Undocumented economy quite vibrant: SBP

RECORDER REPORT

KARACHI: The State Bank of Pakistan on Friday said that the country's undocumented economy is vibrant as it is driving formal economic activities and keeping Pakistan from a full blown recession like Europe.

According to SBP's quarterly report, Pakistan's economic data appears to suggest two things: first, Pakistan has fallen behind its neighbors in South Asia; and two, even this below potential growth is quite impressive when seen in the context of the challenges mentioned above. In SBP view, the latter point is not widely appreciated.

It is a stylized fact that the informal sector in Pakistan is buoyant, and is generating jobs; incomes; and demand for goods and services. This, in turn, is spilling over into the real sector that is documented, the report said.

"A vibrant informal sector is a blessing, as it is driving formal economic activities and keeping Pakistan away from a full blown recession as seen in Europe," the report mentioned.

SBP in its report has also discuses the family and community system saying that the increasingly precarious social safety net that is stoking public anger in Europe, may not be relevant in Pakistan where the extended family and community steps in to take care of the elderly, the unemployed, and the destitute.

Social institutions like the extended family; mosques; neighborhood charities; ethnic/community organizations; etc, are robust and sustainable sources of social and economic uplift, the role of the state cannot be eliminated, it added.

More specifically, physical infrastructure and other public goods like security; law enforcement; judicial services and contract enforcement; recreational spaces; etc, would be undersupplied by private organizations, which are required to promote sustainable economic activities, it mentioned.

The report said that if the mindset of absolute self-sufficiency becomes more entrenched, it may segment the economy as shown by the growing strength of Asian countries in the global economy, seeking larger markets that allows for economies of scale and specialization is necessary for economic prosperity.

"In this context, despite innate resistance, Pakistanis must accept documentation and the need to pay their taxes. Only this will ensure the state has the resources to create and maintain the type of the platform needed for higher and sustained economic growth," the report urged.