Impact of Remittance on Nepalese Economy
(A critical review)
By PRABHAKAR GHIMIRE
Asia Journalism Fellowship 2012
Wee
Kim Wee School of Communication and Information
Nanyang
Technological University
Singapore
Advisor
Dr Francis Lim
Assistant Professor
May 2012
Table
of Contents
Contents Page
Abbreviation-------------------------------------------------------------------------------------------------
1
Acknowledgements
-----------------------------------------------------------------------------------------
2
Abstract
------------------------------------------------------------------------------------------------------
3
Introduction
-------------------------------------------------------------------------------------------------
5
Propose
of Study------------------------------------------------------------------------------------------ 5
Literature
Review ------------------------------------------------------------------------------------
13-15
Methodology----------------------------------------------------------------------------------------------
15
Limitation
of Study----------------------------------------------------------------------------------------
15
Data
Analysis -------------------------------------------------------------------------------------------16-33
Conclusion
and Recommendations--------------------------------------------------------------------
34
Bibliography ----------------------------------------------------------------------------------------------- 35
Abbreviation
GDP
Gross
Domestic Product
MoLTM
Ministry of Labor and Transport Management
CBS
Central
Bureau of Statistics
DoFE
Department of Foreign Employment
NMS Nepal
Migration Survey
MoF
Ministry
of Finance
NRB
Nepal Rastra Bank
ODA
Official
Development Assistance
FDI
Foreign Direct Investment
NLSS
Nepal Living Standard Survey
HKH
Hinda
Kush Himalaya
FAO
Food and Agriculture Organization
NEFAS Nepal
Foundation of Advance Studies
BOP
Balance of
Payment
GNDI
Gross National Disposable Income
NGO Non-governmental
Organization
DADO
District Agriculture Development Office
TEPC
Trade and Export Promotion Center
CPI
Consumer
Price Index
NIDS
Nepal Institute of Development Studies
WB World
Bank
NTU
Nanyang Technological University
WKWSCI
Wee Kim Wee Communication and Information
ICIMOD
International Center for Integrated Mountain Development
OECD
Organization of Economic Development and Development
IOM
International
Organization of Migration
Acknowledgement
This study has been conducted
under the Asia Journalism Fellowship (AJF)-2012 for Wee Kim Wee School of
Communication and Information (WKWSCI) of Nanyang Technological University
(NTU) in Singapore. The study theme: Impact of Remittance in Nepalese Economy:
A Critical Review has tried to explore pros and cons of remittance that have
been experienced in Nepalese economy over a couple of decades.
I would like to express my
gratitude to Temasek Foundation and WKWSCI of NTU for giving me this immense
opportunity to study on this crucial subject under the AJF-2012. My great
gratitude goes to my respected supervisor Assistant Prof. Dr Francis Lim who
provided me valuable and incredible guidance for making possible the
fine-tuning and completion of this thesis in time. I am really indebted to
Director of AJF Associate Prof. DrCherian George whose valuable suggestions and
enticing inputs were really inspiring during my research works. Other members
of AJF also deserve my thanks. My grateful thanks also go to economic
researcher ChandanSapkota for sharing research experience, providing
suggestions and useful materials to me before and during research works.
May, 2012
Abstract
The
topic of this research is 'Impact of
Remittances on Nepalese Economy: A Critical Review' is aimed at assessing
the economic situation of Nepal amid the increasing dependence on remittances
which have been contributing more than one-fifth of the total GDP of Nepal.
Though remittances have lifted many poor Nepalese people out of poverty over
one and a half decades, Nepal's excessive dependence on the earning of migrant
workers has resulted in the weakening economic performance of the country that
has been witnessing slowing industrial growth, higher consumption, increasing
inflation, sluggish exports, rising imports, less working hours by remittance
receiving families and slackness on part of policy makers to accelerate
structural transformation. This research has attempted to demonstrate that
remittance, which is always vulnerable to fluctuate due to the different
phenomenon in labor market, could work as life line during the economic
slowdown in the country but it would be detrimental to the economy to become
highly dependence on it in the long run. Impressive fall in poverty level,
strengthening foreign exchange reserve, improved BOP and employment opportunity
to hundreds of thousands of Nepalese youth job seekers every year through the
foreign employment has made the government less innovative to roll out new
policies to strengthen domestic economy rather than only encouraging youths to
leave for overseas migration.
Amid
absence of the government's concrete policy regarding the productive use of
remittancesa huge chuck of remittances now go to unproductive sectors-- such as
real estate, consumption of imported goods, trading service, gold and silver)
despite more than two hundred years long history of out migration, this research
identified the need to use of remittance in productive sectors making the
government more responsible for formulating concrete planning to inject the
remittance in the sectors that generate income and employment within the
country.
May 2012
1. Introduction
Despite more than two hundred years of
history of migration, foreign employment emerged as the backbone of Nepalese
economy especially since mid-1990s when a decade long insurgency was launched
by the Nepalese Maoist rebels with the mission to overthrow more than 240-year
long monarchy in the tiny Himalayan nation. Before the conflict,the beginning
of the construction boom in the emerging economies in the East Asia and the
Gulf states in the 1980s has already started to provideopportunity for young
Nepaleseto venture out for overseas jobs in pursuit of a more comfortable, descent
and dignified life.
Lingering industrial slowdown, absence
of commercialization of agriculture and slowing tourism sector due to arm
conflict, exodus of Nepalese youths to overseas markets is still going up even
higher rate. Soaring outflow of migrants has led to the increased dependence
resulting in the contribution of remittance to the tune of almost one-fifth of
the Gross Domestic Product (GDP) of Nepal.
Nepal, which sees around 400,000
youths (Nepal Migration Year Book, 2010) to entering labor markets every year,
has been exporting around 800-1000 every day job aspirants on the back of bleak
employment of opportunities at home. Migrants to bordering India are not
included in the official records of overseas departures. Most of the overseas
job seekers are from poor family background and are unskilled or semi-skilled
only to be landed in the job markets for lowly-paid jobs. However, their
earning has not only kept the Nepalese economy afloat during the Maoist's
bloody conflict but its contribution is getting more significant than ever even
now.
There has still been no significant
study conducted from the Nepalese government on the role of remittance in the
economy. However some sporadic researcheshas been conducted by some individuals
as well as local and global organizations to analyze critically on the role of
remittances in the economy.
However,The Foreign Employment Act and
Regulations 2007 govern overseas labor mobility. The Ministry of Labor and Transport Management
(MoLTM) is also drafting the National Labor Migration Policy whereas National
Planning Commission's Three Year Interim Plan 2010/11 -2012/13 also has
envisioned the concrete policy for the management of foreign employment sector
which is dominated by private manpower agencies.
It is high time the government
explores and studies the contribution of the earning of Nepalese migrants and
its significance to national economy and seeks the further measures to properly
utilize it in productive sectors as major chunk of remittances is still siphoned
to unproductive sectors such as food consumption, land and housing as well as
house-hold appliances.
In this study, I have tried to find
the economic impact of remittances --- both negative and positive-- in the
Nepalese economy and recommended appropriate measures to ensure that the role
of remittance would be more productive and effective.During my research I have
referred to secondary data compiled by the government agencies and different
reports prepared by various institutions and individuals, blogs, news as well
as articles published in newspapers.
1.2Historical Perspective
of NepaleseMigration
Start of migration of people from
Nepal to foreign country dates back to mid-18th century. Workers migration was
triggered by the successive rulers' heavy tax policies after the country was
unified by then King Prithwi Narayan Shah in 1769.Public lands were granted to
senior officials as rewards and the cultivating peasants were heavily taxed. The
Ranas who ruled the country afterward (1846-1951) continued exploitation of
peasants. Those who couldn't pay taxes left Nepal to work in tea estates in
Darjeeling and Asam and to reclaim forest land in Sikkim and Bhutan. Some went
to coal mines in Bihar and West Bangal. Permanent settlement was the goal of
those migrants and they were largely successful.
Four different historical times during
the nineteenth century have seen the displacement of the large number of
Nepalese into India: first the time of then Prime Minister BhimsenThapa (the
first three decades) when he forced his opponents mainly the Pandes (another
powerful clan)-, to leave the country; second, the period of consecutive power
struggle between Pandes andThapas following the decline ofBhimsen till
JangaBahadurRana come to power after the KotMassacare in 1846; third, the
period of JangaBahadur when he earlier massacred or evicted most of his rivals;
fourth, when BirShamsher massacred or evicted people from JangaBahadur's
lineage and etablished chain of rule for his brothers.
In early 19th century youths from Hill
areas migrated to Lahore of Panjab province of India (now it falls in Pakistan)
to join the army of then Sikh ruler Ranjit Singh. So, with the term Lahore,
Nepalese who works abroad have been traditionally called "Lahure,".
