The Informal Economy and Inclusive Growth

IMF News, November 14, 2019

Source details

Speech delivered as "Video Remarks at Statistical Forum, 'Measuring the Informal Economy'".
Speaker: Kristalina Georgieva - Managing Director, IMF.
Date: November 14, 2019.
Informality is concentrated in unregulated, hard-to-measure activities, including agriculture and retail.
Digitalization has expanded opportunities for informal employment (e.g., the gig economy), but gig economy employment may be missing from labor force surveys.[2]

IMF staff has engaged to provide more reliable estimates where official statistics are poor.
Recent IMF estimate: informality comprises 38 percent of GDP in sub-Saharan Africa during 2010 - 2014.
In some countries informality accounted for up to 90 percent of jobs.[1]
Better statistics on activities, employment, productivity, and regional prevalence are critical for designing targeted policies.

The informal economy can provide income or a social safety net.[3]
Poverty levels among people in informal employment are, on average, twice as high as that of people in formal employment, due to low productivity, low incomes, and limited access to government benefits.
Informality reduces tax revenues and hinders government ability to spend on social programs and investment, potentially denying public goods to those most in need.
"IMF recentanalysis has shown that persistently high inequality is associated with lower, less durable economic growth and greater financial instability." (text preserved as in source)

Informality is an important source of employment for women: The ILO estimates that in developing economies, 92 percent of women workers are informally employed.
This contrasts with advanced and emerging market economies where informality is a greater source of employment for men.
Women in informal employment are paid less than men in both formal and informal employment.
Under-measurement of informality may lead to underestimates of women's contribution to economic growth.

More accurate estimates of the informal economy enable more effective and better targeted policies.
Example: In Uganda, assessments of tax policy changes found that, since a large part of the economy is untaxed, changes in tax policy did not significantly affect income distribution.
The IMF supports countries through policy advice, lending programs, and capacity development to help close measurement gaps and advance the 2030 Agenda for Sustainable Development Goals.
Improved measurement of informality may unlock progress across multiple policy areas and help countries realize fuller economic potential.

Better understanding and measurement of the informal economy is essential to evaluate how inclusive growth truly is and whether policies are achieving intended results.
The IMF will continue collaborating with member countries and international organizations to improve estimates of the informal economy and support policy responses.

Source: As Prepared for Delivery — Video Remarks at Statistical Forum, "Measuring the Informal Economy", Kristalina Georgieva, November 14, 2019.