Informal sector grows faster than formal economy

Undocumented industry is almost one-third of Gross Domestic Product.

KARACHI:

The informal sector in Pakistan has grown more rapidly than the formal economy over the last three decades and while estimates vary a great deal, the size of the informal sector is not less than one-third of the country’s gross domestic product (GDP).

These views were expressed on Monday at a discussion on “The informal enterprise in Pakistan: challenges for growth”, organised by the Centre for International Private Enterprise (CIPE) and the Karachi Chamber of Commerce and Industry.

Experts said the policy environment surrounding the informal sector is characterised essentially by three parameters – taxation, regulation and private property rights. Property rights and tax reforms are needed at the policy level to encourage informal businesses to enter into the formal sector, which is considered the most important challenge faced by the business community, they said.

“Research has consistently shown that entry barriers such as lengthy registration requirements, licensing and inspection requirement and complicated taxation policy are the key reasons for people remaining in the informal sector,” CIPE Washington Regional Director Andrew Wilson said.

BusinessMen Group Chairman Siraj Kassim Teli suggested that collective action is required and the private sector should unite at one platform and encourage the informal sector to follow standards which will help them gradually convert into formal businesses.

 

Published in The Express Tribune, November 1^st, 2011.