Insight Nepal: Prabhakar's Research report in Nanyang Techological University, Sigapore

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.[1]

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.[2]

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.[3]

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

Source: CBS, Nepal[4]

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

Source: DoFE, Nepal[5]

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.[6] (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.[7]

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.[8]

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.[9]

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

Source:[10]

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.[11]

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.[12]

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.[13]

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.[14]

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.[15]

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

Source:[16]

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).[17]

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.[18]

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.[19]

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.[20]

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

Source:[21]

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. [22]

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[23].

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.[24]

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.[25]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.[26]

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.[27]

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.[28]

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.[29]

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.[30]

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.[31]

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.[32]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.[33]

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.[34]

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

Source: [35]

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.[36]

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.[37]

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.[38]

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.[39]

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. [40]

Two case studies have been stated here to highlight how the overseas stay of migrant workers influence in their entrepreneur habit and interest.

Case study- 1 [41]

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."

Case study 2[42]

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

Source:[43]

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

Source:[44]

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.[45]

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.[46]

Remittance receiving households reduced their labor supply by 15 percent with the increasing income from overseas earners from those families.[47]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.[48]

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.[49]

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.[50]

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.[51]

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.[52]

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.[53]

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

Department of Foreign Employment, Nepal 2011

Nepal Migration Survey, 2009, Nepal Government

Gurung Ganesh, Sharma Jana, 'Impact of Global Economic Slowdown on Remittance Flow and Poverty Reduction in Nepal, Institute of Integrated Development Study, Nepal, 2009

Nepal Rastra Bank, (the central bank of Nepal), 2010

Large Scale Migration and Remittance in Nepal: Issues, Challenges and Opportunities in Nepal, World Bank, 2010

'The Future of Migration, Building Capacities by Change' World Migration Report 2010, International Organization of Migration (IOM), Geneva

'Outlook of Remittance Flows 2012-2014', 'Migration and Development Brief-17' World Bank, 2011

Nepal Living Standard Surveys, I, II, III, Central Bureau of Statistics, Nepal Government, 2011

Central Bureau of Statistics (CBS), Nepal 2011

Hoermann, Brigitte, Kollmair Michael, Working Paper on 'Labor Migration and Remittance in the Hinda Kush-Himalayan Region', International Centre for Integrated Mountain Development (ICIMOD) 2009, Lokshin and Others 2007

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[1]Large scale Migration and Remittance in Nepal: Issues, Challenges and Opportunities, World Bank, 2010

[2]Kafle, Hemraj, BramhaputrakaChheuchhau: A Saga of Nepalese Migrants' Identity Crisis, Bodhi, (2007), Kathmandu University, Nepal

[3] Large scale Migration and Remittance in Nepal: Issues, Challenges and Opportunities, World Bank, 2010

[4] Central Bureau of Statistics (CBS), Nepal 2011

[5] Department of Foreign Employment, Nepal 2011

[6] Nepal Migration Survey, 2009, Nepal Government

[7]Gurung Ganesh, Sharma Jana, 'Impact of Global Economic Slowdown on Remittance Flow and Poverty Reduction in Nepal, Institute of Integrated Development Study, Nepal, 2009

[8] Nepal Rastra Bank, (the central bank of Nepal), 2010

[9] Large Scale Migration and Remittance in Nepal: Issues, Challenges and Opportunities in Nepal, World Bank, 2010

[10] World Bank 2011

[11] Nepal Migration Survey, 2009

[12] Nepal Migration Survey, 2009

[13] Department of Foreign Employment, 2011

[14] 'The Future of Migration, Building Capacities by Change' World Migration Report 2010, International Organization of Migration (IOM), Geneva

[15] Large Scale Migration and Remittance in Nepal: Issues, Challenges and Opportunities, World Bank, 2010

[16] World Bank, 2011

[17] 'Outlook of Remittance Flows 2012-2014', 'Migration and Development Brief-17' World Bank, 2011

[18] 'Outlook of Remittance Flows 2012-2014', 'Migration and Development Brief-17' World Bank, 2011

