Business360° Magazine

Remittance Economy and Nepal


Last month, after the Nepal Rastra Bank (NRB) released alarming data on declining net remittance inflows into the country in recent months, the country’s major newspapers covered those updates with much priority – few even explained the recent updates by linking them with the infamous “Dutch Disease” syndrome.

In addition, some of the local policy researchers, entrepreneurs and representatives from the government, academia and developments partners took the issue to social media platforms for wider discussion. As far as I can remember, it was the first time that I saw so much discussion by and among all concerned stakeholders about remittance and the country’s overall economic development. And being a policy researcher studying similar issues for long, I was no exception. All the concern was valid and expected as Nepal received 1.4% less remittance during the first four months of the current fiscal year than in the same period in the last fiscal year. As almost one third of the country’s economy now relies on remittance, any shock – small or big – was long expected to bring such ripple among concerned authorities and sectors.

For now, no matter how one interprets lessons out of these recent events, most people agree on that the sudden rise in the country’s significant reliance on remittance is definitely not the best idea to sustain Nepal’s economic growth in the long-run. Between 2007 and 2017 alone, the economy has already witnessed two major economic shocks that explain the extreme vulnerability of Nepal’s excessive reliance on remittance. The first shock came in the aftermath of the 2007-08 Global Financial Crisis that decelerated remittance flows to Nepal by significant amounts. Then, it took one year for these flows to recover. The second shock, that has just begun is the consequence of a series of events resultant of the recent trends in world politics. Three of the key incidents worth mentioning here include Saudi Arabia-led blockade on Qatar last year, worldwide fall in oil and gas prices, and finally Malaysia relying more on Bangladeshi workers now.

The first crucial event in the Middle East has resulted in the fall of migration of Nepali workers to Qatar by 23.58%. The second event has caused cut in many low-paying jobs in Saudi Arabia, which again has caused 49.98% fall in migration of Nepali workers to this country. Finally, the third event has resulted in the declining demand for Nepali migrant workers in Malaysia – the only nation outside Middle East and North Africa (MENA) that otherwise recruited thousands of Nepali workers each year. At the macro level, as per NRB, the recent shock has already started affecting the country’s cash reserve and balance of payments. If the current crisis persists for long, it is sure to invite additional unwanted economic consequences like higher unemployment rates and also more numbers of people falling back into the poverty trap.

During the same period, however, remittance contribution to Nepal’s GDP has almost doubled. In 2007, remittance’s contribution to GDP was 17%. Ten years later, remittance share in national economy has reached close to one quarter of Nepal’s entire GDP. Nevertheless, this growth in net remittance inflow has failed to narrate in terms of productive investments within the country thus boosting Nepal’s overall economic development during all these years.

We have already seen how our great dependence on remittance has put the entire economy in excessive risk. There are enough evidences that indicate that even minor shocks in countries where Nepali workers currently work can have major and long lasting economic crises in Nepal. Looking at the future, considering the current tide of populism in different parts of the world and subsequent political events there, it is likely that countries in the Gulf and South East Asia that host most Nepali migrant workers – Malaysia, Qatar, Saudi Arabia and UAE – will largely suffer from events happening within their own national territories, in the neighboring nations and also in world’s major economies and economic blocks including those in the United States of America, United Kingdom, European Union and MENA region among others.

In the post federal and provincial election Nepal, many are hopeful that the government formed by the dominant Left Alliance of CPN – UML and CPN – M(C) would give some stability to country’s political events after decades. People further expect, this in turn, will improve the country’s current business environment thus encouraging more local and foreign investors to invest in Nepal and thus generate additional revenues to shield negative consequences from future similar remittance shocks. However, history tells us otherwise. If we fail to keep our own affairs in order this time again and other countries too, especially those where there live large number of Nepali migrant workers at the moment, fail to fix their political and economic issues, it is very likely that the current remittance shock will further deepen and exacerbate Nepal’s overall economy for the worst. Thus, there lies a huge challenge for Nepal to save itself from the disastrous effects of current and future remittance shocks.

In the light of all these disappointing past events and future predictions, I think there exist some alternatives that could help Nepal suffer less from future remittance shocks and also make the most out of current remittance inflows. One is if concerned public and private stakeholders in Nepal could train and diversify the skills and capabilities of current and potential future Nepali migrant workers. These individuals would then be able to minimise their risk of falling prey to job cuts and lower remunerations through adjusting their primary job responsibilities and also changing job locations in event of any crises – political, economic or any other – in their host countries. Second, if authorities in Nepal could speed up their work on formulating policies that help migrant workers and their families to invest their income in large-scale productive sectors, it would help investors earn financial and other returns for a longer time.

Article originally appeared in February 2018 issue of Business360° Magazine, one of Nepal’s premier business magazines, under the monthly column – Innovation Insight. Read original article here.


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