Courting cash

  • The state has not been able to utilise the inflow of remittance productively
Dahal, a former employee of Agriculture Development Bank Nepal, is researching on ‘Role of Monetary Policy in Achieving Real Sector Growth in the Nepali economy’

Mar 1, 2016-Earlier Nepal used to receive remittances from the Gorkha army staff of the British Army and the Indian Army. But now due to the lack of job opportunities in the country, Nepali youths are leaving in huge numbers to the Middle East, Malaysia, South Korea and other destinations. This has increased the inflow of remittance significantly. At present more than 4 million Nepali migrant workers are working in more than 100 countries. Nepal received more than Rs617 billion in the form of remittance in 2015 alone. 

But even though Nepal’s economy has become increasingly dependent on remittances, the state has not been able to utilise the inflow of remittances productively. This is due to some problems such as the lack financial literacy among the migrant workers and the failure to make proper use of the remittances in Nepal.  The government and monetary authorities lack proper sense about the value and use of foreign currencies received through remittance. Moreover, the formal and informal market players that receive foreign currencies spend them on purchasing imported goods and services rather than on expanding the domestic economy by investing in agricultural and industrial production. 

It is believed that remittance has been a national financial resource since 1994 and the Nepal Rastra Bank, Nepal’s central bank, has licensed more than 45 companies to receive remittance from different countries. However, lack of directives to the companies and banks to use the money to increase the capital of the migrant workers and to boost production in the country is letting the money be spent on the import of goods and services.  

Multiple impacts

The government is now planning to call back migrant workers to be deployed in the reconstruction works in the quake-ravaged  districts. But inviting them for domestic construction might not be that easy. There are multiple impacts of remittance, and the benefits of domestic employment may not be up to a par with the gains from foreign employment. The migrant workers’ earnings have the following impacts: Production of goods and services in the employing countries; addition of foreign currency in the remittance receiving country; addition of national currency to meet increased demand for consumption in the receiving country; increase in commercial banking deposits; increase in banking credit to private sector to finance import of goods; increase in exchange rate of US dollar and other currencies; and increase in government’s tax revenue from import of goods.

It is assumed that other resources such as combined earnings from export and tourism sectors are less than 20 percent, so their contribution to make impacts on the variables mentioned above is also smaller in comparison to the contribution of remittance. If the workers are to stop moving abroad and get involved in the domestic job market, first, there needs to be jobs to absorb the labour force. The layers of financial and economic impacts of the flow of remittance in the Nepali economy since 1994 have set a trend and it seems that the economy is unable to reverse this trend for better or worse. 

The way to go

The government and central bank can change their attitude towards remittance for reorienting and correcting its role for safeguarding the monetary and capital rights of the migrant workers and achieving the long term goal of the national economy. As a guardian of all migrant workers, the state can give a guideline to them to set aside 50 percent of their income for consumption and 50 percent for capital formation. The 50 per cent earning should be deposited in the bank as foreign currency earnings in the name of the workers themselves. The money thus deposited should be invested for long-term capital instruments and shares in industries. 

This will inject about Rs300 billion in productive investments such as industry, agriculture, and services in different districts from where the migrants originate. The licensing for imports of consumer durables should not be allowed from the proceeds of foreign currency earnings deposited in the names of workers. This will reduce the unchecked imports of goods. The government and central bank must impart financial and business education to the migrant workers about the value, importance and proper uses of remittances for the betterment of individual, household, the local and national economies.


Published: 01-03-2016 08:52

User's Feedback

Click here for your comments

Comment via Facebook

Don't have facebook account? Use this form to comment