What
exactly is the black economy, or the informal or illegal economy, or even
parallel economy as it is called? Not all of these terms actually define this
phenomenon accurately. The black economy is not necessarily illegal. For
example a cobbler who sits on the roadside peddling his trade probably pays no
taxes, and keeps no records about his turnover, so he is a part of the informal
economy, but he is by no means doing something illegal.
So,
the parallel economy is not always a bad thing. A significant sector of the
informal economy comprises entrepreneurs like the cobbler who operate out of
the system but don’t necessarily do it just to avoid taxes or rip off the
government. This is especially true of the Third World. However, this is not to
say that a very large part of the undocumented sector actually is illegal
activity like drug trafficking, human smuggling and arms trade and even
smuggling of non-contraband that absolutely needs to stop.
Needless
to say, the informal sector needs to be roped into the system and documented if
the economy is to grow exponentially. Again, this is even more important for
Third World countries where the informal economy as a percentage of the
documented sector is usually much larger.
There
is not a lot of research on this because it is a difficult subject to
investigate. But two recent researches have indicated that while on the one
hand documentation of the economy has picked up pace, it is has not been able
to keep up with the growth in the undocumented trade that either originates in
Pakistan or transits through Pakistan.
The
research conducted by the Sustainable Development Policy Institute (SDPI) and
United Nations Office on Drug and Crime (UNODC) coordinated by Dr Abid Suleri
of the SDPI has estimated the size of Pakistan’s illegal economy at anywhere
between 20-30 per cent of the formal economy. This report deals mainly with the
darker side of the informal economy, like human smuggling, drug trade, arms
trade and other hardcore crimes.
Another
report on the subject was generated by the Pakistan Institute of Development
Economics (PIDE), based on calculations by M Ali Kemal and Ahmed Waqar Qasim.
This report, was released in 2012 and suggested that the size of the informal
economy in Pakistan in 2008 ranged between 74 per cent to 91 per cent of the
formal economy.
Considering
that the total size of Pakistan’s GDP is about $180 billion, this indicates
that the informal economy is easily $160 billion. This also implies that the
total size of Pakistan’s economy is almost $350 billion.
These
are staggering numbers and the quantum of the informal economy is seen as
growing, while, the regularly released figures by our financial managers
already show us that the formal economy is in many ways, receding.
While
Pakistan gets a lot of flak for its regulatory structure and failing to
document the economy, numbers indicate that the informal economy is a global
phenomenon.
In
a shared world, the task of countering the illegal or informal economy is also
a shared responsibility. And while there are constraints to any exercise or
research that attempts to ascertain the size of the illegal economy, and there
will always be a degree of doubt as to the veracity of the numbers, such
studies are nevertheless useful and are a valuable tool in trying to determine
the scope of this sector of the economy and its impact on the country at large.
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