Theoretically, the explanation is sound enough but the specific Nepali context demands examination of this logic more seriously. First, our real wage is still very low when compared to our next-door neighbors, let alone the developed countries, which means there is still room for real wage to move upward. As Chinese and Indian economies continue to grow in the coming decades, their real wages will also grow at a faster rate, which will offset the impact of any rise in real wage in the country’s external competitiveness. Second, if we want to see a significant drop in poverty level, real wage, especially for menial jobs, must go up. Third, factors other than real wage are more important in determining Nepal’s external competitiveness such as overall efficiency, state of infrastructure development and rigid labor laws vis-à-vis hiring and firing, to name a few.
The more serious concern for us should be, instead, the moral fallout of rising remittance. As the ever-soaring remittance keeps the economy practically afloat, it creates an illusion (under the façade of sound macro-economic situation) that the Nepali economy is fundamentally on the right track. So long as household income rises and people have cash in hand to spend on consumption because of the remitted money, even the general public feels that every thing is hunky-dory on the economic front. The effect: Policymakers either become complacent or do not feel the heat to push forward the necessary reforms and to improve economic efficiency.
And if and when the remittance begins to decline significantly, the remittance economy will suddenly collapse as there will be nothing else to anchor the economy during such a crisis. It’s this possibility that should worry us more. But even in the case of a modest decline in remittance inflows, we may feel economic and social strains, as the World Bank report suggests. The report projects the remittance inflows to decline by 2.5 to 4 percent in the face of lingering global financial crisis. Given that remittance constitutes about 25 percent of the Gross Domestic Product, which is 719 billion rupees, decline in remittance by about 7-8 billion rupees will have significant socioeconomic ramifications. In such an eventuality, if the economy fails to absorb the unemployed youths, it will automatically fuel social unrest, something that the country cannot simply afford to face.
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