Out flow of youths from Nepal intensified with the beginning of recruitment in
army by British East India Company- that ruled neighboring India until 1947,
after an 1814-1816 war between Nepal and the British ruler.After 1947 both
British and Indian armies retained the Nepalese servicemen. Today about 2000
Nepalese serve for the British and more than 50,000 are in Indian army.
However, civilian employment in India started during 1920s
prompted by the 1923 treaty on 'Free Labor Movement' between Nepal and British
ruler. Migration to India is the still existent amid open border with
unrestricted cross-border movement between two countriesthat has been
facilitating themigration to the southern neighbor.
India which is also closest to Nepal
geographically, culturally, historically and socially, has been giving
employment opportunities to huge number of Nepalese youths in both public and
private sectors.
According to a research carried out by
the Nepal Institute for Development Studies (NIDS) in 1997 — probably the first
systematic look at Nepalese foreign labor migration — as many as 750,000 men
and women were working in India's private sector alone. Most of the Nepalese
workers leaving for India are from poorest section of society that can't afford
to go for overseas countries for jobs.
Over
two centuries of Nepalese migration, we have witnessed significant changes in pattern
in foreign employment. India is no more the sole recipient of Nepaleseyouths;
Nepal government has so far given permission to go to total 108 countries for employment.
Outflow of Nepalese youths leaving for overseas jobs took impressive pace since
early 2000s during the height of the decade long Maoist bloody insurgency that
ended in 2006.
Migration to the Middle East and
Malaysia-- which arenow receiving over 90 percent of Nepalese overseas
migrants-- started in early 1990s with the rapid growth of these economies and
supported by a more liberal foreign travel policy adopted by Nepal. Limited job
opportunities resulting from poor investment climate also driven up the number
of youths leaving for foreign job markets.
Given
dismal employment opportunity amid slowing economy, exodus of youths to
international job markets has continued to go up with the daily number of
outgoing youths crossing around 1000 per day. If official data is anything to
go by, the number of Nepalese workers employed in foreign destinations
excluding India has reached more than two millions and the Gulf nations as well
as South Asian countries are the top recipients.More than 90 percent of the overseas migrants
head for four countries: Qatar, Saudi Arabia, the UAE and Malaysia. Unofficial estimations by experts suggest that
number of Nepalese working in overseas crosses three million as the number of
those making their way to overseas without government permission is still
significant and unchecked.
Though the government recognized the significance of overseas employment
in Labor Act of 1985, the Foreign Employment Act 2007 only has tried to
incorporate the key issues such as security, safety and welfare of Nepalese
overseas migrants so as to make foreign employment more dignified and secure.
However, the absence of clear vision of the government to deal with the
pertinent challenges and issues emerging in foreign employment is hampering the
proper regulation and systemization of this crucial sector which is getting
more complex and tougher in every passing day.
A parliamentary committee of Nepal has recently instructed the
government to end the recruitment of Gurkhasfor foreign governments' army (now
British Army and Indian Army) stating that such tradition has damaged the
national dignity-- a move that has thrown cloud over the future of employment
of Nepalese youths in the Gurkha regiments which had been the important source
of foreign exchanges to Nepal for last two centuries.
With the rapid rise in the number of Nepalese migrants, ratio of
overseas employed to total population has also increased remarkably over few
decades. According to latest population census of Nepal in 2011, migrant
population covers 7.5 percent of the total population, up from 3.2 percent
recorded in earlier census in 2001. In
1942 the share of migrants in total population was 1.4 percent.
|
Nepalese Overseas Migrants
(absentees) (percent in total population)
|
|
Year
|
Percent
|
Year
|
Percent
|
Year
|
Percent
|
|
1942
|
1.4
|
1981
|
2.6
|
2011
|
7.5
|
|
1952
|
2.3
|
1991
|
3.4
|
|
|
|
1961
|
3.4
|
2001
|
3.2
|
|
|
Departure of Nepalese migrant workers to
overseas (excluding to India)
|
Year
|
Number
|
Year
|
Number
|
|
2001/02
|
55,025
|
2006/07
|
204,533
|
|
2002/03
|
105,042
|
2007/08
|
249,051
|
|
2003/04
|
106,660
|
2008/09
|
219,965
|
|
2004/05
|
139,718
|
2009/10
|
294,094
|
|
2005/06
|
165,252
|
20010/11
|
345,716
|
The above table shows the rapid rise
in number of Nepalese youths seeking foreign employment in every passing year. The
number of migrant workers stated above included only those who left the country
with official permission.
The average migrant number per
household (including domestic migrants) is just above one person (1.2 persons).Out
of the total migrants, female migrants constitute 6-7 percent. Migrants abroad
are employed mostly in three sectors: Manufacturing (32 percent), Construction
(16 percent) and service (16 percent) and with remaining in other sectors. (NMS
2009)
The huge numbers of workers are
estimated to have reached to different labor destinations without government
record by using clandestine ways through Indian cities. The government has also
no official figure to show the exact number of returnees from overseas jobs.
The rate of growth of migrant workers
slightly slacked in the year 2008-2009 due to global financial crisis that
brought down the demands for workers by recipient countries besides forcing
hundreds of migrant workers to return back home losing their jobs.
According to the Department of Foreign
Employment (DoFE) of Nepal government, at least 193 Nepalese migrant workers
have returned between January and May 2009.
This is the tip of the iceberg because
many had returned back to home during the height of financial crisis but had
not reported to the DoFE. Many of those who have returned have not completed
their tenure as mentioned in the job contract and were sent on “long vacation.”
There is no figure on the actual number of such returnees. Such a decline, if
it continues for a prolonged period, is bound to have impact on remittance
income.
1.3Amount of remittance received
by Nepal
With
the rise in the number of migrant workers, remittance inflow also soared. Data
shows that remittance receipt during the fiscal year 2010/11 touched Rs 310
billion, up from Rs 46 billion in 2003/04 and Rs 13 billion in 1995/96.
Remittance
inflows were also caused by stronger US Dollar against Nepalese currency as
well as rise in salary of migrants in job markets over the period. Only around
6.2 percent of the total remittances have been received in the form of non-cash
or kind.Inflow increased
by an annual average of 28 percent for five years and reached US$2.7 billion in
fiscal year 2009 or 22 percent of GDP excluding flows from India and through
the informal channel Hundi.
If inflow from Hundi and from India included, the remittance
covers 25 percent of the total GDP. Remittance has become largest source of
foreign exchange in Nepal. Internationally, among the countries with the
population of 10 million or more, Nepal has become the largest recipient as a
share of GDP.
|
Remittance Inflows to Nepal
|
|
Year
|
US$
|
Year
|
US$
|
Year
|
US$
|
Year
|
US$
|
|
2001
|
147 million
|
2004
|
823 million
|
2007
|
1.73 billion
|
2010
|
3.5 billion
|
|
2002
|
678 million
|
2005
|
1.21 billion
|
2008
|
2.72 billion
|
2011
|
3.95 billion
|
|
2003
|
771 million
|
2006
|
1.45 billion
|
2009
|
2.96 billion
|
|
|
1.4Distribution
of Remittances by Sources for Nepal
Besides India- the largest home to
Nepalese migrants, Nepalese youths leaving for overseas jobs are concentrated
in less than a half dozen countries- Malaysia, Saudi Arabia, the UAE and Qatar which
cover more than 90 percent of the Nepalese overseas migrants--though the
government has already opened 108 countries for overseas jobs.
Stock of Nepalese migrants abroad stands 2.1 million and their key
destinations are India, the Gulf countries, Malaysia and other developed
countries including Australia, Japan, the UK and USA.
Around 867, 000 migrants are estimated to be in India or 41 percent of
the total overseas migrants. Estimated migrants staying in the Gulf countries
number 810,000 ( 38 percent), 245,000 (12 percent ) in Malaysia and 8.7 percent
or 186,000 in developed countries. However, a rough estimation suggest that
around 1.5 to 3 million are in India.
Total stock of Nepalese migrants in overseas destinations (not included
those leaving for India and those who went to international job market without
government permission) reached to 2.08 million in 2010/11.
1.5International Migration and
Remittance Trend
Migration makes up about 3 percent of
the world population that has been growing by 3 percent annually since the
1990s up from 2.4 percent in 1970s statedLarge Scale Migration and
Remittance in Nepal: Issues, Challenges and Opportunities, World Bank, 2010quoting the World
Bank 2006, report.
Total stock of international
migrant across the world is estimated at 214 million in 2010, sharp up from 150
million in 2000 and 191 million in 2005. The figure could rise to 405 million
by 2050 as a result of growing demographic disparities, the effect of
environment change, new global political and economic dynamics, technological
revolutions and social networks. Similarly, internal migrants are estimated at
around 740 million worldwide.
Similarly, with the rising number of overseas
job-seekers, worldwide remittance sent by migrants has also increased from mere
US$3 billion in 1975 and US$114 billion in 2003 to US$ 443 billion in 2008, US$
413.7 billion in 2009.
