As similar to many developing nations like Haiti, Kyrgyzstan and Honduras; Nepal’s economy is reliant on remittances. As per Nepal Rastra Bank’s report ‘The Status of Remittance Inflow in Nepal’, Nepal received a total of NPR 879.3 billion (USD 7.8 billion) in remittance in the fiscal year (FY) 2018/19, which is a contribution of 25.4% to the national GDP of NPR 3.4 trillion (USD 29.8 billion). Besides this, remittance is also the main source of foreign exchange reserves to the country as remittance inflow surpasses the official development assistance received and the total foreign direct investment in Nepal. In FY 2018/19, the official development assistance received was NPR 201.8 billion (USD 1,793 million) and the total inflow from foreign direct Investment was NPR 13 billion (USD 115.5 million).
The increase in remittance and its contribution to the nation
In the past 10 years, remittance inflow has seen a gradual increase. In the FY 2018/19 alone, Nepal saw a remittance inflow of around NPR 879.3 million (USD 7.8 million). In the first six months of the FY 2019/20, remittance increased by 0.9% to NPR 447.3 million (USD 4 million) in comparison to the corresponding period of the previous year.
In Nepal’s case, remittance has been significantly contributing to the national GDP. In FY 2018/19, remittance’s contribution was noted to be around 25.4%. However, its contribution to the nation’s development has been often debated. Even though remittance proportionately has a larger share in the GDP, its contribution to the national development might not be the same. The main reason behind this is because remittances are usually spent in unproductive areas for household consumptions. Thus, the government should come up with policies that help channel such remittances into the productive sector, such as into entrepreneurship and business.
The contribution of remittance to the national GDP peaked in FY 2015/16, when it was 29.6% to the national GDP.
The reason for the growth in remittance is also because more and more people go abroad for foreign employment
While the Government of Nepal has initiated some measures to create and promote domestic employment, opportunities are not that easy to get. Even if the youths get opportunities, they are not adequate as youths who spend large sums of money in their education get discouraged due to a low return on investment. There also lies an undue expectation with how one’s life might change once he or she opts for foreign employment. Due to all of this, a lot of Nepalese get attracted towards foreign employment.
During FY 2018/19, there was a drop in the number of Nepali workers going abroad for foreign employment. The drop could be credited towards government’s tightening of the foreign employment sector. The tightening came amidst efforts to reduce the malpractices in the sector. The halt in sending migrant workers to Malaysia was also a major reason for the decrease in the number during the FY. Nevertheless, in the first six months of FY 2019/20, the number of Nepali workers migrating for foreign employment increased by 17.7% in comparison to the corresponding period of the previous year as nations like Malaysia again became open for Nepal.
Why is remittance spent in unproductive areas?
During 2017/18, 18.7% of the population in Nepal was noted to be under the poverty line. Though there is still a long way to go, the figures have improved substantially in the past decade.
For a lot of families, remittance has been the only way in which they can reduce their poverty. Even though it looks like remittance is only being spent on consumable goods, it has been continuously contributing to improve the standard of living of the Nepali people. Along with this, remittance has also been contributing towards education and health for the family of the migrant workers.
While the prospects of remittance look good in this way, the use of remittance has always been debated in recent times. More commonly, studies have shown that most of the remittance sent back to Nepal by migrant workers are either used by their families for ‘daily consumption’ or used in unproductive ways. Majority of the remittance goes into consumption (including food, clothes, etc.) and meeting daily expenses. Often, these families fail to save any amount because of their ill-spending. The National Living Standards Survey 2010/11 had also reported that about 78.9% of the remittance is spent on daily consumption. This trend is similar to what we see till date. As per the same survey, 7.1% of the remittance is spent to pay loans, 3.5% is spent on education, 4.5% is spent on other household goods and 0.6% is saved. However, NRB’s survey during fiscal year 2014/15 of 320 households in 16 districts gave a bit different picture. As per NRB’s survey, 25.3% of the remittance was spent to pay loans and 23.9% was spent on day-to-day consumption. The survey also showed that while 9.7% of the total remittance was spent on education and health, 28% was saved and 1.1% was invested in productive sector (business and commerce). In addition, 3.5% of the remittance was being spent on celebrations for occasions like marriage and ‘bartabandha’, and 3% was being spent on the purchase of household properties.
While migrant families spend less on ‘productive’ sectors, it is not completely their fault. The government has also not been able to play their part to facilitate and encourage them to invest and save. The foreign Employment Policy 2012 does talk about the productive usage of remittance, however, this has not translated into any tangible outputs. There are also several other interventions which include reimbursement of the remittance fee charged for using formal channels; financial literacy education for migrant families; and allowing investments in capital markets and national priority projects for migrant Nepali workers. However, initiatives as such have also not been able to successfully attain their agendas.
The use of remittance in such a way has left migrant workers with very little savings, compelling them to keep on working abroad. At home, Nepali workers can do very little, as neither have they saved nor have they invested. This narrows down their opportunities impelling them to stay abroad or to leave for other opportunities again. Thus, the way forward is definitely with channelling a productive use of remittances. For this, the government needs to step their game up, and embed the financial literacy of the migrant workers and their families.
 McCarthy, Niall. “The Countries Most Reliant On Remittances.” Forbes, April 26, 2018. Retrieved from forbes: https://www.forbes.com/sites/niallmccarthy/2018/04/26/the-countries-most-reliant-on-remittances-infographic/#17f5095e7277
 “World Economic Outlook Database.” International Monetary Fund, October, 2019.
 Shrestha, Man Prithivi. “Why has Nepal failed to attract enough foreign direct investment?” The Kathmandu Post, November 07, 2019. Retrieved from kathmandupost: https://kathmandupost.com/money/2019/11/07/why-has-nepal-failed-to-attract-enough-foreign-direct-investment
“Development Cooperation Report.” Ministry of Finance, December, 2019.
This article is based on information and data from Nepal Rastra Bank’s “The Status of Remittance Inflow in Nepal 2076” report and “Current Macroeconomic and Financial Situation of Nepal (Based on Six Months’ Data of 2019/20)”.
Thumbnail picture source: https://thehimalayantimes.com/opinion/gulf-remittance-lessons-from-india/