Remittance economy

DR. ASHOK SHUMSHERE J.B.R.

It is a well-known fact to every Nepali is that a remittance is a transfer of money by a foreign worker to his or her home country. The money sent by migrants constitutes the second largest financial inflow to many developing countries, surpassing international aid. Moreover, remittance transfers can also promote access to financial services for the sender and recipient by increasing financial and social inclusion.

Remittance also promotes, in the receiving countries closer economic ties with the global economy increasing its dependence, instead of building sustainable, local econ-omies. Historically, foreign employment has played a significant role in our country. In the early 19th century, a sizeable Nepali population were admitted in the British army and fought against the allied powers during the World Wars.

The start of the construction boom in the emerging economies in Asia and Gulf countries in the 1980s provided yet another opportunity for young, energetic and dashing Nepalese to venture out for foreign employment in quest of a respectable and prestigious life. Foreign employment gave them employment and income opportunities, which are not easily available in the country. It has led to political and economic empowerment of people including women, offering an alternative to land- based wealth.

The World Bank Global Economic Perspective Report 2006 points out that remittance inflow has made it possible for Bangladesh to cut poverty by 6 per cent. In Nepal, a study undertaken by Nepal living standard survey on the contribution of remittances in reducing poverty between 1996 and 2003 reported that it was 11 per cent. According to National Planning Commission (NPC), the current absolute poverty atands at 25.4 per cent, which is based on less than $1 daily income, and calorie intake needed to survive.

Remittances contributed significantly to reduce this extent of poverty. Though the number of Nepali migrant worker going for blue collar jobs abroad has not decreased, in fact, the remittance inflow has retarded. According to the World Bank, it is anticipated that the global remittance market will grow at 9.2 per cent during 2010-11.

According to the report of Central Bank of Nepal, the growth rate of remittances declined sharply from 51 per cent during eleven months of FY 2008-09 to 11.8 per cent for the corresponding period 2009-10. Inflow of remittance marked Rs. 230 billion in the FY 2009-10 which is estimated to be 19.4 per cent of GDP. This diminishing growth rate of remittance has affected Nepal’s balance of payment which is at a deficit of 19.57 billion in 2009-10. Hand in hand, the tortoise walk of remittance growth has hardened the problem of liquidity crunch.

Nepal’s economy has suddenly entered into a crucial phase after the country observed a sensitive plunge in remittance growth rate. This has swollen the country’s Balance of Payment deficit, washed-out foreign exchange reserve and exacerbated liquidity in the market. In addition to this, it has hampered domestic financial system, consumption and imports. It has indirectly affected tax revenue increment. Particularly, at this juncture when the implementation of capital expenditure programme is likely to go as a wild goose chase; remittance has been the only hope to rescue the sick economy from the low level equilibrium trap. Remittance has been imperative for survival, poverty reduction and eliminating impoverished condition of life.

The Government has to resolve these problems because remittance is one of the growing sectors of the economy. Here are some of the policies prescribed which are directed towards promoting employment so that more remittance would have a direct impact on poverty reduction : a) The government should provide all possible incentives to encourage official transfer of remittance in lieu of hundi system b) Nepal’s remittance displaying a downswing trend, the country should negotiate with effective economic diplomacy through its Missions so as to rectify the deteriorating circumstances of growth c) Market oriented skill of human resource needs to be meticulously developed to challenge foreign competition by providing vocational and technical training such as welding, carpentry, auto-mechanics and like-wise training for getting placement in related jobs. c) The policy of the Government should be consistent in order to obtain greater extent of benefits from remittance for nation building d) The Government should be omniscient to develop workers confidence to tackle adverse circumstances arising in their working position d) Conducive environment should be created to the returnees for business purposes in order to practically transform them from “brain drain” to “brain dissemination”. Remittance has been a primary force that is dynamic in combating the sorry state of affairs of the Nepalese economy. Pragmatic policies and plans are imperative if the country is to maximise its gains from the migrant workers and the remittance that they send back home to Nepal.

Dr. Rana is a senior economist