Remittance has surpassed Official
Development Assistance (ODA) and now represent around two-third of the foreign
direct investment (FDI) accounting for 1.9 percent of GDP of developing
countries (World Bank 2010). South Asia, a key source of overseas migrants
reported earnings of remittance worth Rs US$42 billion in 2006, US$ 75.2
billion in 2010 and US$ 82.8 in 2011.
|
Remittance
worldwide and South Asia (in US$ in billion)
|
|
Year
|
World
|
South Asia
|
Year
|
World
|
South Asia
|
Year
|
World
|
South Asia
|
|
2006
|
317.4
|
42.5
|
2008
|
443.4
|
71.7
|
2010
|
437.3
|
78.7
|
|
2007
|
385.4
|
54
|
2009
|
413.7
|
75.2
|
2011
|
463
|
82.8
|
1.5.1 World
Remittance Distribution
Top recipients of
remittance among developing countries in 2010
In term of remittance amount, India is
the largest recipient. India received US$58 billion followed by China that
brought in US$ 57 billion in 2010. Similarly among the other eight countries
out of the top ten recipients are Mexico (US$24 billion), the Philippines (US$
23 billion), Pakistan (US$12 billion), Bangladesh (US$ 12 billion),
Nigeria (US$ 11 billion) , Vietnam (US$9
billion), Egypt (US$8 billion) and Lebanon (US$ 8 billion).
The report also estimated that remittance flows to
developing countries in 2010 could have touched US$ 351 billion. This is 8
percent growth over what those countries received in 2010 and well above the
growth forecast of 7.3 percent that the WB had made earlier.
If the volume of remittances flows to high-income countries are also to be
included, the worldwide flow of remittances would exceed US$515 billion by
2014, adds the report. However, such growth is likely to be attained only if
latest volatility in exchange rate and uncertainty of oil price movement end.
Top recipients in
term of GDP contribution in 2010
In term of contribution of remittance
in GDP, Tajikistan topped the all recipients with its contribution covering 31
percent of GDP followed by Lesotho with 29 percent. Similarly, , Samoa saw 25 percent , Maldova 23 percent, Kyrgystan 21 percent , Nepal 20 percent , Tonga 20 percent , Lebanon 20 percent, Kosovo 17 percent
and El Salvador 16 percent
contribution by remittance in their economy.
Remittance status and forecast for up to 2014
Officially recorded remittance flows
to developing countries are estimated to have reached US$351 billion in 2011,
up 8 percent over US$ 325 billion in 2010. Growth of remittance flows to
developing countries is expected to continue at the rate of 7-8 percent
annually to reach US$ 441 billion by 2014. Worldwide remittance flows,
including those to high-income countries, are expected to exceed US$ 593
billion by 2014. "In line with the latest outlook for the global economy,
remittance flows to developing countries are expected to grow by 7.3 percent in
2012, 7.9 percent in 2013 and 8.4 percent in 2014 to reach US$ 441. Worldwide
remittance flows including those to high-income countries reached to US$ 483
billion in 2011.
For South Asia, the outlook has
estimated that US$97 billion in 2012, US$ 105 billion in 2013, US$ 114 billion
in 2014. In South Asia , remittance was US$ 72 billion in 2008, US$ 75 billion
in 2009, US$ 82 billion in 2010, and US$ 90 billion in 2011.
There are several sources of
vulnerability to the forecasts for remittances to developing countries. Ongoing
debt crisis in Europe and high unemployment rate in high-come OECD countries
are adversely affecting the economic and employment prospect of migrants. A
deepening and spread of the European debt crisis will also pose risks for oil
prices, which could intern reduce demand for migrant workers and depress
remittance flows to Asian countries. Volatile and unpredictable exchange rates
present further risks to the outlook for remittances.
2. Purpose of Study
Nepal is increasingly dependent on remittances amid the slowing
exports as well as increasing imports given the sluggish industrial activities.Since
remittances have been contributing around one-fifth to the total GDP of the
country, this paper has tried to explore micro economic impact over one and a
half years. Remittances have played significant role in bringing down the
poverty level, increase household income, improved BOP, pushed up the foreign
exchange reserve and encourage entrepreneurship among Nepalese returnee
migrants keeping the economy afloat even during the decade long internal
conflict in Nepal.
However, the impact of remittance is not always rosy. If some
economic indicators are anything to go by, remittance has weakened Nepalese
economy leading to increasingly higher imports, low performance of export
sector due to slowing industrial sector, higher consumption as well as
lessworking habit among remittance receiving families and widening income
inequalities among people.
This paper has tried to critically analyse the pros and cons of
remittances to bring lights on the economic impact on the economy so that
policy makers who are still not realize the need to take measures for utilizing
the remittances in productive manners.
3.Literature
Review
Most of the least developed
and developing countries are benefitting from remittances which are the strong
source of external finance.Increasing remittance receipts has been contributing
to the both consumption and investment with the rise in the income level of
remittance receiving households. The poverty level of the recipient countries
has also gone down over the one and half decades due to the increasing. However,
increasing dependence on the remittances has been proved to be detrimental for
the economies as the rising inflows of remittance paralyze the economy with
slowing export, rising import, higher inflation and absence of aggressive
policies by the governments to boost economy.
Remittances are the meaningful
source of external finance for emerging economies the earning of the migrant
workers has the potential to increase consumption and investments, as well as
contribute to the economic stability.
Sri-Lanka, the war-ravaged South
Asian-island nation, experienced the crucial role of the earnings of overseas migrants in economic development as
they are usually larger and less volatile than foreign direct investments and
official development assistance. Sri Lanka’s weak financial structure however,
has hindered the productive utilization of remittances in the country. A
report on ‘Impact of Remittance on Sri Lanka’s Economic Development in a
journal- AsiaEcon.org of Asia Economic
Institute (http://www.asiaecon.org/special_article/read_sp/11990) states:
The large inflows of remittances are essential to Sri
Lanka’s balancing of debt and are necessary to mitigate macroeconomic shocks
caused by the ongoing civil war and natural disasters such as the 2004
tsunami. Remittances may enhance the country’s creditworthiness and
promote access to international capital markets. Remittances also have the
potential to improve bilateral relations between Sri Lanka and the countries
hosting Sri Lankan migrant workers. Furthermore, in Sri Lanka, remittances
provide a lifeline to the poor population and if administered correctly, can
result in increased investments and infrastructure development.
However,
remittances have also made Sri Lankan economy more dependent on external
resources. Sri Lanka’s dependence on remittances has made the country extremely
vulnerable to the instability of the global economy.
The
report also cautioned that even a small fluctuation in the remittance can pose
serious threat to the other economies as a case seen in Sri Lanka, where one
quarter of the entire population is dependent on this income.
It
argues: It would also pose serious
threats to the country’s balance of payments, resulting in a large deficit and
severely hurting foreign exchange reserves and the exchange rate. Moreover,
with prices of main commodities such as rubber and tea experiencing rapid
plunges, remittances are likely to remain the lifeblood of the country’s
economy.
Dr Michael A. Goldberg and Dr Maurice D Levi writes in
Master Card Worldwide Insights (2008) on ‘Impact of Remittance on Economic
Growth’ also writes: Modern remittances
remain hugely important to the countries that receive them, are growing rapidly
and have a potential to promote the economic development of the poorest nations
in the world. They represent crucial income to recipients and their locales and
are an important source of additional consumption and investment income to
recipients, even in large economies. In fact, remittance have become even more
important than foreign direct investment (FDI) as a source of capital inflow to
needy nations, exceeding FDI for the first time in 2006 when remittance topped
US$300 billion and FDI only totaled US$ 167 billion. As for official Development
Assistance (ODA) in 2006 remittances were nearly three times as large as the
US$ 104 billion in ODA received.
However,
countries that are receiving huge amount of remittances are prone to the income
inequality and undeveloped financial markets. Moreover the authors have
projected the data showing that exorbitant cost of remittances has not only
reduced the remittance amount but hampered the economic growth amid remittance
cost ranging from 10 percent to 12 percent depending on amount transferred and the
transfer agent.
Pointing out the
need for the remittance to be sent from formal channel DillipRatha and
SanketMahapatra suggests on a report ‘Increasing the Macroeconomic Impact of
Remittances on Development’ of the World Bank (2007): Migrant-receiving countries should educate migrants about available
options for sending remittances and improve the access to banking for migrants,
thereby helping to bring remittances into formal channels. A larger share of
remittances flowing through banks will enable migrant-sending countries to
leverage their remittance inflows for raising additional finance at lower cost
from international capital markets.
