While there is no debating the fairly obvious signs of a failing ‘documented’ Pak economy and by now a consistent pattern over the last four and a half years of government’s management incompetence, however, in my book even more dangerous are the trends that are currently emerging from the ‘undocumented’ part of our national economy and from within the unaccounted social support network that has always existed in our society based on obligations relating to religious duties (Zakat), baradaryism, communal loyalties, family linkages, personal and collective charities, and individual or corporate philanthropy. This, rather peculiar type of vibrant and strong undocumented sector (of the economy), coupled with an underlying though unwritten social support network (no parallel to be found in the West), comes naturally to our ancient society and is deeply embedded in our way of life since centuries.

Many of us believe that these very hidden factors have sustained the Pak economy over the last few years and to have kept it ‘muddling through’ in spite of heavy odds, and in also allowing the common Pakistani to somehow manage his existence despite his government’s gross failure in honestly discharging its public responsibilities. The fear now is that this hidden strength of our economy may also be weakening.

Sadly, the extent of poor economic governance seems to have reached proportions where it no longer just stifles markets and businesses, but hits at the economic activity per se; in the process, destroying the all-important element of ‘opportunity’. And it is no big secret that once ‘opportunity’ vanishes from an economy everything crumbles with it, whether documented or undocumented!

Pertaining to the data that is recorded and published, the relevant failures/challenges are quite well known by now, as they are being regularly written and talked about: the rupee is losing value, representing a phenomenon that is likely to exacerbate in the coming months, as Pakistan has to retire its debt obligations amounting to nearly $5 billion by June 2013 (this includes $4 billion of the IMF alone); current account deficit is widening; investment (domestic and foreign direct) is dwindling; industrial production and productivity is declining; unemployment as a result is rising; and an electricity shortage having assumed unprecedented levels is now rendering the country to a near dysfunctional level, while leaving its people in a state of ‘physical’ and ‘mental’ fatigue.

Any economist or a management guru will tell you that loss of confidence by the people in their state has a direct correlation with the growth in the size of the undocumented sector in an economy. In the absence of state reciprocity, and when the people’s confidence in and their expectations from the government diminish, the undocumented sector invariably grows as a result - “the size of the informal economy is generally considered to be fairly elastic in nature to the real benefits being offered by the state” and “in an environment where the state tends to be absent and as recession affects real incomes, the marginal utility of extra income goes up dramatically” (Adam Smith).

Meaning that, the extra revenue earned by avoiding state taxes becomes much more attractive to a common man or a business operation than otherwise, when the economy is doing well and the state is fulfilling its obligations. For example, by European Union’s own account, in the first six months of the post-Euro Zone crisis, the undocumented part of the Italian and the Greek economies was being tipped to be as high as nearly 25 percent.

In other words, when the state abandon’s its people by way of poor economic governance, they  respond by retaining their hard-earned revenues in their own hands. And this is precisely what has happened in Pakistan where the undocumented sector has grown at a much faster rate than the documented sector during the last five years. However, now this run also seems to be coming to an end and the days of the hidden support that the Pak economy was getting to keep its people engaged-cum-employed may be numbered. ‘Prime reason: energy and power’.

The absence of energy and power stops every wheel or any engine, regardless of whether it has been punched into the tax man’s record or not. Already, there are cries by welfare organisations and charities that their collections this year have dropped almost by half and current June closing of the banks is also depicting a serious dent in traditional Zakat collections (official figures are still to be released).

On a more personal note, I was taken aback by my recent visit, in the sweltering heat of June, to the much frequented Murree hill station and to find it devoid of its usual ronak in this peak summer business month. No big crowds, deserted hotels, a relatively quiet Mall Road, empty shops and barren restaurants still eagerly awaiting this year’s holiday shoppers while the summer quickly slips by!

Murree to me epitomises the structure of an undocumented sector in an economy since nearly all transactions are in cash, businesses are seasonal having no permanent addresses, and most commercial outlets in spite of being stationed there for many years continue to operate without national tax registration.

Load (electricity) shedding there from being non-existent just a couple of years back is today as much as 16 hours per day. Naturally with no power, the water availability (an issue in Murree even under normal circumstances) becomes a challenge and the absence of lights at night in a hill station means the very transformation of tourists’ mood from party to that of gloom; defeating the very purpose of any holiday destination.

Some visitors with whom I had a chance to converse were complaining about their vacation, turning more into a camping experience than a luxury break. Upon enquiring, a few shopkeepers located at the famous Pindi Point complained about business this summer being so slow that even the winter months (when people come to watch snow) by comparison were more productive - the winter historically accounts for only about 10 percent of their annual sales!

Agriculture is the other principal reason that has allowed us to retain some positivism in our economic outlook. The Agro Sector has done well over the last few years and that is why when analysing Pak economy, we tend to refer to ‘two parallel’ functioning economies - meaning rural and urban. With healthy yields and supportive international commodity prices, our farmers have done well in recent times and since this sector still largely remains untaxed, the fruits of this success are more visible in the undocumented economy than in the documented one. However, the spill over of farmers’ revenue has been very visible, even in the organised corporate sector.

Riding on the agricultural success, the motorcycle and vehicle sales, consumer goods consumption, home appliances growth etc, have all registered a healthy increase. Sadly, the happy days here may also be over. With international demand at an all-time low, surplus production in global markets, globally crashing commodity prices and compounded water issues at home, this year may turn out to not be such a good one for agriculture. And if this happens, the social unrest that is currently more visibly in the urban centres, in all likelihood, will also spread to the rural areas.

We are, perhaps, fast reaching a stage where theoretical advantages of a functional democracy have to tangibly but quickly materialise on ground. There is no point in getting involved in a blame game or in conspiracy theories invoking public backlash because remember in Tunisia they did not need a bigwig to lead the protests, but only a common vendor to unleash a wave of transformation that mesmerised nearly the entire Arab world!

n    The writer is an entrepreneur             and economic analyst.

    Email:                     kamalmannoo@hotmail.com