Migration and Inflow of Remittances to Nepal

Remittances account for a significant portion of Nepal’s economic growth. Although the inflow of remittances increased significantly after first wave of COVID-19 in the FY 2020/2021, it has since declined. Therefore, it is not only important to understand the trends of migration and remittances, but also to discuss the steps the Government of Nepal can take to incentivize Nepali foreign migrants to send back remittances to Nepal through formal channels.

Changing Trend in Remittance and Migrants

Trends in migration and remittances have changed in the last few years in Nepal. While a lot of blue-collar migrants leave the country to go to Gulf Cooperation Council (GCC) countries and Malaysia, white-collar migration has significantly increased over the last few years. Broadly speaking, high skilled jobs are in demand, and Nepali migrants travel overseas for better opportunities outside the country. With the increasing trends for diversity and inclusion policies, many businesses in these destination countries including Europe, Japan, Korea, and other developed countries are seeking to hire skilled Nepali migrant workers. Consequently, the composition of blue-collar and white-collar migrant workers is bound to change soon. Similarly, the new generation of Nepali migrant workers that are leaving the country for foreign migration is more financially and technologically aware, which has changed the behavior of these workers sending back remittance. We have also observed a changing trend in the use of received remittances. In the past, almost 95% of the funds returned to the country were received, but deposits in the accounts and mobile wallets increased. These developments can also be attributed to financial penetration and financial literacy in rural areas.

Steps the Government can Take

Remittance through informal channels is still prevalent in most of the countries, which is a matter of national interest and a problem the government is trying to address. The main issue right now is the lack of incentive for the migrant workers to send back money formally. As a result, the government should offer financial rewards and incentives for migrant workers to use official channels. For example, the government can reduce the cost of returning remittances by reducing existing fees, giving cash incentives in their remittance, and offering tax breaks while using remittances for investments.

Moreover, a national framework is necessary to guide migrant workers at every stage, from their departure from the country to their return. As remittance cannot be viewed in isolation, it is important to examine the migration ecosystem at large. For instance, there are a lot of hurdles for migrant workers trying to leave the country – many need to spend a lot of money in the process of leaving, thus increasing the cost of migration. Similarly, integration of returnee migrant workers is also a big challenge where they find it difficult to adapt to the society in changing social dynamics. Therefore, a national framework should guide migrant workers throughout the process for encouraging the safe migration and remittance.

Forecast

In future years, digital remittances are expected to grow. This is due to increasing financial penetration in rural regions along with increased financial and digital literacy along with better access to the internet and mobile services. As a result, we expect substantial growth for digital remittance in the coming days which will lead to a decrease in the cost of remittances and make remittance transactions more seamless. Finally, with the departure of more skilled workers, the composition of white-collar and blue-collar workers should change leading to more remittance inflow to the country.

This article was originally published in NEFport 48 ‘Remittance Special’ in March 2022.