Krishnan Sharma, on
The Impact of Remittances on Economic
Insecurity’ working paper United Nations Department of
Economic and Social Affairs, 2009 (http://www.un.org/esa/desa/papers delved into thecross-country
generalizations about the impact of remittances on economic security are useful
only up to a certain point; beyond that their effect can be influenced by the
interplay of various factors relating to the motivations and characteristics of
migrants, economic, social or political conditions in the country of origin,
immigration policies and conditions in the host country, and the size and
concentrations of the remittances.
Sharma writes: Given
this rapid growth in international remittances, recent years have seen an
emerging body of research devoted to analyzing their impact on recipient
countries. The focus of this paper would be to provide an overview of issues
regarding the ability of migrant remittances to address economic insecurity in
developing countries. Economic insecurity relates to the vulnerability of
countries, communities and individuals to adverse economic shocks, natural
disasters, ill-health or conflict and the consequent impact on incomes,
employment and assets.
In Sharma’s view the potential positive impact of
remittance on economic security should not be seen as a substitute for
effective action by the government or international community to respond to
natural disasters, to provide public services and to implement the effective
development related policies. In the contest of the absence of government
concrete policies to boost economy amid rising dependence on remittances,
Sharma further argues:
Like
other forms of international capital flows, remittances are likely to be more
effective in an enabling domestic economic and financial environment. In
particular, an enabling investment climate may be more effective in encouraging
remittances to flow into productive business investments than other forms of
policy intervention. In addition, well-developed financial systems and sound
institutions may encourage a higher share of remittances to be better invested
in areas that may contribute to strengthening economic security at all levels
in the longer-term. For instance, remittances received through a bank account
are more likely to be saved and get invested in both physical and human capital;
they may, moreover, also be channeled into microfinance ventures.
4. Methodologies
The study makes use of secondary data
collected from the government researches, government agencies, Nepal Rastra
Bank and periodical studies done by different institutions and individual
researchers in different times, journals, articles published in different newspapers.
During the research, Nepal Migration Survey 2009, Nepal Living Standard Survey
I, II, and III conducted by Central Bureau of Statistics (CBS), reports of
National Planning Commission- apex policy making body of the government, World Bank's reports, data from Nepal Rastra
Bank (NRB), the Ministry of Finance (MoF) and reports of various institutions
and independent researchers are referred and analyzed. Articles and case
studies published in the newspapers are also analyzedand referred to
substantiate the argument.
5. Limitation of Study
This study is based on the secondary
data that are sourced from different researches, surveys from the government,
international institutions as well as local institutions and experts views
expressed on newspapers and journals. Despite reference to number of literature
and authentic data, this study is still not sufficient to project the exact
impact of remittance in the economy as influence of it has increasingly
deepened and complicated in Nepal. As the study is fully based on the Nepalese
context, the conclusion and recommendations might not be applicable to other
remittance receiving countries.
6. Data Analysis
This
study is based on previous research findings and secondary data from government
agencies and various local and global institutions. I have analyzed such data
and finding of previous research in relation to the current economic indicators
to substantiate my argument.
Share of
remittance in GDP has been increasing
Remittance
is seemed to have become directly proportionate to the Gross Domestic Product
(GDP) of the country. Share of remittance in Nepal's GDP has
significantly increased to 19.3 percent in fiscal year 2010/11 up from 14.9
percent in 2005/06 and 11 percent 2002/03.
|
Contribution of
remittance in GDP
|
|
Year
|
Percent
|
Year
|
Percent
|
|
2002/03
|
11
|
2007/08
|
17.5
|
|
2003/04
|
10.9
|
2008/09
|
21.2
|
|
2004/05
|
11.1
|
2009/10
|
19.8
|
|
2005/06
|
14.9
|
2010/11
|
19.3
|
|
2006/07
|
13.8
|
|
|
In remittance-GDP ratio, Nepal stands 6th worldwide
Nepal has been ranked 6th among all
countries across the globe that receive significant amount of remittances as a
share of GDP in 2011.
The Outlook for Remittance Flows
2012-14 estimates that Nepal will receive around US$ 400 million worth of
remittances from its overseas workers in 2011, making remittances stand at 20
percent of country´s total GDP.
Tajikistan, Lesotho, Samoa, Moldova and Kyrgyz Republic are the top five
countries receiving more remittances. Remittances received by these top five
countries were equal to 31 percent, 29 percent, 25 percent, 23 percent and 21
percent of their respective GDPs.
And this is the first time since the global financial crisis that remittance
flows to all developing regions have increased in 2011.
The rise in remittance flows to
countries like Nepal to high oil prices, something which enabled Gulf countries
to hire more workers and pay them better than the past few years. The
depreciation of local currency, which enabled families back home enjoy net
exchange rate gains, also contributed in the flow of remittances in countries
like Nepal. Similarly the remittance costs have fallen steadily from 8.8
percent in 2008 to 7.3 percent in the third quarter of 2011. However, it
pinpoints that the cost is still too high, especially in Africa and other small
nations where remittances provide a lifeline to the poor.
Developing countries still vulnerable to remittance inflow volatility
Even though remittances to
developing countries has been growing they are vulnerable to the uncertain
economic prospects in the migrant destination countries. Following this rebound
(from financial crisis of 2008-09), the remittance flows to developing
countries could continue in a range of 7-8 percent per annum and reach US$441
billion by 2014.The remittance costs have fallen steadily from 8.8 percent in
2008 to 7.3 percent in the third quarter of 2011. However, the cost is still
too high, especially in Africa and other small nations where remittances provide
a lifeline to the poor.
Following such finding, the World Bank in 2011has pressed the countries across
the globe to improve the data on remittances at the national and bilateral
levels.
Large Flow added to household income
The average annual income of the
remittance-receiving households increased to Rs 105,400 in 2010/11 far higher
than Rs 34,698 recorded in 2003/04 with the sharp rise in the number of
migrants workers inoverseas job market over the period.Proportion ofhouseholds
receiving remittance increased from 23.4 percent in 1995/96 to 31.9 percent in
2003/04 and 55.8 percent in 2009.
Nepal Migration Survey (NMS)2009
revealed that 32 percent of the household had at least one member working
abroad and 14 percent householdshad members who had recently returned for
foreign labormarket. Remittance accounts for above two third of income of a
remittance receiving household in 2009, up from 27 percent in 1996.
According to Nepal Rastra Bank (NRB)-
the central bank-- the increase was due largely to higher remittance from
countries other than India. The estimated remittances from India in 2009 were
17 percent of the total receipts compared to 45 percent in 1991 and 33 percent
in 1996-- an indication that contribution of India in overall remittance
inflows is decreasing.
However, contribution of women in the
remittance is around 10 percent as they constitute around 10 percent of the total
migrant workers.
High propensity of saving among women and
their greater participation compared to men in migration to high income
countries like Hong Kong, Japan, United States and United Kingdom meant their
relatively higher contribution to remittance.
Per Capita Remittance
Nepal
Living Standard Survey (NLSS) I, II andIII stated that per capita remittance
also increased with the rise in the number of workers leaving for overseas
jobs. Per capita remittance has reached to Rs 9245 in 2010/11from Rs 2100 in
2003/04 and Rs 625 in 1995/96- an indication that beneficiaries of the remittance
increased by around five times over the 15 years.
Impact on poverty
reduction
According to NLSS I, II andIII, contribution
of remittance in bringing down the poverty level in the country proved
significant during the period between 1995-96 and 2010/11. Number of people
living under the absolute poverty decreased by over 15 percentage point over
the period.People falling below the poverty line dropped to 25.2 percent in 2010/11
from 30.8 percent in 2003/04 and 41.8 percent in 1995/96.
The surveys concluded that poverty
would have declined only 5 percentage point instead of 11 percentage point
between 1995/96 to 2003/04 if remittance had remained unchanged between the two
surveys(CBS, 2006). The poverty level would have been at 27 percent in 2009 if
remittance had remained at 2003/4 level.
Labor migration can be an effective
strategy for livelihood adaptation and contribute to the sustainable reduction
of poverty in the Hinda Kush Himalaya (HKH) region that also includes Nepal.
Migration generates financial and human capital, which, if leveraged for
development, is a potential driver for poverty reduction.
In Nepal, remittances are responsible
for almost 20 per cent of the poverty decrease since 1995, against a background
of armed insurgency and economic downturn as quoted Hence, for more than 140
million people living in poverty in the HKH region, labor migration is one of
the most powerful opportunities for prosperity.
The basic reason
for migration for work is to seek better employment opportunities outside the
country of origin and, as indicated above, the vast majority of people migrate
to fulfill the basic needs of their families. Hence, remittances have a direct
impact on poverty reduction, as they tend to flow directly to poor households.
They are used primarily for the meeting basic needs of food, shelter, education
and health care. In most instances, remittances are not used for “productive”
investment, because poor households have no option but to use it for basic
needs. Nevertheless, when remitted money is used for food and nutrition,
education and health, it represents an investment in human capital and an
improvement in the quality of life. This spending on basic needs and quality of
life also has a multiplier effect in the community.
