By Nazish MEHMOOD
Pakistan is entering a transformative phase in its economic journey, one defined by digital innovation, transparency, and a steady move away from the traditional cash-based economy. For decades, cash dominated everyday life. While convenient, cash transactions created a shadow economy where much of the financial activity went undocumented. This made it difficult for the government to collect taxes efficiently, track economic growth, and reduce leakages in public funds.
Recognizing the challenges of a cash-heavy economy, the government has launched a series of reforms aimed at building a modern, fair, and accountable financial system. These reforms are designed to strengthen the national economy while fostering trust, efficiency, and inclusivity among citizens and businesses alike. By promoting digital transactions, Pakistan is taking clear steps to curb the black economy, broaden the tax base, and ensure that every economic participant contributes fairly to national development.
The Limitations of a Cash-Driven Economy
Cash has been the backbone of Pakistan’s economy for decades, but its dominance has created several challenges. Transactions made in cash are harder to track, leaving a large portion of economic activity outside formal records. As a result, the tax-to-GDP ratio in Pakistan has historically remained below 12 percent, far lower than in other countries with similar economic size.
The informal economy, while flexible for small businesses, has also limited the government’s ability to plan and allocate resources effectively. Undocumented transactions make it difficult to monitor prices, track revenues, and identify areas where fiscal interventions are needed. This financial environment reduces accountability and hinders opportunities for sustainable growth.
To address these challenges, Pakistan’s leadership recognized the need for systemic change. Transitioning to digital payments, expanding electronic banking, and encouraging formalized transactions were identified as essential steps to modernize the economy and ensure sustainable growth.
Digital Payments Are on the Rise
In recent years, Pakistan has witnessed a remarkable surge in digital payment adoption. According to central bank data, the number of digital transactions increased from 4.7 billion in 2023 to 6.4 billion in 2024, with the total value of these transactions rising from PKR 403 trillion to PKR 547 trillion. By 2025, retail digital payments accounted for nearly 89 percent of all transactions by number, showing that Pakistanis are increasingly relying on digital systems for their daily financial needs.
Mobile banking has also seen rapid growth. By mid-2025, over 22 million Pakistanis were actively using mobile banking apps, while branchless banking and digital wallets reached more than 68 million users. These statistics demonstrate not only the widespread adoption of technology but also growing confidence in digital systems as a safe and reliable way to handle financial activity.
Islamabad’s Weekly Cashless Market
A clear symbol of this transformation is Islamabad’s first weekly cashless market. In this market, vendors are encouraged or required to accept digital payments, while shoppers can pay via mobile apps, QR codes, or digital wallets.
This initiative has several benefits. Vendors gain experience with modern digital tools, consumers enjoy fast and secure payments, and transactions are formally recorded, reducing the likelihood of unreported sales. The market serves as both a practical demonstration and a public education platform, helping businesses and citizens understand the advantages of a cashless economy. It also plays a strategic role in bringing previously undocumented economic activity into the formal system, contributing directly to the reduction of the black economy.
How Digital Payments Strengthen the Formal Economy?
The transition to digital finance is central to Pakistan’s strategy to curb the black economy. Electronic transactions leave a traceable record, making it harder for income to go unreported. Over time, this strengthens the tax system and encourages businesses and individuals to contribute fairly to national revenue.
These changes also allow the government to plan better, allocate resources efficiently, and invest in public services. A broader tax base reduces the pressure on compliant taxpayers and ensures that funding for healthcare, education, and infrastructure can grow sustainably.
Digitalization also improves accountability. Cashless systems limit the opportunity for corruption or hidden deals, promoting transparency and strengthening public trust in national institutions. The combination of increased tax collection, improved governance, and accessible technology is positioning Pakistan for a stronger economic future.
Integrating Digital Payments with Public Services
The government has linked digital payments with broader public-sector reforms to maximize benefits. Welfare payments are now delivered through digital wallets, ensuring that funds reach the intended recipients without leakage. Cashless systems at airports and other public institutions have simplified processes and reduced opportunities for undocumented exchanges.
These reforms create a comprehensive ecosystem connecting formal commerce, tax collection, and social programs. By integrating digital payments with governance, Pakistan is building a transparent, accountable financial system that benefits citizens, businesses, and the state alike.
Challenges on the Road Ahead
Despite the progress, challenges remain. Many small vendors are still more comfortable with cash, particularly in rural areas. Digital literacy varies, and some people remain cautious about online transactions due to concerns about fees or unfamiliarity with technology.
The government is addressing these challenges through public education campaigns, training for small business owners, and the expansion of user-friendly digital platforms. These measures aim to ensure that all citizens, regardless of their location or background, can participate in the digital economy.
Even with these obstacles, the momentum is clear. Millions of Pakistanis have already adopted digital payments, and the government’s initiatives demonstrate its commitment to building a modern, inclusive economy.
A Stronger Economy for a Stronger Pakistan
Pakistan’s shift toward digital payments are more than a technological upgrade, it is a strategic transformation aimed at strengthening the economy and national institutions. By promoting documented transactions and improving tax collection, the government is creating a system that is fair, efficient, and capable of supporting long-term growth.
A modern digital economy ensures that businesses operate transparently, citizens gain access to financial services, and institutions have the data needed to make informed decisions. The expansion of digital payments, combined with cashless initiatives like Islamabad’s market, welfare digitalization, and airport systems, is paving the way for a more resilient, accountable, and prosperous Pakistan.
A Confident Step Forward
Pakistan’s digital transformation is a testament to its commitment to economic modernization. By embracing digital payments and formalizing transactions, the government is effectively curbing the black economy and building a stronger tax system.
The path forward requires continued education, infrastructure investment, and public participation. However, the results so far, billions of digital transactions, tens of millions of mobile banking users, and innovative initiatives like the cashless market, show that Pakistan is moving steadily toward a cleaner, more organized, and more resilient economy.
This digital leap is more than just an economic strategy; it is a reflection of Pakistan’s confidence in its institutions, its citizens, and its future. Through transparency, accountability, and modern financial systems, Pakistan is charting a path toward prosperity that benefits every citizen and strengthens the nation as a whole.
