Remittance in Nepal.pdf

7/27/2019 Remittance in Nepal.pdf

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Assignment for 2nd semester: Bitaran Jang Maden

Remittance in NepalBitaran Jang Maden

Second semester

Introduction

According to IMF (2009:272), remittance denote household income from

foreign economies arising mainly from the temporary or permanent movement

of people to those economies. In other words remittance is the money sent

back home by the workers who have migrated abroad. It would include cash or

non-cash items, and could arrive in the country through a formal or informal

channel. In Nepal it can be seen that most of the remittance inflow is through

formal channel since the financial institutions are making it easier and

assessable through the increased number of remit counter in cities and

villages. However, significant amount of remittance, particularly from India still

arrives through informal channels like friends or relatives.

The migration of labor for foreign employment dates back to the pre-historic

ages, though the phenomenon of labor migration in the modern history in

Nepal started only after the Rana regime, when recruitment of Mongolian tribe

to British and Indian army was officially started and so did the inflow of

remittance in the country. During the Maoist insurgency (1996-2006), a large

number of people were displaced from the villages, and even after the end of

the conflict very little progress took place in the direction in increasing

employment and creating new jobs. Furthermore the increase in the demand

of Nepalese workers in the international market also forced the people to

choose foreign employment and the remittance inflow in Nepal has been

growing every year. The factors attracting Nepalese people to work abroad canbe broadly categorized as follows:

Pull Factors Push factors

a) Employment opportunityb) Attractive salaryc) Learn something newd) Job guaranteee) Information from partners

working abroadf) To see new places

a) Wage rate/low payb) Low job availability/no

guarantee

c) High family expenses and loansd) Favoritism & nepotism in

Nepalese labor markete) Local agents


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f) Become self-reliantRemittance profile

In the 200 years of history of foreign employment in Nepal, 108 countries are

open for Nepalese labor force, though MOU has been signed with only 5

countries (Qatar, Kuwait, Bahrain, Japan and Korea) according to DoFE. The

large number of departure of Nepalese labor to the international market is

marked by the inflow of the equally large remittance. The remittance inflow to

Nepal can be shown in the table below from 2001-2011.

Financial year Remittance Inflow (in Rs. Billion)

2001/02 47.22

2002/03 47.54

2003/04 54.20

2004/05 58.59

2005/06 65.54

2006/07 97.69

2007/08 142.68

2008/09 209.70

2009/10 231.732010/11 259.53Source: Ministry of Finance, Government of Nepal (2011)

The remittance so collected has helped Nepal tackle some of the very crucial

problems in the country. The high volume of remittance has raised the

standard of living and has remained as an effective instrument for poverty

alleviation. The Nepal Living Standard Survey-III released in August 2011 byCentral Bureau of Statistics (CBS) revealed that in the year 2010/11, the

percentage of all household receiving remittances in Nepal was 55.8%, which

was 31.9% only in 2003/04. This increase in the remittance has brought 18%

point decline in the absolute poverty between 2003/04 and 2009/10 and only

13% of Nepalese now remain below absolute poverty. The same study

presented the data that the per capita remittance of Nepal is NRs 9,245.

Another favorable effect of remittance in the Nepalese economy is the

attainment of favorable balance of payment by narrowing the current account


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deficit. The decline in the export and increase in the import in the country has

pushed the Nepalese economy towards a very serious trade deficit, and

remittance has helped the economy to balance the trade deficit.

Economic Growth- Inflation- Remittance

Year GDP

growth

(%)

Inflation

(%)

Remittance

Growth (%)

Industry/GDP

(%)

Export/GDP

(%)

Trade

Deficit/GDP

(%)

07/08 6.1 6.7 17.5 16.8 7.3 19.9

08/09 4.5 12.6 17.5 15.9 6.9 21.9

09/10 4.8 9.6 19.4 15.1 5.1 26.3

10/11 3.9 9.6 18.5 14.8 4.7 24.2

11/12 4.6 8.0 22.7 14.6 4.7 24.9

Figure 1: Growth in economy (GDP), Inflation and remittance.

The figure represents the economic situation of Nepal from 2007 to 2012. The

analysis shows that the remittance has been increasing every year with the

rocketed boom in 2011/12. The inflation has been declining with the rise up to

the highest record double digit of 12.6 in 2008/09 and GDP growth has been

declining from 2007/08 with minimum of 3.9 at 2010/11 but there are signs of

progress in 2011/12 with GDP growth rising to 4.6.

