Pakistan's currency policy, designed to project economic stability, is now drawing sharp criticism from the very businesses it aims to support. Exporters argue that the managed appreciation of the rupee against the dollar has made their goods uncompetitive, eroded profit margins, and is actively driving foreign investors away from the manufacturing sector. The frustration marks a growing divide between the government's macroeconomic goals and the ground-level realities of international trade. Main Developments For the past 18 months, the rupee has gained at least Rs4 against the US dollar, a trend that contradicts the performance of nearly all regional currencies, including those of India and Bangladesh, which have depreciated. This artificial strength has coincided with a ballooning trade deficit, which reached $39 billion in FY26 despite record remittance inflows of $41.5 billion. Exporters point to a direct causal chain: a cheaper dollar makes imports more attractive, fueling unnecessary purchases and widening the trade gap. The situation has worsened to the point where Pakistan is importing cars in bulk for the first time, a development that has significantly inflated the import bill and deepened the deficit. Read also: Pakistan Approves 1m Tonne Wheat Import as Prices Surge Javed Bilwani, a former president of the Karachi Chamber of Commerce and Industry, highlighted that Pakistani production costs are now 12 percent higher than in China, rendering local goods uncompetitive on the global stage. He advocates for a gradual depreciation of the rupee rather than the current policy of artificial appreciation, arguing this is the only viable path to boost export proceeds and allow industries to reinvest. Financial analysts have flagged the Real Effective Exchange Rate (REER) as evidence of the distortion. With the REER climbing to 106.4—a level that should ideally sit below 100—experts say the rupee is being held at an unsustainable level. This metric is seen as a red flag for foreign investors, who are already showing declining interest in the Pakistani market. Background The government and the State Bank of Pakistan have defended the stronger rupee, framing it as a stabilizing force for the broader economy. However, this perspective clashes with the experience of exporters like Amir Aziz, who reports that the policy is so discouraging that many are considering shutting down their operations entirely. Compounding the currency issue is the challenge of regional trade dynamics. Exporters note that neighboring countries, including China and Iran, are engaging in smuggling and under-invoicing into the Pakistani market, further undermining legitimate local businesses. China, already Pakistan's largest goods supplier, benefits from these porous trade practices. The cost of doing business has been further strained by monetary policy. The State Bank recently opted to keep its policy rate unchanged at 11.5 percent, a decision that keeps borrowing costs high for manufacturers already struggling with an uncompetitive currency. Why It Matters The export sector is a critical engine for Pakistan's economic growth, yet it has remained stagnant for the past three years. While the government has offered incentives like subsidized loans, exporters say these measures have provided limited relief because the underlying currency policy negates their benefits. The stakes are particularly high given the government's ambitious targets. Officials have set a goal to increase exports to $60 billion, and Deputy Prime Minister Ishaq Dar has expressed a willingness to double trade with the US to $20 billion within five years. Exporters are openly questioning what goods Pakistan will actually sell to meet these projections, given the current state of the manufacturing sector. What's Next The tension between the central bank's stability-focused approach and the exporters' demand for a competitive currency is unlikely to resolve quickly. The debate now centers on whether policymakers will heed calls for gradual depreciation or continue to prioritize the nominal stability that a strong rupee provides. For the manufacturing sector, the immediate question is survival. Without a shift in policy, more exporters may follow through on threats to close their businesses, which would further erode the country's export capacity and widen the trade deficit. The coming months will reveal whether the government's trade ambitions will force a recalibration of its currency strategy.