Is Pakistan's Underground Economy Surviving Without Scrutiny?
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Synopsis
As Pakistan grapples with a struggling documented economy, its underground sector, including hawala and cryptocurrency operations, thrives without scrutiny. Discover how financial pressures push citizens to avoid the formal system, leading to significant economic consequences.
Key Takeaways
- The documented economy in Pakistan is struggling.
- The underground economy, including hawala and crypto, is thriving.
- Financial pressures are driving citizens to seek informal channels.
- There are significant macroeconomic implications due to capital flight.
- Government reform is crucial to address the challenges posed by the shadow economy.
New Delhi, Dec 13 (NationPress) Pakistan finds itself at a perilous juncture where its documented economy is struggling, while the underground economy flourishes. This includes hawala operations in Dubai, Telegram crypto groups running from Karachi and Peshawar, and the circulation of fraudulent IT invoices from small-scale 'export houses.' Billions of dollars are being funneled into real estate, gold, offshore wallets, and through double-invoiced trade routes, according to a recent report.
The report published by the Pakistan-based outlet Daily Times indicates that the undocumented economy is growing at a rate that outpaces any formal reforms.
Financial analyst Jawad Saleem notes, "Money is subtly leaving the formal system not because individuals wish to engage in illegal activities, but because the framework meant to manage funds is slower, more stringent, and unpredictable compared to the channels facilitating external movement."
He adds, "The authentic economic landscape of Pakistan is not accurately represented in the SBP (State Bank of Pakistan) bulletins or FBR (Federal Board of Revenue) reports."
The stark reality is that individuals are not abandoning the formal system out of a fondness for illegality; they are opting out because the state has rendered compliance financially illogical.
For instance, a Pakistani exporter who endures a 3-5 day wait for inward remittances through banks, endures multiple taxations, and faces FBR audits for every dollar will understandably prefer a hawala dealer who can finalize transactions in minutes, with no paperwork involved.
Similarly, a software freelancer required to present contracts, NDAs, compliance documents, and foreign client information before receiving payments through official channels will likely choose an offshore crypto wallet where payments arrive immediately and without oversight.
Additionally, a businessman aiming to purchase machinery from China but facing weeks of delays due to SBP approvals may simply over-invoice, settle the difference abroad, and categorize the transaction as a routine import.
The report highlights that dealers utilize WhatsApp, encrypted messaging, and automated bots to operate.
Real-time rate updates are communicated, and cross-border settlements occur via offsetting payments across Dubai, Malaysia, Bangladesh, and Turkey.
Using VPNs, many Pakistanis acquire USDT (a cryptocurrency stablecoin) directly from peer-to-peer markets, transferring it to offshore wallets in Dubai or Turkey, converting it into dirhams, and depositing it into foreign accounts.
People are not leaving the formal system out of a desire for illegality; they are departing because the state has made compliance financially unviable.
According to estimates from Global Financial Integrity, Pakistan loses billions each year due to these practices.
Furthermore, gold market dealers frequently conduct cash transactions without verifying CNICs. Many high-value property deals are structured through 'file' trading or benami ownership, rendering them undetectable to tax authorities.
Such behaviors directly impact Pakistan's macroeconomic stability.
The International Monetary Fund (IMF) suggests that Pakistan's tax losses exceed 6 percent of GDP, a figure that surpasses the yearly defense budget.
Moreover, the repercussions are more profound. When capital remains outside banks, deposit growth slows, private-sector lending diminishes, and the government is compelled to borrow more from commercial banks.
The report concludes that the shadow economy is no longer merely a shadow; it has become the system.
Point of View
It is essential to recognize the complexities of Pakistan's economic landscape. While the underground economy grows, it poses significant risks to financial stability. The government must address these challenges to ensure a robust and thriving economy for all.
NationPress
13/12/2025
Frequently Asked Questions
What is hawala?
Hawala is an informal method of transferring money without the physical movement of cash, often used for cross-border transactions.
How does the underground economy affect Pakistan?
The underground economy can lead to significant tax revenue losses, affecting public services and economic stability.
Why are people opting for cryptocurrency?
Many choose cryptocurrency for its speed and lack of regulatory scrutiny compared to traditional banking methods.
What are the consequences of a growing shadow economy?
A growing shadow economy can impede formal economic growth, lead to capital flight, and strain financial institutions.
How can the government address these issues?
The government can improve the formal economy by streamlining regulations, ensuring faster transaction processes, and enhancing transparency.
