Numbers & Statistics

The Informal Economy and Inclusive Growth

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Via IMF (Den Internationale Valutafond)

The Informal Economy and Inclusive Growth




Video Remarks at Statistical Forum, “Measuring the Informal Economy”
Kristalina Georgieva – Managing Director, IMF




November 14, 2019
















As Prepared for Delivery

Introduction

Thank you, David, for the kind introduction.

I am so sorry I cannot join you in person today. However, it is my pleasure
to welcome all of you to the 7th IMF Statistical Forum.

As David noted, informality is an issue we deal with every day in a range
of economies. It is usually concentrated in unregulated activities that are
difficult to measure, including agriculture and retail.

I have been interested in this topic for some time. In fact, when I was at
the World Bank, I wrote about how technology can be used to reduce
informality.


The reality is that far too many governments face difficulties in
measuring informality

. Because of poor official statistics, policymakers depend on unofficial
estimates. This is why the IMF staff has engaged to provide more reliable
estimates. For example, we recently estimated that informality comprises 38
percent of GDP in sub-Saharan Africa during 2010 – 2014 and, in some
countries, accounted for up to 90 percent of jobs
[1]!

We have to better understand informality, because growth depends on it. Let
me take a few minutes to explore this critical issue.


How does the informal economy relate to inclusive growth?

Take the case of digitalization. It has created more opportunities for
individuals to engage in informal employment to supplement their income.
Think of all the people who work in the gig economy. But may be missing gig
economy-employment in labor force surveys
[2].

The informal economy can provide income or a social safety net.
[3]
But it is a complicated issue. Poverty levels among people in informal
employment are, on average, twice as high as that of people in formal
employment. Why? Because of low productivity, low incomes, and limited
access to government benefits.


Informality results in lower tax revenues that hinders the government’s
ability to spend on social programs and investment.


This means the individuals that are most in need of social programs and of
public infrastructure may not receive them.


IMF recent

analysis has shown that persistently high inequality is associated with
lower, less durable economic growth and greater financial instability.


That is why understanding informality is part of how the Fund is
delivering on its commitments to help countries meet the 2030 Agenda
for Sustainable Development

Goals. Through policy advice, through lending programs, and through
capacity development we are helping countries close the gaps and meet this
enormous challenge. If we get a better handle on informality, it may unlock
much needed progress in a range of areas. Let me explain what I mean.


Measuring the informal economy means better policies

More accurate estimates of the informal economy can help make policies more
effective and better targeted. In Uganda, for example, we assessed
different changes to tax policies and found that, since a large part of the
economy is untaxed, changes in tax policy did not significantly affect
income distribution.


The informal economy is also an important source of employment for
women

.
The ILO estimates that in developing economies, 92 percent of women workers
are informally employed. This is the opposite of what we see in advanced
and emerging market economies, where it is a greater source of employment
for men.

For women, the challenge is compounded by the fact that, in addition to
being paid less than men in formal employment, they are also paid less than
men in informal employment.

If we are missing out on measuring the size of the informal economy, are we
also underestimating the contribution of women to the economic growth?


We also know that informality is more concentrated in some activities

—but to what extent, and how does concentration vary from one economy to
another? Statistics on the activities in the informal economy, in
employment, productivity, and even the regions where the activities are
prevalent are critical for designing targeted policies to support them.

If we cannot measure informality, we cannot evaluate how inclusive economic
growth really is. So we may not be able to determine whether policies are
working as they are intended.

Let me conclude with my sense of optimism. I hope you will leave here with
a better appreciation of the challenges and opportunities in measuring the
informal economy and a broader recognition of the benefits of doing so. I
believe this Forum will provide further momentum to improving these
statistics. We at the IMF will continue our collaboration with member
countries and international organizations to improve the estimates of the
informal economy and in the process help countries realize their full
economic potential.

Thank you.




[1]

IMF, 2017, “ Sub-Saharan Africa: Restarting the Growth Engine, Regional
Economic Outlook: Sub-Saharan Africa


[2]
Abraham, Katharine G. and Ashley Amaya, 2019, “

Probing for Informal Work Activity” Journal of Official
Statistics

, Vol. 35, No. 3


[3]

IMF, 2017, “ Sub-Saharan Africa: Restarting the Growth Engine, Regional
Economic Outlook: Sub-Saharan Africa


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