CHITRAL: Pakistan is a country where the informal economy is almost as must stronger as the formal one. According to estimates the informal economy ranges about 56 percent of the total GDP which translates to roughly $659 billion at GDP PPP levels. This is very unhealthy because people do not trust the govt’s guarantees and the banking system and prefer to deal in cash and stash away their cash in their homes or in the bank lockers. According to a senior banker talking to CN, billions of cash in rupees and foreign currency along with gold are stuffed away in people’s bank lockers other than that hidden in homes.

Increasing Pakistan’s monetary reserves and strengthening the value of the rupee is crucial for economic stability and growth. One strategy to achieve this is through demonetization of currency notes and effective utilization of foreign currency held in bank lockers. Here are some measures that can be implemented:

1. Demonetization of Currency Notes: The government can demonetize currency notes to curb black money and encourage people to deposit their cash holdings into banks. This would not only increase the liquidity in the banking system but also allow for better monitoring of transactions, reducing the informal economy.

2. Conversion of Foreign Currency into Bank Accounts: Encourage individuals holding foreign currency in bank lockers to convert it into Pakistani rupees and deposit it into bank accounts. This would increase the country’s foreign exchange reserves and strengthen the value of the rupee against other currencies.

3. Incentives for Foreign Remittances: Offer incentives and encourage Pakistanis living abroad to remit their foreign earnings through official channels. This would boost foreign exchange reserves and contribute to the stability of the rupee.

4. Foreign Direct Investment (FDI): Attract foreign investors by creating a conducive environment for investment. Streamlining regulations and offering incentives can encourage FDI, which in turn increases foreign exchange reserves.

5. Fiscal Discipline (belt tightening): The most important reform that can be undertaken is to Implement aggressive fiscal policies, such as reducing government spending and controlling budget deficits, can help maintain macroeconomic stability and strengthen the value of the rupee.

By implementing the above measures, Pakistan can increase its monetary reserves, stabilize the value of the rupee, and foster economic growth and development. .. CN report, 20 Feb 2024