A
massive migration of low skilled and unskilled Nepaleselaborers to the Gulf
States is responsible for poverty reduction as the savings generateddirectly
reached their families in rural Nepal. If there was no increase in remittance,
it is estimated that poverty rate would have dropped by 4.8 percent only
(instead of 10.9 percent). In 2009, poverty rate is estimated to havedeclined
to 25.4 percent due largely to remittances.
International migration - defined as
the share of a country's population living abroad - has a strong, statistical
impact in reducing poverty. On average, a 10 percent increase in the share of
international migrants in a country's population will lead to a 1.9 percentdecline
in the share of people living in poverty ( bellow $1.00 a person a day). Similarly,international
remittances - defined as the share of remittances in country GDP - have a
strong, statistical impact in reducing poverty. On average, a 10 percent
increase in the share of international remittances in a country's GDP will lead
to a 1.6 percent decline in the share of people living in poverty.
Citing Adam and Pages (2005) Large Scale Migration and Remittancesin Nepal : Issues,
Challenges and Opportunities in Nepal , World Bank, 2010 has stated that on an
average a 10 percent increase in official international remittance leads to a
3.5 percent decline in the proportion of people living in poverty. Indirectly,
communities and economies from where migrants originate also benefit from
skills and knowledge they bring back.
Despite a lower economic growth and a
decade long (1996-2006) political instability, Nepal achieved a remarkable drop
in poverty incidence mainly due to the remittance which has now emerged as the
highest source of foreign currency earnings source.
Robert E.B Lucas of Boston
University) in his 'Migration and Rural Development' Journal of Agricultural and Development
Economics, FAO (2007) concluded: “There is a separate but
related question of whether poor families receive remittances. Again, however,
although the very poorest families may not receive large amounts of
remittances, and some observers have found that remittances may exacerbate the
inequality of family incomes, nonetheless a significant portion of remittances
are received by families who would otherwise be in poverty”. To critically
analyze the impact of remittance, Lucas quoted Adams (1991, 1998) that
estimates that overseas migration has sharpened inequalities in family incomes
in Egypt and Pakistan respectively. Lucas presented the contrasting view on
role of remittance on bringing down the income equality among the people in
recipient counties referring Taylor and Wyatt (1996) who finds that remittances
to rural Mexico, over 80 percent of which come from the US reduce inequality.
Like in Nepal, positive
impact of remittance in poverty reduction has been seen in Bangladesh, which is
also leading country for sending migrants to overseas destinations. Incidence
of poverty was recorded at 48.9 percent in the year 2000 before going down to
40 percent in 2005 and 31.5 percent in 2010.Bangladesh
received remittances worth US$1.94 billion in the year 1999/2000, US$4.8
billion in 2005/06 and US$ 11.65 billion in 2010/11.
Average per Capita Income Increased
With
the increasing flow of remittances into Nepal, an average per capita nominal
income of the people also went up significantly over 15 years. Data shows that
per capita income in 2010/11 touched Rs 41,659, up from Rs 15, 161 in 2003/04
and Rs 7690 in 1995/96. Similarly, average nominal per capita income of poorest
section of the populationalso increased to Rs 15888 in 2009/10 an increase
compared to Rs 4003 recorded in 2003/04 and Rs
2020 in 1995/96.
Households receiving remittance
headed by female is on the rise
According to NLSS I,II and III show that
number of remittance-receiving households headed by female increased to 26.6
percent in 2010/11, up from 13.6 percent in 1995/96 and 19.6 percent in 2003/04
as a result of increasing number of departure of male to overseas job markets.
Likewise, the size of land is biggest
in households which received remittance from abroad, followed by domestic, and
the India as the workers leaving for overseas are either earn more money to buy
land or from comparatively well off compared to those heading for India.
Share of farm income in total house hold income decreased,
nonfarm income increased
NLSS
I, II and III show that increasing migration from Nepal has led to the decline
in the contribution of agriculture in total household income. Agriculture
related income had dropped to 27.7 percent of total income in 2010/11 from 47.8
percent in 2003/04 and 61 percent in 1995/96 as the increasing number of youths
leaving for international labor destination quitting farm activities went up
over the period. Similarly, non-farm income's share in total household income
increased to 37.2 percent in 2010/11 from 27.6 percent in 2003/04 and 37.2
percent 1995/96-- a condition largely contributed by remittance.Similarly, the
surveys further shows that dependency of people in agriculture also decreased
to 76.3 percent in 2010/11 from 79.9 percent in 2003/04.Share of agriculture
wage in overall employment opportunities has also decreased to 35 percent in
2010/11, from 37 percent in 2003/04 and 53 percent in 1995/96 with the exodus
of youths to foreign countries leaving the agriculture jobs.
David
Seddon, JagannathAdhikari and Ganesh Gurung, Critical Asian Study, 2002
'Foreign Labor Migration and the Remittance Economy of Nepal' quoted MeenaAcharya, “Globalization Process and the Nepalese Economy,”
in Impactof Globalization in Nepal, Nepal Foundation forAdvanced Studies [NEFAS], 1998) to show the
realization of importance of non-farm income, particularly in the hill areas.Rural
livelihoods have never been wholly reliant on agriculture, and labor migration
has long been an important feature of rural existence in Nepal.
Impact on Balance
of Payment (BOP) and contribution in foreign exchange of remittance (yearly)
Remittance is a primary source of
foreign exchange, which has been growing very sharply with the rapid growth in
the number of overseas job seekers. Inflows of remittances are directly
proportionate to the number of outbound workers. So, the foreign exchange
reserve has increased with the rise in annual foreign exchange earnings.
|
Foreign Exchange Reserve
|
|
Year
|
Rs (in billion)
|
Year
|
Rs (billion)
|
|
2002/03
|
108.3
|
2007/08
|
212.62
|
|
2003/04
|
130.21
|
2008/09
|
286.54
|
|
2004/05
|
129.9
|
2009/10
|
268.91
|
|
2005/06
|
165.03
|
2010/11
|
263.13
|
|
2006/07
|
165.13
|
|
|
The total
convertible foreign exchange income of Nepal in fiscal year 2010/11 was Rs 312
billion, up from Rs 157 billion in 2005/06, a whopping 98 percent increase
between the twoperiods due to increasing inflow of remittance that has emerged
as the largest source of foreign exchange earnings.
In 2010/11, the
share of remittances, tourism and investment in total convertible foreign
exchange income of services trade was 85.27 percent, 11.35 percent, and 3.38
percent respectively. In numbers, these translate to Rs 214 billion, Rs 29.39
billion, andRs 5.42 billion respectively. However, the total share of
remittances, tourism and investment in total convertible foreign exchange
income was 74.75 percent, 9.95 percent, and 2.97 percent respectively.
Until
2001, remittance was least talked about because its magnitude was not
significant to draw anybody’s attention. Export was the largest source of
foreign exchange followed by official development assistance and then tourism
receipts. Remittance was distant fourth. In just one year after 2001,
remittance increased three-fold and secured second spot as the foreign-exchange
contributor. In 2006, remittance surpassed exports and since then, the rise in
remittance each year has been remarkable. Remittance now exceeds four times the
annual exports.
The literature
on remittances has shown that these flows have an important macroeconomic
impact in the receiving sectors. A country’sbalance of payments benefits
significantly from remittances as they help reduce trade deficits, or increase
foreign currency reserves. Moreover, as money enters the banking financial
system, the national savings rates increase, too, allowing the country to
increase opportunities for domestic investment. Guyana has already benefited in
many of these respects. For example, the deposits in bank accounts from
Guyanese living abroad are both an important source of foreign exchange and
evidence of domestic saving.
Gross National Disposable Income
Nepal has been experiencing continuous
growth in remittance inflow since last few years and as a result its disposable
income has also continued to rise. The total source of income available to
spend within the country is defined as Gross National Disposable Income (GNDI).
The continuously increasing flow of remittance since last few
years isreflected in the increased disposable income during the same period. In
fiscal year 2010/11, GDP at current prices is estimated to grow by 14.9
percentand gross disposable income by 14.3 percent as compared to respective
growths of 18.6 and 17.2 percent in FY 2009/10. The GNDI in fiscal year 2010/11
is estimated at 124.3 percent of GDP.
Based on proportion of GNDI,
consumption out of gross national disposable income appears to be 75.1 percent
with a gross national saving of 24.9 percent. These proportions in the previous
fiscal year were 74.1 percent and 25.9 percent respectively.
Increase in entrepreneurship
Migrant returnees generally come back
to agriculture and some remain less active while some go to “others” category,
indicating a slight increase in entrepreneurial activities and acquired skills.
Meanwhile, returnees choose occupation similar to those they held before
migration. A returnee who was active before migration is 17.5 percentage points
more likely to remain active upon return.“Real” returnees, those who are not
likely to migrate, are involved in more professional and entrepreneurial
activities.
