Karachi is more than Pakistan’s largest city — it is the engine that powers the nation’s economy, connecting industries, markets and millions of livelihoods. According to economic profiles of Karachi compiled by the Pakistan Economic Executive Council (PEEC), the city generates roughly 25% of the country’s GDP and 35% of its tax revenue. This revenue is the result of Karachi being home to corporate head offices like the Pakistan Stock Exchange and the mighty Karachi Port and Port Qasim. Additionally, according to the Sindh Revenue Board, Karachi contributes to 80% of the general sales tax. However, these figures tell only part of the story. This article shifts attention from Karachi’s formal economy to the economic value that remains unrecorded, untaxed and largely invisible to the state.
According to urban planner Arif Hassan, Karachi’s informal economy is between 30 and 40% of the city’s total economy. This economy is beyond the government’s reach and is free from regulations, formal contracts and labour laws. The federal board of revenue data states that Karachi’s formal economy is valued at $190 billion. Whereas Karachi’s informal economy is worth $57-$67 billion, so billions of rupees in potential tax revenue remain beyond the state’s reach.
This system is spread throughout Karachi; however, it is focused mainly in low-maintenance areas like Saddar, Korangi, Lyari, Orangi Town, etc. From bustling food carts and weekly bazaars to street vendors and home-run businesses, Karachi’s informal economy is woven into the fabric of everyday life. The growth of food streets like the Bahadurabad food street or the Sharfabad food street has maintained these unregistered businesses. Moreover, 50% of the people in Karachi have made illegal settlements their home and so have promoted informal utility supply — the tanker mafia, scavengers (informal garbage sorting) and Khuda power connections (informal energy supply). Other than that, unregulated transport systems like the Qinqi rickshaws or the private minibuses have made their mark, with the public now abandoning formal transport.
One would think that this system is the solution to Karachi’s massive unemployment problem. However, despite providing employment to around 70% of the workforce, this system is far from a blessing in disguise. Without formal contracts, informal workers face no job security, and their wages are dictated by market demand rather than legal wage protection. Apart from that, workers get zero benefits, as paid leaves or public holidays are not included in their job descriptions. Due to the lack of labour laws, workers often face dangerous working conditions and may be subject to discrimination and abuse. These labourers are also excluded from the insurance and pension.
system. Moreover, most of these systems are handled by cash-only transactions. This instant liquidity exposes individuals to a high risk of robbery and fraud. With cash transactions, no credit histories are maintained, leaving workers and businesses outside the formal financial system. Furthermore, physical cash is also quickly losing its value to the growing inflation. While informal systems draw in a large number of workers, they frequently trap them in conditions of low security, unstable income, and limited upward mobility.
This system not only disadvantages the workers but also the government. The government loses potential tax rupees that could be used to develop Karachi’s failing infrastructure or be utilised in government funds. With this, the question arises, ‘Why do successive governments not formalise the system when it is so harmful?’ The answer to this question explores and gives perspective to a deeper issue within the system as a whole. The informal economy is not merely a failure of regulation; it is also sustained by the state’s reliance on it as it eases pressure on public finances and governance capacity. Moreover, Karachi is the hub of the elite who exploit this system, and trying to formalise it would dismantle Karachi’s precious capitalist culture. Furthermore, over decades, formal businesses in Karachi also rely on informal labour and wages, including government institutions. In this sense informality is not outside the state; it is quietly embedded within it.
Formalising this system means restructuring Karachi as a whole. Avoiding this termination may preserve short-term political stability and protect vested interests, but it comes at the cost of limiting Karachi’s economic development and future growth. Karachi, which was once the Dubai of the world or the Paris of Asia, has undergone significant economic and urban decline, with many pointing to the rise of the informal economy as one contributing factor. This system has persisted for decades and prompted a key question: ‘What would the city actually look like when you count everything that has been uncounted?’
Maybe it would become the Paris of Asia again with thriving infrastructure and a boosting economy, but for now, that possibility remains uncertain.