Extracted from SBP The State
of Pakistan’s Economy: Third Quarterly Report for FY12
There
is a growing sense that Pakistan’s
undocumented economy (the informal sector) is vibrant, and that official data understates
the level of economic activity that can be seen. In effect, there seems to be a
disconnect.
This
disconnect becomes more obvious, when one observes the economic plight of EU
countries, which are barely able to contain the fall-out of the debt crisis
that could threaten the very existence of the Euro. Since countries like Greece, the UK
and Spain
are now officially in recession, the telltale signs of a recession are worth
listing:
- Curtailed consumer demand (especially for consumer durables), as uncertainty takes hold; (Most of us have bought new sets of Blackberry, Iphone, HTC or Nokia cellphones.)
- The resulting closure of small businesses; (No store in our locality has closed as such; if a store has closed, a shop with a new name opens in its place.)
- A slump in demand for luxury services like restaurants, cinema and overseas travel; (Well, all of us are eating out, ordering out, some are going once a weekend to watch a movie and, well, at least one member of each of our family (divide them according to siblings) has traveled abroad once or more than once and in some cases all of them have traveled abroad this & last year.)
- A reduction is retail volumes and normal traffic flows; (Traffic jams are still happening. I still reach home in 30 min, which is quite long.)
- Construction activity slows down; (New House are being built in Defense and other locations in the city. Renovations are taking place, too.)
- A growing number of unemployed mingling with a shrinking number of buyers in markets and shopping malls. (Well, just saw on last Friday lunch hour rush in Dolmen City Mall (no place was empty at the food court at 2 pm) and this week saw evening rush hour in the same mall and Naheed supermarket in Bahadurabad. So much rush that I had a smirk on my face all day over the fact that, supposedly, Pakistan is in recession.)
We do not
really see this in Pakistan.
Granted this is anecdotal as there is little hard data to verify this view, but
anecdotal evidence is often the most current source of information to gauge how
the economy is actually performing.
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.
Many
would argue that a vibrant informal sector is a blessing, as it is driving
formal economic activities, and keeping Pakistan
from a full blown recession, as seen in Europe.
Furthermore, 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. Although we would concede these points, it is important to keep
things in perspective.
While
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 (beyond official safety nets)
cannot be eliminated. More specifically, physical infrastructure and other
public goods (e.g., security, law enforcement, judicial services and contract
enforcement, recreational spaces, etc.) would be undersuplied by private
organizations, which are required to promote sustainable economic activities.
If the mind-set of absolute self-sufficiency becomes more entrenched, it may
segment the economy.
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.
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