Pakistan has adopted a neoliberal regime to open the economy
to global competition and reduce the role of the state. This directional
change brought increased flow of overseas remittances, speculative
investment, and consumerism. Consequently, the economy in mid-2000s grew
but commodity-producing sector contracted. Public sector spending has
been falling, especially on social sectors. There are inadequate
provisions for social security and employment based income guarantees.
However, this growth and stability was short lived and there is now a
fragile state and slowing economy. In the absence of an effective
regulatory role of the state, and due to the failure in developing a
long-term strategy to harness the labour force potential, there is a
huge informal sector existing side by side with the formal economy.
Almost 22 million of the employed labour force is earning its livelihood
in streets and the government has no record of it. The informal workers
can be categorised as self-employed workers and wage workers, doing
diversified jobs from petty traders to small producers and from rickshaw
driver to shoe shiners. It is difficult to measure the value added
contribution of the informal sector in Pakistan. Indirect estimation
approaches on the basis of employment and hours worked have been used to
estimate the contribution of informal economy. For instance, Idris
(2008) estimates the share at 36.8 percent of GNP, which is significant.
Arby, Malik and Hanif (2010) measured the size of informal economy in
Pakistan through a monetary approach. They find that the size has
declined considerably.