Return migration as an important phenomenon if we want to quantify
precisely the effects of increased international mobility of the highly
educated on the wages and human capital of middle income countries with
significant migration of skilled workers. We document that for regions such as
Eastern Europe and Asia return migration may implythat 20 to 30% of highly
educated emigrants return home when they are still productive and contribute
importantly to the average income and wages of the sending country.
Two case studies have been stated here
to highlight how the overseas stay of migrant workers influence in their
entrepreneur habit and interest.
RUPAK D SHARMA
BIRTAMOD (JHAPA), Nov 19: In early 2000, Giri Raj Upreti, a
farmer from Sanischare-3 in Jhapa concluded that he wouldn´t be able to pay the
debt of Rs 400,000 that he took to build a house - his much pursued dream - if
he continued doing the same work.
He had assumed the earnings he was making from vegetable
farming would be enough to pay the installments.
"But practically it wasn´t that easy," he said.
At that time, Giri, who´s now 43, was working as a vegetable
farmer. This had been his profession for the past seven years and he was
growing all sorts of vegetables on five katthas (18,190 sqft) of rented
land.
"The work was giving me something like Rs 50,000 to Rs
60,000 per year, which was a pretty decent amount in those days," he
said.
Although most of this money used to go on feeding the family
members, he had managed to save around Rs 500,000 over the years. But as his
home-building project started gathering pace, his savings also started petering
out.
"Suddenly I had nothing left," he said. "And
the money that I was earning from the farm was only enough to cover household
expenses. So how was I supposed to pay the installments?"
That´s when Giri decided to take up a job in Qatar,
something which he had never thought of. Qatar was a completely different
environment for Giri. It was a developed country with modern infrastructure and
top-of-the-end facilities, but for those like him the quality of life was far
worse than in Nepal.
"Around 20 of us had to live in a shoe-box like
apartment," he said. "And we had to sleep in double-decker
beds."
Yet he called it "destiny" and put all his focus
on work. He also lived a frugal life, saving something like Rs 35,000 per month
out of the salary of around Rs 45,000 that he used to get. This continued for
around six years.
"Life was going on and I was happy as I was saving
quite a lot of money," he said.
Then one day he received a call - a call that would
eventually bring him back home.
It was from his wife who informed him that some of his
friends back home were growing vegetable commercially and were earning
"pretty good amount".
At first, the idea of returning to Nepal didn´t interest
him. He had worked as a farmer before and he knew the profession wasn´t
something that would let him lead a comfortable life. Yet he slept on the idea
for the next couple of days, during which he did a lot of soul searching.
"I asked myself why I had come to Qatar. The answer was
pretty obvious: to repay the loan. I had already done that. On top of that I
had also saved additional 300,000-400,000 rupees," he said.
He then assumed he had accomplished his mission and there
was no reason for him to stay away from home. So in December 2009 he returned
to Nepal.
Back home, things had changed a lot. His friends had
expanded their farming areas and were growing vegetables throughout the year.
He was also happy that the agricultural cooperative - KataharDanda Agricultural
Cooperative - which he had co-founded in 1999, was still alive and serving its
purpose of providing market access to farm products and extending support to members.
Yet something seemed to be lacking. "It was the yields,
which had grown over the years, but not that substantially," Giri said.
Then came Sahara Nepal, an NGO, which had received a grant
of Rs 14.7 million from the Asian Development Bank to implement commercial
agriculture development programs in various places in Jhapa.
The NGO, which came in the scene last year, had agreed to
invest Rs 775,000 of the total amount it had received on KataharDanda
Agricultural Cooperative. This was spent on providing training on enhancing
yields and pest management to 45 members of the group.
"In one year´s time, we have learned various planting
techniques and accumulated skill on identifying different diseases. We have
also learned how to make compost out of weeds that grow in our fields,"
Giri´s wife, Anita Upreti, said.
"Because of these trainings, our crop yield on each
kattha (3,638 sqft) of land has gone up to around 10-15 quintals from around
5-7 quintals, while annual earning from per kattha of land has now gone up to
Rs 21,350 from around Rs 15,000 of last year," Basanta Kumar Rajbanshi,
chairman of the cooperative said.
Giri, one of the beneficiaries of this transformation, is
now growing vegetables on 1.5 bighas (around 1 hectare) of land and is earning
more than Rs 500,000 per year.
When asked if he regrets coming back home, Giri, who
supplements his income by working as an insurance agent, said: "No. If I
can maintain this level of income in the coming days, I will never ever go
abroad to work."
Foreign
returnees make millions in fisheries
MANOJ ADHIKARI
POKHARA, Dec 10: At
a time when a majority of rural youths are moving overseas to earn a decent
income, Lakshin and AmritGurung - brothers in law holding permanent residency
of the UK and Japan, respectively -- are making millions in their own village
by starting a fishery business nearby the lake city.
When the Gurung brother in-laws decided to return, they had little idea what
they would do, but eventually jumped into Rainbow Trout farming in a land owned
by their in-laws in a place near Sardikhola of Pokhara.
Their efforts, which materialized in the form of Gandaki Rainbow Trout Farm,
required them to invest Rs 8 million for purposes like acquisition of land,
development of necessary infrastructure, buying a feed machine and hiring the
workers. But just within a year, the investment is fetching them a return
ofRs15million.
“This year also, we are targeting to sell 18 tons of fish in the very first
harvest,” said Lakshin, who returned to Nepal despite holding red passport of
the UK- a privileged position in UK. As the climate and temperature of the area
perfectly suits the farm, we have better production than other areas, he told
Republica.
Encouraged by the first year´s turnover, half of which was net profit, Gurung
brothers have worked out fresh plans to expand the farm and produce more fish
to increase their profits. “Given that Rainbow Trout is high on demand and priced
pretty well, we are sure we will earn more profits next year,”saidLakshin.
The efforts of Gurung brothers, meanwhile, has
helped people in the region to realize that commercial farming would enable
them to make more money than what they would in overseas jobs.
Lakshin, who had gone to Kathmandu from his native village, Ghandruk, in 1996,
initially undertook woolen yarn business and later worked as an importer of
garments, bringing in apparels from Hong Kong and Bangkok.
However, after the prospect of such business doomed, he move to Hong Kong under
the status of dependent of his wife BishnuKumari, who had Hong Kong ID. After
the UK government changed opened residency to the families serving the British
government, he eventually landed in London.
Though his wife, having experience of working as a chef, easily adapted in the
new setting, Lakshin, however, remained unemployed and was unhappy there.
“The UK is definitely a developed and
prosperous country. But I saw no opportunity except for menial jobs. That
constantly compelled me to return to Nepal,” he related.
During that period, his brother in law Amrit was settled in Tokyo with his
family. He had a permanent residency and was pursuing meat and fish businesses.
“I proposed him to return to Nepal and start a business of our own. Though he
was reluctant, I compelled him to agree. We agreed to start meat and fish
business,” said Lakshin.
Thanks to their dedication to do something for themselves, Gurung in-laws have
set up a good business and also created employment opportunities for seven
persons. “We will soon hire six more people in a restaurant that we are opening
shortly nearby the farm,” said Lakshin.
The Gurung in-laws had started rearing fingerlings in April by preparing 31
race ways in a land located at Sardikhola-3, Mulkhel, Barahsthan. Now they are
constantly harvesting and selling the popular variety of fish.
The farm that started by bringing 80,000
fingerlings from Trishuli has today become a model farm in the district.
District Agricultural Development Office (DADO) and Regional Agricultural
Directorate always refer the farm to concerned stakeholders with high regard.
“It is a model farm. I always take business people and other stakeholders to
the farm to show them how fish farming should be done,” said BeniBahadurBasnet,
chief of Kaski DADO. He disclosed he is also planning to organize a Rainbow
Trout Festival in the city.
Amrit, meanwhile, said that they were also thinking of breeding fingerlings at
the farm in a bid to be self-dependent on all aspects of fish farming.
However, the Gurung in-laws expressed they will decide on the plan only after
they get a clear picture of the market. “For now we are facing difficulty in
fulfilling the demands we are getting,” Amrit stated. Individual customers too
are approaching the farm.
“We are selling at least 20 kg of fish to
individuals from the farm itself,” said Amrit.
Likewise, as the cost of fish feed is expensive in the market, Gurunginlaws
have also bought a machine to produce the feed themselves investing Rs 1
million. “We must feed 3 kg of pellet feed to a fish to enable it gain a weight
of 1 kg. Given such huge requirement of feed, we thought it is better to
produce it ourselves than rely on expensive supply, which costs Rs 200 per kg,”
said they.
Normally, trout is ready for harvest within a year. But because of suitable
climatic conditions, the farm has been able to harvest it in 7-8 months.
Because of high nutritional value, trout is expensive the world over. In Nepal
too, retailers in different cities are selling it at more than Rs 1,000 per kg.
