In the right conduit

  • The govt must work on policies that channel remittances into investments
In the right conduit

Jul 8, 2014-The impact of remittance in Nepal has been tangible. Marketplaces in emerging towns are more vibrant than ever and every other person on the street seems to be carrying an expensive cell phone, either sent in by their relatives abroad or bought from the money they sent home. Motorbikes, once a luxury for many, are now a common sight on village roads. Restaurants in small towns also seem to be buzzing with activity on Saturday evenings. Clearly, remittance has helped Nepalis consume more than our ancestors ever did. Fifty-six percent of households in Nepal receive remittances—according to the Nepal Living Standards III report—of which 79 percent is spent on consumption. Most of the money is spent on either daily goods or luxury items, much of which is imported. This is accelerating imports and increasing the trade deficit. Channeling remittances towards investment has not been possible so far.

In 2010, the country’s central bank, the Nepal Rastra Bank, floated a ‘Foreign Employment Bond’ to mobilise remittance earnings for infrastructure development. Workers had the option to buy bonds in either their or their family members’ names. The bonds could be used as collateral to obtain loans and could be bought in foreign currency. The principal and the interest could be returned in Nepali rupees. But in the absence of incentives for agencies that transfer money, inadequate promotion of the scheme among foreign migrants workers and with lower interest rates on the bonds as compared to commercial banks, among other things, the scheme did not succeed.

So the Ministry of Labour and Employment’s new plan to establish a labour bank by the end of the fiscal year 2014/15 should be taken with a grain of salt. The idea, again, is to direct remittance for development work by providing loans at low interest loans to migrant workers. Their jobs will function as collateral and the members of the workers’ family can obtain loans and skills training to start small businesses. Ideally, the earnings of Nepalis abroad will help create employment within the country.

Migration research has shown that migrants invest in agriculture, housing and businesses, only after they have met their family’s food, health and education needs and paid off their debts. More importantly, investment occurs when migrants are certain about the returns and once there is a favourable climate. Political instability and a good business climate matter. Expectations from the labour bank, therefore, should not be pinned very high. Still, if the government’s plan is to succeed, it should learn from the failure of the employment bonds. To that end, the government should work together with money transfer agencies and widely publicise the workings of the bank among migrant workers and their family members back home. Any doubts that the public might have in the government’s ability to deliver should be addressed before it begins work after rigorous preparation.

Published: 09-07-2014 10:09

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