Beyond Remittance

Remittance now stands as the backbone of the nation's economy and has played a crucial role in supporting stabilisation and growth. Remittance earning constitutes approximately 25 per cent of the country's GDP over the past few decades. The rise in remittance inflow has led to a notable enhancement in foreign currency reserves during the previous fiscal year. These reserves are crucial for meeting development requirements and ensuring economic stability.

The strength of economy is closely linked to foreign exchange reserves and its dwindling can have negative repercussions in foreign trade. The increased remittance inflow and reduced imports of luxury items have effectively curbed excessive foreign currency depletion. In the recent months, there has been a notable upswing in foreign currency reserves, balance of payments, current account, and remittance inflows which are positive signs for the economy. Simultaneously, the gradual decrease in bank interest rates and the increase in available liquidity within the banking sector have instilled a sense of optimism, suggesting that the country's economy is showing signs of recovery.

With the aim of encouraging migrant workers to send remittances through the formal channels, the central bank has made the policy arrangement to maintain an interest rate that is at least one per cent higher than the interest rate published by banks and financial institutions on deposits received from remittances. As per the NRB (Nepal Rastra Bank), remittances totaling Rs. 477.96 billion were received by Nepal in the initial four months of the current fiscal year. Furthermore, the gross foreign exchange reserves exhibited a growth of 10.2 per cent, reaching Rs. 1,696.78 billion in mid-November 2023 compared to Rs. 1,539.36 billion in mid-July 2023. Foreign exchange reserves held by the banking sector are deemed sufficient, covering approximately 13.6 months of prospective merchandise imports and 11.3 months of combined merchandise and services imports. 

In the short term, remittances can contribute to achieving macroeconomic objectives, including reducing current account deficits, increasing income levels, breaking out of poverty cycles, and safeguarding the public from negative economic shocks. But the nation cannot make it a long term goal because relying on remittance alone can be counterproductive in a long run. Thus it is essential for the government to strategically invest remittance funds in productive sectors like agriculture, hydropower, tourism as well as other areas that generate employment and help boost prosperity. Rather than solely relying on the influx of remittances, the government should prioritise the expansion of industries, achieving self-sufficiency in agriculture, generating domestic job opportunities, and fostering the growth of the tourism sector. 

A holistic approach to economic development is necessary, as sustained dependence on remittances alone is not a viable long-term solution for the country. Inflow of remittance might be affected by crisis times such as pandemic, recession and war. At the same time our migrant workers most of the time are unskilled labourers selling their labour in very demanding and often risky working conditions. It is important for policymakers to strike a balance between harnessing the positive aspects of remittances and channelling those earnings into productive sectors for long-term economic stability and growth. For the sustainable development of the country we should be able to cash in the labour of our youth in our own country by creating job opportunities, so that our labour force can contribute to our economic development as per need of the nation without going out of the country.