However, Gurung in-laws are presently selling them at Rs 800 per kg.
“Trout is expensive in the market because it is imported from India. This has
rendered it unaffordable for general consumers. We want to change this
situation. Every Nepalese should be able to afford it,” said Amrit.
Likewise, as the cost of fish feed is
expensive in the market, Gurunginlaws have also bought a machine to produce the
feed themselves investing Rs 1 million. “We must feed 3 kg of pellet feed to a
fish to enable it gain a weight of 1 kg. Given such huge requirement of feed,
we thought it is better to produce it ourselves than rely on expensive supply,
which costs Rs 200 per kg,” said they.
“Trout is expensive in the market because it is imported from India. This has
rendered it unaffordable for general consumers. We want to change this
situation. Every Nepalese should be able to afford it,” said Amrit.
If the farm managed to produce as much trout as they have planned, he said they
will further lower the price.
Per Capita Consumption
(National average)
NLSS
I, II and III show that with the soaring income among the people, consumption
level has also increased. Per capita consumption value has increased to Rs
34,829 in 2010/11 from Rs 15,848 in 2003/04 and Rs 6802 in 1995/96. Food price
has also increased by 1.8 times between 2003/4 and 2010/11 with the rising
demands of foods as disposable income of the people continued to go up with the
soaring flow of money through remittances.
Economic Survey 2011 stated the
country’s economy is gradually becoming consumption orienteddue to remittance
income and other factors thereby causing hopelessplunge in savings and
investment rates.
Consumption to GDP that stoodat 88.3
percent in FY 2000/01 has gone up to 93.3 percent by FY 2010/11. As a result,
the rate of domestic savings has come down to 6.7 percentfrom 11.7 percent
during this period.
Consumption oriented economynaturally
leads to dependency resulting in the dearth of resource forinvestment. Hence,
it is another challenge of creating the foundation foreconomic growth through
enhancement of saving and investment levelsby discouraging unnecessary consumption.
Real Estate price
hike
Economic Survey 2011 has showed thatReal
Estate, Rent and Commercial Service sub-sector-is estimated to achieve the growth
rate of 2.6 percent in the year 2010/11. This sub-sector had achieved growth
rate of 3.6 percent in the previous year. Due to the policy arrangements made
by Nepal Government to manage unusual price hike on land and buildings and
their transactions, the growth rate of this sub-sector is expected to see
nominal decline. The survey further states that this subsector has achieved an
average growth rate of 6.1 percent in the last five years with an average
contribution of 8.2 percent to the GDP.High remittance also appears to have
contributed to the formation of a real estate bubble in the country. This pushed
up annual real growth of gross disposable income to 7-8 percent as opposed to
GDP growth of 4-5 percent.
Because of limited investment
opportunities in the economy much of the additional demands went into the real
estate sector creating a boom that involved speculative activities-- a good
part of which was funded by banks and credit cooperatives.
In an interview during the research, Min
Man Shrestha, general secretary of Housing Developers Association in Nepal- an
umbrella organization of Nepalese housing developers,estimates that price of
land has shot up ten times over 10 years with more than 40 percent buyers of
land and building being migrant returnees.
Rising import, slowing exports
Economically dependence on the
overseas workers' earning has increased over few years with slowing industrial
growth that ultimately led import rise and soaring exports.Imports-GDP ratio accounts
for 32.2percent at the in the year 2010/11, down compared to 37.4 percent
recorded in previous fiscal year, Economic Survey, 2011 shows.
However, the share of exports of goods
and services to GDP recorded lowest at 8.7 percent in the current fiscal year
2010/11, thanks to the slowing industrial growth and weakening supplies capacity
to boost exports.In the fiscal year 2002/03 GDP share of net imports was only
15.7 percent while the exports covered impressive 28.5 percent.
|
Ratio of export
and import to GDP
|
|
Year
|
Percent of Export
|
Percent of Import
|
Year
|
Percent of Export
|
Percent of Import
|
|
2002/03
|
15.7
|
28.5
|
2007/08
|
12.9
|
33.3
|
|
2003/04
|
16.7
|
29.5
|
2008/09
|
12.4
|
34.7
|
|
2004/05
|
14.6
|
29.5
|
2009/10
|
9.8
|
37.4
|
|
2005/06
|
13.4
|
31.3
|
2010/11
|
8.7
|
32.2
|
|
2006/07
|
12.9
|
31.7
|
|
|
|
Trade deficit
There has been correlation between
massive outflows of workers to international labor markets, increasing
remittance and trade deficit. Trade deficit which was last decreased by 3.6
percent to Rs 61.24 billion in 2001/02-- when Nepalese youths leaving for
overseas jobs started to go up sharply--
followed by huge rise in the trade deficit in subsequent years. Since
2001/02, trade deficit widened due to slowed industrial and agriculture growth.
According to data from the government's Trade and Export Promotion Center
(TEPC), trade deficit posted a whopping rise by 41.5 percent to Rs 314.65
billion in the fiscal year 2009/10 compared to earlier year. Trade deficit also increased to Rs 332.97
billion during the fiscal year 2010/11 despite rise by lower rate of 5.8
percent compared to previous year.
Dutch Disease
effect of remittance
The World Bank2010 report on
Large-scale Migration and Remittances in Nepal: Issues, Challenges, and
Opportunitiessays that Dutch Disease effects are seen inNepalese economy amid
rising influence of remittance. It shows that while remittances are increasing,
contribution of manufacturing and exports sectors in the GDP is declining. It
says that there is a "Vicious Policy Cycle " in which more remittance
leads to laxity of policymakers, then inadequate investment climate, followed
by low private investment then low growth to be followed limited job
opportunities and then more migrants, ultimately leading to exodus of the more workers and higher remittances.
Slow Industrial growth:The growth rate of production of
manufacturing sub-sector had been sluggish since last few years. The government
estimated the industrial output to grow by 1.5 percent in FY 2010/11 as
compared to 1.2 percent growth in the previous fiscal year states Economic
Survey, 2011.
The government which is not serious in
promoting export through domestic production boost due to over dependence in
remittance has led to the slower industrial growth in the countries compounded
with other problems such as labor unrest, political instability and power
crunch. Similarly, according to Economic Survey 2011, contribution of
manufacturing sector in GDP also dropped to 6 percent in 2009/10, from 6.6
percent in 2008/09, 7 percent in 2007/08, 7.2 percent in 2006/07, 7.3 percent
in 2005/06, 7.6 percent in 2004/05, 7.8 percent in 2003/04, 7.9 percent in
2002/03, 8.2 percent in 2001/02 and 8.7 percent in 2000/01.
ChandanSapkota
writes on Cost and Benefits of Remittance on his BlogSpot (http://sapkotac.blogspot.com/2011/07/costs-and-benefits-of-remittances-in.html) that as domestic income increases due to remittances,
aggregate demand and spending goes up as well. This puts pressure on non-tradable
goods in the domestic market, leading to rise in demand and output. But, due to
high demand wages also tend to increase in all the sectors, both tradable and
non-tradables.
He further
argues that it will increase cost of production throughout the economy, leading
to squeezing profits in the non-resource tradable sector (manufacturing), whose
prices are pretty much fixed in the international market. This means customers
will look for substitutes at cheaper price, thus reducing domestically produced
non-resource tradables. This gradually erodes the existence of the whole sector
itself. Price of non-tradablesare set in the domestic market, but the price of
tradables are set in the international market. Meanwhile, since incomes are
higher from migration, capital and labor are attracted to this sector from
other sectors of the economy, reducing output and labor supply in the latter
ones.
Rising Inflation
Economic Survey, 2011 shows that rate
of inflation continued to remain high over the few years. Theannual
point-to-point aggregate Consumer Price Index (CPI) by mid-March 2011 rose by
10.7percent as compared to 9.9 percent rise in the consumer inflation rate
inthe correspondingperiod of 2010. The annual point -to- point change inprices
of food and beverages category during this period recorded a riseof 17.3
percent bymid-March 2011 as compared to 5.3 percent rise innon-food and
services category during the same period. The country is facing higher price
rise since last two years with 13.2 percentand 10.5 percent hikes in FY 2008/09
and 2009/10 respectively. Inflationrate was put at even higher at 10.7 percent
during first eight months of the fiscalyear 2010/11.
The Economic Survey 2011 also states
that although developed and emerging economies are also encounteringthe
pressure of price rise, rate of inflation in Nepal is higher in comparisonto
those countries. Low economic growth rate accompanied by continueddouble digit
inflation has been adversely affecting economic activities andthe people’s
livelihood.
