Slow remittance growth puts pressure on external sector stability

Published On: November 22, 2017 04:00 AM NPT By: Republica  | @RepublicaNepal

KATHMANDU, Nov 22: Remittance growth is on a decline for the past few months, raising concerns that slow growth of money sent by migrant workers abroad could build pressure on the country's external sector stability.

The workers' remittances increased by only 2.6 percent to Rs 176.32 billion in the first quarter of the current fiscal year compared to a growth of 3.2 percent in the same period of the previous year, according to Macroeconomic Situation Report (of the first three months of Fiscal Year 2017/18) unveiled recently by the Nepal Rastra Bank (NRB).

Nepal had received a total of Rs 695.45 billion in remittances in FY 2016/17 -- a 4.6 percent year-on-year growth compared to a rise of 7.7 percent in FY 2015/16.
The ratio of workers' remittances-to-GDP declined to 6.8 percent in 2016/17 from 29.6 percent in 2015/16.  

As an effect of the slowdown in growth of remittances which finance majority of the country's import bill, the current account has slipped into deficit in the first three months of FY 2017/18. Current account was in deficit of Rs 10.13 billion in FY 2016/17. 

While balance of payment (BoP) returned to green zone after posting deficit in the first two months of FY 2017/18, the central bank officials worry that slowdown in remittances is going to pose policy challenges for macroeconomic management in the future resulting from widening current account and balance of payment deficit.

“Trade imbalance is ballooning amid rise in import bill and faltering export. On the other hand, remittances growth has remained very low,” a senior official of the central bank told Republica. “This has become a major macroeconomic policy challenge for the central bank.”

Not only does the remittances slowdown mount pressure on the external sector stability, it is also going to hit consumption of individual households, according to economists. 
Observers say that the decline in the number of workers headed for foreign employment is the major factor for the slowdown in remittances inflow.  The oil-producing countries in the Middle East, which have become the major destination for Nepali workers, have been cutting their spending to get rid of pressures from low oil prices in the international market. According to the Department of Foreign Employment, the number of Nepali heading to foreign job destinations decreased by 2.6 percent to 92,722 in the first quarter of 2017/18.  It had decreased by 16.1 percent in the same period of the previous fiscal year. 

The growing use of informal channel like Hundi, particularly from South Korea, is also a reason for the slowdown in remittances inflow that is accounted for only the banking and formal channel.

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