The cost of the shadow economy

The informal sector’s contribution to Pakistan’s economy is remarkable as it adds a handsome volume of approximately $661 billion, tantamount to 35.6 per cent of GDP. According to the International Labour Organisation, it constitutes 75pc and 68pc of jobs in rural and urban areas; however, it is pregnant with issues like child and bonded labour, gender-based discrimination, and insecurities in the workplace. Moreover, it embodies small and medium enterprises (SMEs) that are populated by self-employed entrepreneurs, small businesses, informal associations, and street vendors in agriculture and micro-enterprise setups, and thus, they tend to be more resilient to economic downturns. Despite its volume and contribution to the economy, the informal sector creates financial vulnerabilities for formal setups. Let’s consider the formal market. The Growth Enterprise Market (GEM) board of the Pakistan Stock Exchange (PSX) is a sub-market for SMEs and high-growth companies looking to go public. The GEM board was established following Alternative Investment Market in London, which itself was established in 1995 by the London Stock Exchange as a sub-market to provide a market for SMEs, business startups, and incubates to raise capital and provide a platform for investors to access returns from small businesses.