Nepal has a long history of migration to India due to open border, which has facilitated free mobility and socio-cultural proximity. Nepalis have also been recruited in droves in security services in countries like India, Malaysia and the UK. However, especially after the economic liberalization in general and armed conflict in particular, the number of Nepali migrant workers has been increased substantially, either of compulsion or of choice. The major factors for such accelerating remittance income could be an increase in the number of migrant workers, depreciating Nepali currency vis-à-vis US dollar and an upward revision of wage rates in some destination countries.
Besides India, Nepali migrant workers are mainly concentrated in Malaysia, Qatar, Saudi Arabia, UAE and South Korea, among other countries. Some Nepali migrants have also been working illegally in places like Afghanistan and Iraq at great risk to their lives. The fields Nepali migrant workers are concentrated in are somewhat limited: construction, driving and mechanics, household chores, security, farm and livestock rearing.
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Remittance has been instrumental in reducing the level of poverty in Nepal to 25.4 percent, but none of the studies so far has found that it has a positive impact on economic growth. The NLS survey 2010/11 has reported that remittance income is used for daily consumption (79 percent), loan repayments (7 percent), acquiring household property (5 percent), education (4 percent), capital formation (2 percent) and others (3 percent). The same survey has revealed that 85 percent of remittance from India is used for daily consumption. Most of the migrants are from the low income group in rural areas living with abnormally low level of consumption and therefore, the large chunk of their increased income goes for consumption, while very little is saved.
Empirical studies in Nepal and other similarly placed economies suggest that remittance income has had significant impact on imports and hence contributes to trade deficit. For a country like Nepal where most of the consumption is import-based, remittance has been contributing to imports without any effect on export or GDP. Given that most of remittance goes into consumption, its medium to long term benefit is questionable. What is obvious though is that remittance has contributed to inflation and created a real estate bubble.
Remittance has recorded a robust growth and its share in capital account receipts excluding grants has reached 63 percent, resulting in an effective cushion to balance of payments. Similarly, the size of remittance as percent of GDP has been hovering around 54 percent, contributing to dwindling exports and GDP. As such, Nepal is one of the top ranking countries in terms of remittance income as a percent of GDP. Since most Nepali migrants are working in India and Indian agents are involved in informal businesses in destinations around the world, one cannot underestimate the size of informal channel and as such the size of the remittance income could be much higher than currently estimated. And if that is the case, remittance income would have a strong negative impact on economic growth, in case the size of such income is higher than the size of the economy. Similarly, the size of remittance income in comparison to import and total forex reserve has been moving neck to neck.
The great number of migrants working abroad has made the rural life of Nepal more painful, with the youth and energetic rural manpower deserting the country in big numbers. As a result, labor wages are becoming more expensive on the one hand and on the other, non-cultivation of fertile land has led to decline in overall productivity and production. As a byproduct of foreign migration especially to third countries, the internal migration from rural to urban area has been increasing massively. This has made lifestyle more costly and degraded socio-cultural integrity. Such costly and extravagant lifestyle cannot be sustainable, in case there is some political, natural or financial crisis in migrant receiving countries.
It is tragic that a large number of Nepali migrants are losing their lives or are being physically handicapped. Also the inhumane treatment of migrant workers at the hands of dishonest manpower agencies and unavailability of promised jobs and wage rates are major risks for their wellbeing. Nepal, like other countries, should create a welfare fund in concert with migrant workers to ensure their financial security. The concerned authorities should design doable policies with a view to promoting formal channels, increasing and enhancing productive/developmental role of remittance and ensuring the security of migrants.
The author is a former economic adviser to Nepal Rastra Bank and a member of the board of directors at KIST Bank
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