The Pakistan's informal economy: the way forward

It is estimated that nearly 70 percent of Pakistan's economy is informal. Simply put, economic activities in a nation-state that are not directly regulated and documented by state institutions make up the informal economy. In light of this, nearly 70 percent of the economic activities in Pakistan are taking place without state regulations such as taxation, licensing, workforce laws, and quality checks. The presence of an informal economy is not an inherently flawed characteristic of an economy; rather, it signifies the potential that exists in the economic sector and points to the possible benefits it can produce for the nation as a whole. For the country to move forward in terms of economic and social development, it needs to realize the hidden value of its informal economy, such as its contribution to the national GDP, local livelihoods, and small businesses. All the actors involved in the informal economy benefit from Pakistan's more extensive economic system. Suppose the country can teach a conducive environment for its informal economy within the formal sector by facilitating actors of the informal economy through infrastructure and other incentives. In that case, it can generate significant revenue for the state through these activities. The country may suffer from economic stagnation by not doing so and ignoring the reality of the informal economy. Subsequently, to avoid this stagnation, the future of Pakistan's economy depends on a contextually sensitive induction of the informal economy into its formal sector. Today, these gaps manifest themselves both through informal economic activities and through unregulated, often termed illegal,' physical infrastructure that exists to serve the large informal economy of Pakistan.

According to the International Labour Organization, most developing countries' informal economy actors are women. In Pakistan, this is particularly true for rural areas where women are employed informally in agriculture and subsequently paid wages below the state-notified sum. In urban areas, small business owners, street vendors, transporters, and daily wage workers often make up the informal economy. It indicates that for the informal economy to work, it needs tangible and intangible infrastructure to support its activities and the associated workforce—the process of developing this infrastructure and its role in facilitating it. Due to a lack of regulation, the land-use patterns of informal economic structures are organic, close-knit, and often rely on community trust to function. It enables the formation of significant social ties between dense urban informal markets. 

Although they contribute to the larger economic structure of the country, it is not mirrored in the national Gross Domestic Produce figure. It indicates that nearly one-third of the GDP is generated by a sector that is not directly supported by state infrastructure but has the potential to create its mechanism. If such a system can thrive without state facilitation, it may have the potential to benefit the state immensely if facilitated appropriately. One of the reasons why the informal sector thrives is the absence and range of economic activities it enables within it. It inculcates diversity in the economy, where multiple actors are linked to one another through various roles and jobs. In the Mochi gate bazaar in the Walled City of Lahore, for example, informal warehouses facilitate informal traders, dependent on informal transporters who employ daily wage workers, thereby keeping the supply chain intact by utilizing the services of multiple different actors. It is this diversity that enables the informal sector to thrive and has the potential to contribute to the larger structure of Pakistan's future economy.

The diversity in the informal economy, as illustrated in the example of Mochi Gate above, subsequently facilitates local livelihood. In a country like Pakistan, where almost 30% of the population lives below the poverty line, a significant percentage of the labor force is not formally trained. The informal sector, in its current state, to an extent, supports the livelihood of this stratum of society. It nevertheless comes with the insecurity of jobs. However, this population cannot access the formal sector, which relies on the informal sector to support their livelihood.

Low-wage labor through the informal economy inadvertently strengthens the services sector that relies on this labor. In urban areas, where the rate of entrepreneurship is relatively higher, the services sector finds a conducive environment. The presence of digital infrastructure and the availability of an existing informal economic sector also supports the informal digital economy. These manifest in small and medium businesses often employing social media infrastructure to reach their customers. The availability of informal labor and the lack of regulation of businesses on social media further strengthens the informal services economy.