[19] 'Outlook of Remittance Flows 2012-2014', 'Migration and Development Brief-17' World Bank, 2011

[20] 'Outlook of Remittance Flows 2012-2014', 'Migration and Development Brief-17' World Bank, 2011

[21] Economic Survey 2011, Ministry of Finance, Nepal

[22] 'Outlook of Remittance Flows 2012-2014', 'Migration and Development Brief-17' World Bank, 2011

[23] 'Outlook of Remittance Flows 2012-2014', 'Migration and Development Brief-17' World Bank, 2011

[24] 'Outlook of Remittance Flows 2012-2014', 'Migration and Development Brief-17' World Bank, 2011

[25] Nepal Living Standard Surveys, I, II, III, Central Bureau of Statistics, Government of Nepal, 2011

[26] Nepal Living Standard Surveys, I, II, III, Nepal Migration Survey, 2009, Central Bureau of Statistics, Nepal Government, 2011

[27]Gurung Ganesh, Sharma Jana, 'Impact of Global Economic Slowdown on Remittance Flow and Poverty Reduction in Nepal Institute of Development Studies , Nepal, 2009

[28]Hoermann, Brigitte, Kollmair Michael, Working Paper on 'Labor Migration and Remittance in the Hinda Kush-Himalayan Region', International Centre for Integrated Mountain Development (ICIMOD) 2009, Lokshin and Others 2007

[29]Bhadra , Chandra, International Labor Migration of Nepalese Women: The Impact of their Remittance on Poverty Reduction, Asia Pacific Research and Training Network on Trade, 2007

[30]Gurung Ganesh, Sharma Janardan and Others, Nepal Migration Book 2010, Nepal Institute of Development Study (NIDS), National Center for Competence in Research, Nepal

[31] Page, Johan and Adams, H. Rechard, International Migration Remittance and Poverty in Developing Countries, World Bank, 2003, Policy Research Working Paper No.3179

[32] Bangladesh Bureau of Statistics (BBS), 2011

[33] Foreign Exchange Policy Department of Bangladesh Bank, 2011

[34] Economic Survey 2011, Ministry of Finance and Nepal Living Standard Surveys I, II, III,

[35] Nepal Rastra Bank, 2011

[36]KhanalRameshwore, Republica English Daily, Nepal , 2011

[37] Orozco, Manual 'Remitting Back Home and Supporting the Homeland: The Guyanese Community in the US, Inter-American Dialogue, Working Paper commissioned by the US Agency for International Development, 2002

[38] Economic Survey 2011, Ministry of Finance, Nepal

[39]Gurung Ganesh, Sharma Jana, 'Impact of Economic Slowdown in Remittance Flow in Nepal' Institute of Development Study (NIDS),2009

[40]Mayr Karin, and Peri, Giovanni, working paper on 'Return Migration as a Channel of Brain Gain', National Bureau of Economic Research, Cambridge, 2008

[41]Republica English Daily, November 19, 2011

[42]Republica English Daily, Nepal December 12, 2011

[43] Economic Survey, Ministry of Finance, Nepal, 2011

[44] Economic Survey 2011 , Ministry of Finance , Nepal

[45]Khanal, Rameshwore, Republica English Daily, 2011 September 8

[46] Nepal Migration Survey, 2009

[47] Large Scale Migration and Remittance in Nepal: Issues, Challenges and Opportunities in Nepal, World Bank, 2011

[48] Large Scale Migration and Remittance in Nepal: Issues, Challenges and Opportunities in Nepal, World Bank, 2011 (Adhikari, 2006)

[49]KhanalRameshwore, Republica English Daily, 2011 September 8

[50] NLSS I, II, III, Central Bureau of Statistics, Nepal Government,2011

[51] Bangladesh Bureau of Statistics (BBS), 2011

[52]Sapkota, Chandan, 'Ugly Face of Remittance, Republica English Daily, 2010, August 18, Nepal

[53]KhanalRameshwore, Republica English Daily, 2011 September 9

Insight Nepal

Wednesday, October 3, 2012

Prabhakar's Research report in Nanyang Techological University, Sigapore

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.[11]

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.[13]

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