Dynamics of Remittance in Nepalese Economy

Nepal is seemingly a remittance-based country with remittance inflow amounting to more than a quarter of the country's Gross Domestic Product (GDP). In the span of a decade, remittances from abroad have increased by more than three-fold, from $2.54 billion to $8.79 billion. Since 2009, the Department of Foreign Employment (DoFE) has issued over four million labor permits to Nepali workers; hence, labor migration forms an integral part of the Nepalese economy. Out of 110 destination countries for labor migration, Qatar, the UAE, Saudi Arabia, Kuwait, and Malaysia are the top five destination countries.

COVID-19 pandemic has threatened the remittance-based countries. The migrant workers find themselves in a precarious position. Lockdown, far and wide, has brought economic activities to still. This pandemic has threatened the world of mass unemployment, economic downturn, and the likelihood of severe economic shocks. Nepalese workers working abroad are struggling with negative socioeconomic circumstances. On March 24, the government’s High-Level Coordination Committee for Prevention and Control of Covid-19 called upon Nepalis abroad to remain safely where they were and appealed to those countries to protect their health and safety.

Amid a spreading pandemic, the relationship between global migration and health has become starkly apparent. The International Convention on the Protection of the Rights of All Migrant Workers and Members of Their Families declares that migrants and their families have a right to life and a right to medical care, which, it says, “shall be given irrespective of any irregularity with regard to staying or employment.” But bilateral agreements between origin and destination countries to protect the rights of labor migrants remain woefully incomplete. As Covid-19 democratizes the spread of sickness and death, Nepal, and every nation, should begin crafting a future for labor migrants that is dignified, humane, and safe.

About half a million Nepalese are working abroad, and they transfer a huge amount of their earnings in the form of remittance. Nepal is in the fifth position in terms of remittance to GDP ratio with remittance to GDP ratio hovering around 30 percent. The higher inflow of remittances have contributed to higher levels of education and healthcare at both the household and national level and reduced Nepal’s overall poverty rate. According to Nepal Living Standard Survey III (2010/11), 56 percent of Nepalese households receive remittance, which reveals that remittance is an integral part of the Nepalese economy. About 58 percent of rural households are remittance recipients, while 82 percent of Nepalese live in rural areas (NLSS III, 2010/11). Thus, remittance drives the rural consumption and hence is instrumental in pulling the poverty rate down. Remittance is also the primary source of foreign reserves. According to Nepal Rastra Bank (2020), the total foreign reserve of Nepal in FY2018/19 stands at Rs. 1038 billion; likewise, Nepal received Rs. 879 billion in the FY2018/19. Moreover, there is a very high correlation between remittance inflow and deposit mobilization. The dynamics of remittance in the Nepalese economy are not confined to reducing the poverty rate; remittance has a greater role in maintaining the foreign reserve and deposit mobilization.

The economic insecurity caused by the dual blows to Nepal’s tourism and migrant labor force runs the risk of pushing many Nepali households further into poverty. As per the National Planning Commission, the absolute poverty of Nepal is likely to increase by 5% from 18.6% to 23.6% in the year 2020. A return of millions of Nepali migrants from abroad would likely trigger a surge in the domestic demand for food. This would result in higher costs, which are already being witnessed in the Kathmandu valley. The import-dependent Nepal would have to try to increase its import of foods from India, which has already halted rice exports. However, with Nepal’s main generators of foreign currency, tourism and remittances, coming to sputtering stops, such action could cripple the nation’s already weak economy.

COVID-19 has further threatened Nepal of the return of migrant workers. Millions of Nepalese migrant workers are likely to return to their homeland shortly. The UAE wants to repatriate Nepali migrants wishing to return home and has threatened to cancel bilateral labor agreements if Nepal continues to block their return.  The return of migrant workers is likely to have a severe impact on the Nepalese economy. With the return of Nepalese migrants, there is a high probability of the spread of COVID-19 if not strictly quarantined. Similarly, there will be a huge downfall in remittance; the World Bank predicts that remittance inflow to Nepal is likely to fall by 14 percent in FY2020. With the decrease in remittance inflow, the foreign exchange reserve is likely to deplete. Similarly, the return of migrant workers will put pressure on imports of consumables. Hence, the Nepalese economy is likely to entrapped in the whirlpool of a negative balance of payment and shortage of foreign exchange reserves.

In a nutshell, the dynamics of remittance is intertwined with migration. Remittance has captured a deep-rooted impact on Nepalese society and the economy. With the return of migrant workers, the remittance will experience a huge downfall. The economic variables of the remittance-based economy are likely to crumble with the plunge in remittance. Thus, the impoverished Himalayan nation will have to evaluate the impacts of the increased potential for COVID-19 spread and greater demands on food and public services in the country with the return of migrants from abroad versus damages to the economy in the future with a break in the supply of remittance-sending migrants to labor destination countries. COVID-19 is set to have a much more dramatic economic impact on Nepal than the 2015 earthquakes did since it is not an isolated incident but part of a world simultaneously battling this pandemic.

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