Beyond remittance

Published On: June 21, 2016 12:59 AM NPT By: Nirmal Kumar Raut

Nirmal Kumar Raut

Nirmal Kumar Raut

The contributor for Republica.

Given the volatility the world faces today, it might not be right to assume that migration is driven solely by the financial ‘push-pull’ factors, as neoclassical economists would have it. The refugee crisis in Europe, an upshot of the political instability and insurgency in some Middle Eastern and North African countries, is one such example.

Additionally, natural disasters and sudden outburst of epidemics also tend to increase migration. The UN expects the number of international migrants to grow by a phenomenal 86 percentage points from the current 215 million to 400 million by 2040.

South Asia region stands at the top of the list of labor-exporting regions and it is the second largest recipient of remittances, according to the recent World Bank estimates. Meanwhile, Nepal, which has at least 10 percent of its population working abroad, is the third largest recipient of remittance in the world relative to the size of its economy (29 percent of GDP in 2015).

Savior remittance
Remittance is the ‘soul’ of migration—a normal way of life in many low income countries. It is thought to be a more resilient source of foreign exchange compared to other sources such as financial capital flows. This is particularly true in times of economic crisis. For instance, the Nepali economy was sustained during the conflict period by remittances, even as balance of payment was subpar and even negative at times. This was also evident immediately after the earthquake and during the trade blockade, when remittance inflow surged. It is a major driver behind the consistent growth of the services sector, which accounts for about half of the economy and contributes the most to GDP growth every year.

Taxes levied on remittance-financed imported goods have been clocking an average 20 percent growth for the last few years. Financial market liquidity is also high due to remittance inflows.

It also instills a sense of security against potential risks such as serious illness, epidemics and natural disasters. Many developing countries in Latin America and the Caribbean have been able to lower the dropout rate of children from school, pay for their quality education and restrict child labor thanks to income remitted by their kith and kin working outside their motherland. In agrarian economies like Nepal, commercialization of agriculture is possible if proper institutional arrangements are made to channel household remittances into farm mechanization.


Migration blues
Gains from remittances are not sustainable if measures are not taken to revisit Nepal’s Labor Migration Policy and assess its unintended consequences. A remittance-driven economy is a potential threat to the long-run economic growth, as evident from the laxity among the people benefitting from remittances to engage in productive business activities. Furthermore, our policymakers have been slipshod in the execution of economic reforms/policies aimed at jobs creation. The labor force lost due to migration is also detrimental to the progress of priority sectors as agriculture and manufacturing.
Moreover, social and psychological well-being of the left behind children is affected, leading to poor health and educational outcomes. Nor can we rely on the returnee migrants to import knowledge and experience as they are mostly engaged in low-paying unskilled jobs. Large numbers of Nepali returnees from India and Gulf countries remain unemployed and unproductive after their return—a serious policy concern that has been mostly overlooked.

There seems no direct causal link between remittances and economic growth in Nepal. The economic growth indicators fare poorly. This is happening even with the phenomenal rise in the receipt of remittances, particularly after mid-1990s when several new destinations (other than India) were opened for Nepali workers. The household level statistics show that less than 10 percent of the remittances received are utilized on human and physical capital formation such as in education, business and productive investment. We spend more on daily consumption (70 percent) and some to repay loans sought to finance the cost of migration (13 percent). But then, thanks to remittances, Nepalis are richer today than they were a decade ago.

The main challenge is to find ways to utilize the hard-earned remittances in investment in productive ventures such as tourism and infrastructure development. The Micro Finance institutions (MFI) and Cooperatives can play a role in this, given their wide outreach and low transaction costs. The government and non-government agencies working on this area should offer incentives to MFIs and cooperatives to expand in rural areas and enhance their capacity in investment-risk management. Bangladesh has been utilizing its MFIs as rural agents to impart financial literacy and to channel remittances into productive investment.

In addition, some other South Asia nations such as Sri Lanka have also made efforts to minimize the negative effects of parental absence among the children. The National Labour Migration Policy in Sri Lanka has a provision to track all the children of migrant parents (more than 50 percent migrant are mothers) and provide counseling to them on a range of issues, including psychological distress and abusive tendencies while staying away from parents. Although we do not have official statistics of migrating parents in Nepal, the Nepal Living Standards Survey shows that nearly 46 percent of migrant household has a parent of school-going children living away for around seven years on average.

Efforts to fix the migration anomalies are far from adequate in Nepal. The idea of the much-hyped labor bank has been shelved. Furthermore, the lukewarm response of migrants to the issuance of the Foreign Employment Bond by Nepal Rastra Bank is another thing to worry about. Poor publicity, low average migrant earning and most likely, availability of other high-yield investment options could also have dissuaded them.  
Particularly in light of the gruesome deaths of 14 Nepali workers in Afghanistan, we have more reasons to worry about than to be happy about out-migration from Nepal.

The author is a development economist

@Nirmal Kumar Raut

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