.7 billion. This shows that stability alone cannot deliver export-led growth. It must
looks stronger, but whether this strength supports but also needs export growth to sustain external stability the bene t of cheaper imports must be judged by their be supported by competitiveness reforms that reduce
Pakistan’s export-led recovery. and foreign exchange earnings. use, not by their size alone. the cost of doing business, improve logistics, expand
The recent data show a clear appreciation trend after Post-Budget Growth: Productive or market access and raise productivity. Pakistan’s stronger
This matters because Uraan Pakistan places exports at mid-2025. Pakistan’s REER declined from 104.06 in Import-Led? REER should therefore be treated as a policy signal, not a
the center of economic transformation, aiming to January 2025 to 97.79 in May 2025, but then rose steadily comfort zone.
increase foreign exchange earnings and strengthen to 103.96 in October 2025, 105.84 in April 2026 and The post-Budget 2026-27 environment makes the REER Conclusion
Pakistan’s global trade position. After Budget 2026-27, 106.15 in May 2026. During April-May 2026, imports issue more sensitive. Pakistan is trying to support growth
the economy needs growth without renewed external remained high at US$5,989 million and US$5,686 million, while maintaining scal discipline, raising tax collection Pakistan’s REER appreciation to a 92-month high presents
pressure. Cheaper imports can help only if they support while exports stood at US$2,619 million and US$2,368 and protecting external stability. In this setting, cheaper both an opportunity and a warning. Cheaper imports can
productive capacity and export growth. If they mainly million, respectively. This does not prove direct causality, imports can provide short-term relief by lowering the support production if they reduce the cost of machinery,
increase consumption or import dependence, the but it raises a key policy concern: whether cheaper cost of fuel, machinery, raw material and intermediate technology, raw material and intermediate inputs.
stronger REER may work against the export ambition that imports are supporting production capacity or simply inputs, especially where these are used for However, the same appreciation can weaken export
Uraan Pakistan is trying to achieve. adding pressure to the trade balance. export-oriented production. competitiveness if domestic rms are unable to improve
productivity, quality and value addition. The real test is
However, the risk is that cheaper imports may widen whether the stronger REER supports Uraan Pakistan’s
Figure 1: REER and Pakistan’s Trade Performance import demand at a time when exports are not rising at export-led growth ambition or encourages another cycle
the same pace. If rms and consumers respond to a
(Jan-25 till May-26) stronger REER by increasing non-essential or of import-led demand. A stronger rupee may provide
temporary relief, but only stronger exports can provide
7000 108 consumption-related imports, the trade gap may widen lasting stability.
6000 106 again. For Pakistan, the stronger REER can be useful only
if imported machinery, technology and intermediate References
5000 104 goods translate into higher productivity, value addition https://www.brecorder.com/news/40425996/pakistans-reer-index-sur
4000 102 and export expansion. Otherwise, the bene t may ges-to-92-month-peak-of-10615
$ M 3000 100 Index (2010=100) remain short-term, while the cost appears later through https://turnaroundpakistan.pk/exports/
2000 98 renewed pressure on the current account, reserves and https://www. nance.gov.pk/budget/budget_2026_27/Annual_Budget
96
1000 94 exchange-rate management. _Statement.pdf
0 92 Turning REER Strength into Export
Jan-25 Feb-25 Mar-25 Apr-25 May-25 Jun-25 Jul-25 Aug-25 Sep-25 Oct-25 Nov-25 Dec-25 Jan-26 Feb-26 Mar-26 Apr-26 May-26 Capacity

appreciation as a productive opportunity rather than
Exports Imports REER Pakistan’s policy response should focus on using REER
allowing it to become an import-led pressure. A stronger
Source: State Bank of Pakistan
ICMA’s Chartered Management Accountant, May-Jun 2026 65