Hawala and crypto wallets replace Pakistan's real economy; Here’s how

A new report reveals that Pakistan stands at a "dangerous crossroads" where the documented economy is being choked while a vast, unregulated underground economy flourishes, leveraging sophisticated informal channels to move billions in capital outside state scrutiny.

According to a report published in the Pakistan-based Daily Times, the undocumented economy is expanding faster than any formal government reform can counter, creating what is essentially a parallel financial system. Financial expert Jawad Saleem, writing in the publication, stated that "the real Pakistan today is not the one recorded in SBP (State Bank of Pakistan) bulletins or FBR (Federal Board of Revenue) reports."

Formality is ‘financially irrational’

The report argues that capital is quietly exiting the formal system not because citizens enjoy illegality, but because the state has made formality financially irrational. The central problem is the speed, harshness, and unpredictability of official channels compared to the ease and speed of underground alternatives:

Exporters facing multi-day remittance waits, multiple taxes, and FBR audits are opting for hawala dealers who settle transactions paperlessly in minutes.

Freelancers burdened by contracts, compliance forms, and foreign client details are choosing offshore crypto wallets where payment is instant and free from scrutiny.

Businessmen facing weeks-long State Bank of Pakistan (SBP) approval blockades for imports are resorting to over-invoicing to pay the difference abroad.

Sophistication of the shadow economy

The informal networks are highly advanced. Hawala dealers operate through WhatsApp, encrypted chats, and automated bots, sharing real-time rate updates. Cross-border settlements are managed by offsetting payments across key hubs like Dubai, Malaysia, Bangladesh, and Turkey.

Furthermore, Pakistanis are using VPNs to buy cryptocurrencies like USDT stablecoin directly from peer-to-peer markets, instantly transferring them to offshore wallets, converting them to foreign currency, and depositing them into foreign accounts.

The report also cites opaque practices in physical asset markets, noting that high-value property transactions often utilize ‘file’ trading or benami (anonymous) ownership, making them invisible to tax authorities, while gold market dealers openly transact in cash without requiring mandatory CNIC verification.

Macroeconomic consequences

The thriving shadow economy poses a direct threat to Pakistan’s macroeconomic stability. Studies by Global Financial Integrity estimate that Pakistan loses billions annually. The International Monetary Fund (IMF) estimates that the nation's tax losses exceed 6 per cent of its GDP -- an amount larger than the annual defense budget.

The report concludes that the damage runs deeper: when capital bypasses banks, deposit growth slows, private-sector lending shrinks, and the government is forced to borrow more from commercial banks, leading to further systemic pressure.

"The shadow economy is no longer a shadow; it is the system," the report emphasized.