Economist also attributed the
inflation to rising fuel price, cost of production due to wage hike as well as
the increasing remittance receipts.
|
Annual CPI
|
|
Year
|
Percent
|
Year
|
Percent
|
|
2002/03
|
4.8
|
2007/08
|
7.7
|
|
2003/04
|
4
|
2008/09
|
13.8
|
|
2004/05
|
4.5
|
2009/10
|
10.5
|
|
2005/06
|
8
|
2010/11
|
9.6
|
|
2006/07
|
6.4
|
|
|
While
remittance negatively affected the overall economic growth, it appears that it
has created incentives for the agricultural sector. In the first place, due to
additional disposable incomes in the hands of families receiving remittance,
food prices have generally gone up. This is the reason why overall inflation
remained very high in the last three years.
Decrease in working hours
Remittances have also made recipient
family members to increase leisure, work less and reduce labor supply. Male
family members withmigrants abroad worked 5.6 hours less than their
counterparts in families without migrants.
Remittance receiving households
reduced their labor supply by 15 percent with the increasing income from
overseas earners from those families.With the less working
hours of remittance receiving household members has led to the wage hike amid
deepening shortage of workers.
Hike in wage
Increasing
exodus of Nepalese youths to international labor markets has sparked shortage
of workers in agriculture and non-agriculture sectors leading to the higher
wage demands by the available workers. NLSS I, II and III show that daily wage
for an agriculture labor shot up to Rs 170 in 2010/11, than Rs 40 in the year
1995/96 and Rs 75 in 2003/04. Similarly, daily wage in non-farm sector also
increase to Rs 263 in 2009 from Rs 74 in 1995/96 and Rs 133 in 2003/04.
Influenced by higher remittance income, receiving household
members reduced their working hours paving the way forpoor households,
landless or those unable to migrate to earn more, with the shortage of workers.
This was in addition to higher wage resulting from reduced labor supplies on
account of migration.
Not
only the landowning farmers have benefitted because of the rising prices of
food-grains and other agricultural produce, the farm wages also have gone up
sizably. The farm wage index has increased at a much higher rate than overall
wage index. In the last three years, the farm wage index went up respectively
by 20 percent, 24 percent and a by a whopping 32.3 percent in the recently
concluded fiscal year.
Income inequality
Though remittances have increased the
income of the households, the rising inflows of the overseas earnings to the country have also widened the income-gap between
upper and lower classes of people. To some extent the remittances from India-
the key destination for lowest class of seasonal migrants from Nepal---
contributed to control the further gap of income between the two sections of
remittance receiving households.
During 1995-96, percentage of urban
population below poverty line was 21.6 percent which fell sharply to 9.6
percent by 2003-04. The population below poverty line in rural areas decreased
to 34.4 percentfrom 43.3 percent. The rate of poverty is higher at recipients
from India and lowest at recipients from abroad as most of the workers in the
southern neighbor are doing low-paid jobs. The income inequality is increased
at the same time from 0.322 point in 1995-96 to 0.414(GiniCoefficient)in
2003-04 and 0.328 in 2010/11.
In the case of Bangladesh- another
labor sending country in South Asia like Nepal- has reported the similar income
inequality of (GiniCoefficient)0.432 in 1995 and 0.458 in 2010/11 though it is
improved from 0.472 in 2000 and 0. 467 recorded in 2005.
Spending of remittance in unproductive sectors
According
to NLSS surveys, a large chuck of remittances is spent in unproductive sectors.
Out of the total remittance receipts, 78.9 percent is spent for daily
consumption, 4.5 percent for home and property,7.1 percent to repay loan, 3.5
percent for education and 2.4 percent for capital formation.
A study in 2002 by the Nepal Rastra
Bank on the impact of remittance was undertaken in 10 districts across the
country with a total of 160 households. The study found that the remittance
income has been largely used on household purposes--- purchase of land,
purchase and maintenance of new houses, paying off loans, deposit cash in bank
and finally invest for business purposes.
However, some returnee migrants have
also invested their savings in business ventures-- albeit at limited level.
Responding to the finding of the study, the central bank tried to formulating
and implementing policies focused on remittance. The government has issued
bonds targeting earning of migrants in major destinations in an effort to
channel the remittances for productive use but its implementation has not been
effective.
The policy makers and central bankers
did not put serious thought to managing the influx of money. It was a blessing
to those who wanted to do nothing to steer the economy. The hang of the inflow
of remittances was so strong that very few policymakers and analysts cared
about channeling the money into productive sectors for investment proposes.
Hence, the industrial growth was (andis ) at one of the lowest points. Since
managing investment spending via remittances was a forgone priority, the money
went into unproductive sectors. The contribution of remittance in stimulating
the real sector is nominal. Sectors such as construction, real estate and
banking flourished beyond anyone's expectations.
Slow economic growth
Nepal’s
economic growth rate was quite satisfactory until 2001 when Maoist insurgency
was its peak forcing large number of people to go for overseas jobs. During the
years between 1991/92 and 1995/96, the average annual economic growth was 5
percent. In the period of five years after 1995/96, Nepal’s average growth rate
receded to 4.7. From2000s Nepal's average growth rate hardly hovered around
meager 3 percent.
Remittance
has been seen as a lifeline for the poor households in Nepal, however, over
dependence on remittances has plagued the economic growth rate significantly.
Those who left home for jobs outside the country were the most energetic and
the productive ones. If rate of annual growth in remittance in these years is
adjusted for annual inflation, then its contribution in national income is more
or less offset by the losses in economic growth rate. It is not the absence of
opportunities but suppression of opportunities due to escalating armed conflict
that pushed these energetic people outside.
7. Conclusion and recommendations
Bleak employment
opportunities amid slowing economic activities caused by long-running political
instability, huge number of Nepalese youths are forced to leave the country for
foreign employment. Remittances which were once nominal contributor in the economy
are now covering more than one-fifth of the total GDP of Nepal. Increasing
inflows of remittances resulted in the significant fall in poverty level, rise
in foreign reserve,and improvement in per capita household income withrising
purchasing power besides improvement in BOP level in the over one and a half
decades.Similarly, a sense of entrepreneurship has been emerged among the
youths who returned with some skills along with money from overseas destinations.
However, flip
side of remittance is not rosy. Higher incoming remittances have left both
positive and negative impact in the Nepalese economy.A large chunk of
remittances has been used in unproductive sectors like consumption and buying
property rather than in the sectors that generate employment within the
country. So, the government should increases efforts to properly utilize the
remittance receipts for productive sectors on the back of lion share of
remittances being drenched in unproductive sectors, mainly consumption.
Though the number
of workers leaving for foreign jobs is increasing, the beneficiaries of this
opportunity are still very limited. Poorest section of people including
indigenous, underprivileged, marginalized, women and ethnic communities are
still the least benefited ones. It is high time for the government to take
concrete policy to make foreign employment more inclusive.
Given the high
concentration of Nepalese workers in Qatar, Malaysia, the UAE and Saudi Arabia,
the government should make policy to diversify labor destinations so that
remittance inflow should not the badly affected even if those countries take
adverse policy to control foreign migrants or any other adverse situation
occurs in those markets.
With the rising
inflows of remittances Nepal's internal competitiveness for supplies of goods
in international market has been weaken leading to slowing exports and rising
imports amid soaring cost of production caused by rising inflation, labor
shortage and wage hike.
So, the
government should adopt the policy that create employment opportunities within
the countries and bring down the cost of production to enhance competitiveness
of domestic products for boosting exports. Unfortunately, the government is seemed
less bothered or feels less pressured tocome up with aggressive programs to
boost exports or generate employment within the country to lessen the
dependence on remittances.
It has become
detrimental to the overall performance of the economy on the heel of over
dependence on the remittances which has led to higher consumption,more imports
as well as higher production cost. With rising income level among
remittance-receiving families has not only increased consumption but reduced
the working hours of the recipient households- a trend that brings down the
productivity of migrants family.Dutch Disease effects have started to be seen
in the economy in the form of higher consumption demand, wage rise, high
imports, and less exports- amid sluggish factory activities.
Though India is the key
recipient of Nepalese workers, especially those from the poorest section of
society, the migration to the southern neighbor has not been in organized
manner as the government is not giving due priority and showing less
seriousness about the safety and wellbeing of those working in India. The
government should acknowledge the importance of migration to India at par with
overseas destinations as remittance from India is crucial to narrow down gulf
of income level among the people.
Likewise, as exorbitant remittance
cost is still plaguing recipient countries despite the cost has marginally gone
down by 1.5 percentage point to 7.5 percent in 2011 compared to 2008. Such
remittance dependent economies have to seek ways to bring down the cost of
remittance so that they would be more benefitted from the existing earning of
their migrants.
Bibliography
Goldberge,Michael A and D Levis Maurice, ‘Impact of
Remittance on Economic Growth’, Master Card Worldwide Insights (2008)
Sharma
Krishna, ‘The Impact of Remittances on
Economic Insecurity’ working paper United
Nations Department of Economic and Social Affairs, 2009 (http://www.un.org/esa/desa/papers
Large scale Migration and Remittance
in Nepal: Issues, Challenges and Opportunities, World Bank, 2010
