THE INFORMAL ECONOMY IN PAKISTAN: SIZE, SCOPE, AND POLICY CHALLENGES

Abstract

The informal economy in Pakistan, estimated to constitute between 35% and 55% of the country's GDP and employing 73% of its labor force, plays a critical yet underrecognized role in sustaining livelihoods and driving economic activity. This sector encompasses a wide range of unregulated and unrecorded activities, including small-scale manufacturing, street vending, and unregistered transportation services, which provide essential goods and services to millions. Despite its significant contributions, the informal economy faces systemic challenges such as limited access to credit, social protection, and legal recognition, hindering its formalization and growth. This paper explores the size, scope, and policy challenges of Pakistan's informal economy, emphasizing its economic and social impacts, as well as the barriers to formalization. By analyzing key sectors, estimating the informal sector's size, and examining existing policies, the study highlights the need for innovative strategies to integrate the informal economy into the formal system. Addressing these challenges is crucial for fostering inclusive and sustainable development, improving livelihoods, and unlocking the hidden potential of this vast and complex sector.

Keywords: Informal Economy, Pakistan, Economic Informality, Labor Force, Formalization, Policy Challenges, Social Protection, Economic Inclusion, Sustainable Development, Unregulated Employment