COVID-19 has worsened the woes of South Asia’s informal sector
By Maurizio Bussolo, Siddarth Sharma, Hans Timmer
Informal employment, which includes temporary workers, day laborers, service, or domestic workers, has long been associated with underdevelopment. Following the same logic, informality is expected to disappear gradually as countries further develop and prosper.
Yet, despite decades of sustained high growth, South Asia’s informal sector shows little sign of abating—even increasing in some cases. More than 80 percent of all South Asia’s workers engage in informal activities, and more than 90 percent of the region’s businesses are informal.
Even in many formal firms, a large proportion of employment consists of informal workers. In Bangladesh and Pakistan, informal workers are the majority within formal firms.
A large informal sector, and conversely a small formal one, is a development concern. It limits the tax base as many informal firms remain below income tax thresholds. The lack of social protection in the informal sector keeps informal workers vulnerable and with few prospects for better jobs. Informal firms lack legal protection and collateral needed to access credit, curtailing their productivity, business expansion, and overall economic growth.
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