Overdependence on remittance not in long-term interest of country

By Laxman Kafle,Kathmandu, Jan. 7: Nepal has been receiving more than Rs. 100 billion remittances a month for the past couple of months. With the improvement in remittance inflow, the indicators of the external and internal sector of the economy are also improving.

For the past few months, an increase has been witnessed in foreign currency reserves, balance of payment, current account and remittance inflows. In the meantime, the gradual decline in bank interest rate and available liquidity in the banking sector has created a ray of hope that the country’s economy has become viable.

At a time when the country’s productivity has not increased to the desired level and the government is unable to collect revenue even to meet the recurrent expenditure, significant increment in remittance inflows has given a new lease of life to the national economy.

Information Officer of Nepal Rastra Bank Dr. Dilli Ram Pokhrel said that the remittances sent by the workers who have gone abroad for employment have contributed significantly to the foreign currency reserves, putting the balance of payments and current account in surplus.

According to the NRB, Nepal received Rs. 477.96 billion remittance during the first four months of the current fiscal year.

The gross foreign exchange reserves increased by 10.2 per cent to Rs. 1,696.78 billion in mid-November 2023 from Rs. 1539.36 billion in mid-July 2023.

The foreign exchange reserves of the banking sector are sufficient to cover the prospective merchandise imports of 13.6 months, and merchandise and services imports of 11.3 months.

“With the increase in remittance inflows, the liquidity in the banking sector has improved and the interest rates have come down. Therefore, remittances have had a positive impact on the national economy,” Dr. Pokhrel told The Rising Nepal.

However, to make the national economy independent, the country should not be overly dependent on remittances for a long time, he added.

If the remittance money is not spent for import, it will ease liquidity in the market and support to invest in the productive sector, said former finance secretary Rameshore Khanal. 

“At present, the increased remittance inflow has supported in easing liquidity to lending in the productive sector which helps in employment generation and production. When employment generation increases, people who have been abroad for employment will be encouraged to return to the country,” he said.

Record high remittance

According to the latest report of NRB, Nepal has received remittance of Rs. 477.96 billion in the first four months of the current fiscal year 2023/24. This is 26.4 per cent higher than the remittance received in the same period last fiscal year.

In the US dollar terms, remittance inflows increased by 23.1 per cent to 3.60 billion in the review period compared to an increase of 10.8 per cent in the same period of the previous year.

The country received Rs. 112.62 billion in the month of Kartik (mid-October to mid-November 2023).

However, Nepal received record high remittance of around Rs. 137 billion in a single month of Ashoj (from September 18 to October 17). The country received remittance around Rs. 116.09 billion in the month of September.

The inflow of remittances in the past 10 years has increased except during the global COVID-19 pandemic in the fiscal year 2019/20.

In the fiscal year 2013/14, Nepal received remittance of Rs. 543.29 billion, while in the fiscal year 2022/23 it reached Rs. 1,220.55 billion. The country received remittance of Rs. 961.05 billion in the fiscal year 2020/21 and Rs. 1,007.3 billion in the fiscal year 2021/22 billion.

Over the past 10 years, average annual growth of remittance inflows has been 11.13 per cent.

“The growing use of digitalisation, increasing trend of sending remittance through the formal channels and increasing number of migrant workers are the main reasons behind the increase in remittance inflows in the country,” said Dr. Pokhrel.

The foreign workers are sending money to Nepal when the dollar has strengthened, which also contributed to the increase in remittance inflow, he said.

Growing dependence on remittance

Remittances play an important role as a financial source to offset the gradually increasing trade deficit of Nepal. The remittance income under the service sector has been increasing year after year. In the fiscal year 2022/23, the ratio of remittance to the gross domestic product stood at 22.70 per cent.

But the overall service sector has not been able to cover the trade deficit.

It seems that adequate efforts have been made by the government of Nepal through the five-year plan, annual budget and various policy arrangements to ensure that the remittances can be invested in the productive sector and help to achieve sustainable economic development by creating more jobs.

Similarly, with the aim of encouraging the migrant workers to send remittances through formal means, the central bank has also made a policy arrangement to maintain an interest rate that is at least one percentage point higher than the interest rate published by banks and financial institutions on deposits received from remittances.

 But because of the heavy reliance on remittances in the management of the external sector, even modest fluctuations in remittance flows could leave a major impact on various sectors of the economy.

The remittance has contributed significantly to meeting basic needs, reducing poverty, increasing the literacy rate, and building and developing infrastructure in the fields of agriculture, tourism, energy and sports.

Similarly, it seems that Nepal has created a comfortable environment to keep the economy running even during various crises such as conflicts, blockades, earthquakes and floods.

“There is no need to be happier seeing the increase in remittance. It is unfortunate to depend only on remittances for more than two decades, failing to create employment opportunities and expand domestic production,” said Khanal.

“If we delay further to retain youth in the country and mobilise them in production, the country’s economy cannot improve and it will fall in crisis anytime when the remittance drops for any reason,” he said. 

Khanal said, “The remittance is not a long-term source for national economic consolidation. But, it is essential to properly use the remittance received from migrant workers for the foundation of the national economy through investing it in the productive sector,” he said.

Definitely, when there is an increase in remittance, the consumption of families who send money from abroad will increase in the country, he said, and added consumption boost helps the economy grow. Now, import has dropped even though consumption has increased, which is a positive sign for our economy, he said.

According to him, the government should focus on investing remittance in the productive sector, including agriculture, hydropower and tourism, without delay instead of being happy seeing the increment in remittance inflow, which will contribute to the economy for the short term.

NRB information officer Dr. Pokhrel said that it was necessary to look for alternative to remittance to reduce the dependence on remittance as the inflow of remittance might be affected any time when our labour destination countries stop hiring workers.

Migrant workers increase

Lately, the number of people going abroad for foreign employment has also increased.

According to the Department of Foreign Employment, about 277,000 people went abroad during the first five months of the current fiscal year 2023/24.

Kabiraj Upreti, information officer of the Department of Foreign Employment, said that the number of people going for foreign employment has increased this year compared to the pre-COVID-19 time.

Around 71,000 people went abroad for jobs within a single month of Mangsir of the current fiscal year.

He said that although the number of people going to work abroad had decreased after the COVID-19 pandemic, it has started increasing since last year. The United Arab Emirates (UAE), Saudi Arabia, Qatar and Malaysia are the major labour destinations of Nepalis.

According to the Department, the number of people who took labour permits from Nepal in the fiscal year 2022/23 increased by 22.42 per cent compared to the fiscal year 2021/22 and reached 771,327.

The businessmen also admitted that lack of investment environment and weak investment confidence of domestic and foreign investors in Nepal has been affecting job creation in the country.