Key takeaways
- Pakistan's informal economy is estimated at 35.6% of GDP, about US$507 billion (PPP).
- Only about 30% of people have bank access and 16% use mobile banking (Karandaaz 2022).
- Digital transactions create the records needed to tax and plan.
- China's e-CNY shows a central bank digital currency operating at scale.
- Incentives such as cashback, lower fees and tax relief can speed adoption.
In this Business Recorder column (August 2023), Dr. Ghulam Mohey-ud-din argues that digital payments and digital currency could do more to document Pakistan’s economy than any enforcement drive.
The argument
The scale of the undocumented economy is large. World Economics’ informal economy survey puts it at 35.6 percent of GDP, about US$507 billion at purchasing-power parity, and the Labour Force Survey 2017-18 found 71.7 percent of non-agricultural employment to be informal. Cash transactions leave no trail, which keeps the tax base narrow and public planning blind.
Digital transactions change that by creating an electronic record. They also widen financial inclusion: an account opens access to savings, credit and insurance. Pakistan starts from a low base, however. The Karandaaz Financial Inclusion Survey 2022 found only about 30 percent of the population with access to banking services and just 16 percent using mobile banking.
China’s digital currency, the e-CNY, shows that a central bank can deploy a digital currency at scale ahead of richer economies. Fintech firms can lower the cost and friction of joining the formal system, provided the regulatory framework supports them.
What needs to change
- A national digital currency strategy with a clear implementation plan.
- Financial literacy campaigns alongside new products.
- A legal framework that supports fintech innovation.
- Incentives for adoption: cashback, lower transaction fees and targeted tax exemptions.
- Learning from international experience before scaling.