Black economy grows to 50pc of Pakistan's GDP
(From our correspondent)

21 July 2008

ISLAMABAD - The black economy in Pakistan has grown to be half as big as the formal economy which yields a GDP of $166 billion.

Sources said that the problem had reached such proportions that it was upsetting public welfare plans. The parallel black economy of $83 billion could yield the national exchequer $8 billion if taxed even at the minimum rate of 10 per cent.

"These are very conservative estimates. The fact of the matter is that black economy could be much bigger," an official dealing with economic affairs said.

"Pakistan's economy is largely undocumented, providing space to informal sector to grow and thrive. "Under-invoicing has gone on for years and at a huge scale," he said.

Most recently hoarders and blackmarketeers earned billions in wheat and flour trading but no record was available to pin them down, the official added.

The government is believed to have taken a serious view of the situation and thought of proposing punitive measures during pre-budget exercises but dropped the idea as it would have sent a wrong signal to the market. Instead it decided to offer incentives that would gradually merge the black economy into the formal economy.

"This approach is no different from that adopted by former economic managers, headed by Shaukat Aziz, who first launched documentation of the economy in 2000-01 but abandoned it on the same excuse in the name of being "business-friendly", a source said.

Sources said that a strategy is being finalised to bring the informal sector into formal one aimed at achieving new resource mobilisation particularly by encouraging the development of cottage industry across the country.

The officials of the economic ministries have been directed to give an implementation mechanism to substantially raised revenues by providing more incentives to the informal sector to merge into the formal sector.

M Abdullah Yusuf, Secretary General Revenue Division and Chairman of Federal Bureau of Revenue (FBR), when contacted said that there were different estimates about the size of the black economy.

"But I believe this black economy is 30 to 40 per cent of our total economy and this is quite disturbing," he said.

"There is substantial part of the informal economy which is not in the main stream economy and needed to be documented if at all new resources are to be mobilised for welfare purposes," the chairman FBR said.

Serious efforts, he pointed out, would be made to formalise informal economy and encourage them to come forward and disclose their incomes under Universal Self Assessment Scheme.

He was of the view that non-documentation of economy is the main reason behind the growth of black and under ground economy.

Some decisions, he said, were required to convert cash based economy into documented economy to have level playing filed for every one to grow.

http://www.khaleejtimes.com/DisplayArticle...ection=business

It is a matter of shame--50 % is a huge, huge figure!! I just cannot believe this!!

And just imagine what we could do with $8billion we wont need any loans from the world bank to finance our dams, and other expensive projects.

The people who run the black economy only pay a small amount of that $8 billion to politicans and political campaigns and ensure that thier money remains tax free.

Informal sector is a feature of all third world countries where regulation and enforcement is weak. Even First world countries are not immune.

Illicit activities are exploding worldwide. The onslaught of globalization has unleashed a tidal wave of bad stuff--everything from arms trafficking, human smuggling, and money laundering to music bootlegging. Here is the dark side of globalization: the mushrooming underground economy. Moisés Naím explores this murky world in his book Illicit. Naím is the editor of the relaunched magazine Foreign Policy and a former executive director of the World Bank and Minister of Trade and Industry of Venezuela. In Illicit, he unties the connections between the Colombian cocaine dealer, the New York banker steering money to offshore tax havens, the Albanian forcing women into prostitution, and the Chinese market stall-holder selling counterfeit DVDs.

Naím reports that legitimate global trade has doubled since 1990 from $5 to $10 trillion. Meanwhile, money laundering has gone up tenfold, exceeding $1 trillion a year. Smuggling and money laundering have always existed, but Naím shows how they have increased at a staggering pace in the wake of globalization, despite new government controls since 9/11. The main culprits are the collapse of the Iron Curtain and state deregulation. As the reach of organized crime has expanded, governments have failed to keep up. Naím illustrates the problems with stories about A.Q. Khan, the father of Pakistan's atomic bomb who sold nuclear technology to North Korea and Libya; Walter C. Anderson, an American who was accused of hiding $450 million in offshore accounts to evade taxes; and Vladimir Montesinos, the Peruvian intelligence czar who is on trial for trafficking drugs and arms. The book, while a little dry, will be interesting to policy buffs and aspiring crooks alike. --Alex Roslin --This text refers to an out of print or unavailable edition of this title.

http://www.amazon.com/Illicit-Smugglers-Tr...8277&sr=8-1

Black market will always exist but not to an extent present in this country!! 50% is an astronomical figure and just relects a country still living in economic dark ages with all due respects!

True.

We're having huge trouble with the black market in Karachi. I'm sure you all have heard of the illegal "thalla wallas" in Karachi. They take over land illegally, build illegally on them and then cause disturbance to anyone who tries to rectify the situation.