2007/08 2008/09 2009/10 2010/11 2011/12

GDP growth (%) 6.1 4.5 4.8 3.9 4.6

Inflation (%) 6.7 12.6 9.6 9.6 8

Remittance Growth (%) 17.5 17.5 19.4 18.5 22.7

6.1

4.5 4.8 3.94.6

6.7

12.6

9.6 9.6

8

17.5 17.5

19.418.5

22.7

0

5

10

15

20

25

Growth(%)


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Figure 2: Remittance growth, Industry/GDP, Export/GDP and Trade

Deficit/GDP.

Figure 2 shows that the industry growth per GDP and export growth per GDP

has been declining with increase in the trade deficit per GDP. This is a very

serious threat to the economy of the country since growth is declining. The

graph also shows the constant growth in the remittance of the country helping

it to finance the growing trade deficit.

Present Scenario- Employment

The Nepal Living Standard Survey, 2011 revealed that the population of work-

age group (15-59 age) is 54.2% of total population and the dependency ratio is

84.4% as a result 36.9% of the population is migrant population. Theemployment situation in Nepal is satisfactory with 78% (10+ age) being

employed and only 2% of the population being unemployed. But the

economically inactive population is 20% which might be the threat to the

economy. The low unemployment rate is marked by the migration of the

labors to the foreign land for employment opportunities. The 20% inactive

population imply that most of the labor either move abroad for employment

or remain idle and comes out of labor force. Hence, unemployed population is

very low in Nepal. According to another report of MoLTM, annually 4,25, 000

1 2 3 4 5

Remittance Growth (%) 17.5 17.5 19.4 18.5 22.7

Industry/GDP (%) 16.8 15.9 15.1 14.8 14.6

Export/GDP (%) 7.3 6.9 5.1 4.7 4.7

Trade Deficit/GDP (%) 19.9 21.9 26.3 24.2 24.9

17.5 17.519.4 18.5

22.7

16.8 15.9 15.1 14.8 14.6

7.3 6.95.1 4.7 4.7

19.921.9

26.324.2 24.9

0

5

10

15

20

25

30


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youth enter the labor market but two-third of them go abroad for foreign

employment.

Use of Remittance

A significant portion of literatures on remittances argues that they are

primarily spent on consumption, housing and land and are not utilized for

productive investment that would contribute a long run development. Very

small proportion of remittance is used in establishment of small business,

improve agricultural practices or on other productive investment on capital so

as to generate revenue in long run. According to the report of Nepal Living

Standard Survey of 2011 the use of remittance is done in following

proportions:

Daily consumption- 79%

Loan repayment- 7%

Household property- 4%

Education- 4%

Other (saving, business and investment) - 6%

It is was also shown by the survey that only 2.4% of the total remittance is used

in the capital formation. While others are consumed, used for loan repayment

and for household property. While the use of remittance for education can be

viewed as investment on the human capital. The challenge of using remittance

only in consumption can be shown by the following Dutch Disease and the

Vicious Policy Cycle:


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Way forward

There are only limited countries with whom Nepal has bilateral labor

agreements where Nepalese workers are employed. Such bilateral

agreement should be made with more countries which are essential to

improve the welfare of Nepalese migrant workers abroad. The economic

diplomacy has to be strong. Along with the labor agreement,

government should establish their embassy in other countries as well.

There are a few policy instruments the government can employ to

improve development impact of remittances and enhance the flow

through the formal channel. Which policy instruments the government

opts depends on the desired goal it intends to achieve.

The use of remittance on productive sector can be encouraged by

establishment of Micro-enterprise development programs for self-

employment. Additional to which programs focusing senior citizens,

single women, disables, youth and children is most because they are

dependent on the male member in the family working abroad in most

cases. Besides increment on the investment in formal, informal

education and elimination of child labor is essential for development of

better human capital for future. Similarly rural-urban linkage programs,

Moreremittances

Little pressure

to improve

policyweakness

Inadequateinvestment

Low privateinvestment

Low growth

Limited Jobopportunities

More

Migration


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employment information centers, labor-intensive investment, large scale

projects for employment can be introduced for regulation of labor force.

The objective of the government should be to emphasize for

enhancement of employment, poverty alleviation through employmentinstead of remittance driven poverty alleviation because it is not helpful

in long run. It can be done by prioritizing the employment generating

sector and mainly the following sectors like Agriculture, Tourism,

Industry and trade and Infrastructure.

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