Remittance And The Recent Alarm

 

 

Nandalal Tiwari

 

A recent report showed that there was a decrease in remittances from Saudi Arabia to Nepal compared to the previous years. Decreasing number of Nepalese migrant workers in that country owing to job cuts due to decrease of national income of that country following declining oil prices worldwide have been cited as the reasons for the decline in remittance inflows. It must be taken as an alarm bell for Nepal which is heavily dependent on remittances for foreign currencies and trade.

 

Warning bell

At present, remittance is said to contribute almost 25 per cent to the gross domestic product (GDP) as Nepal receives over Rs. 700 billion in remittance. For a country like Nepal, whose trade deficit is growing every year due to increase in imports, decrease in remittance inflow is a warning bell, an urgent call to look into the national economy and take appropriate measures for economic development.

It is likely that remittance inflow and foreign employment opportunities for Nepalese migrant workers will decrease sooner than later as there will be less need of workers once the development of physical infrastructure reaches its optimum point in the Middle East or the Gulf countries, including Malaysia.

No doubt, remittance has helped the Nepalese improve their living conditions, although such improvement is based on shaky ground because once there is a decrease in remittance inflow, the living conditions might become poor again. Because most youths have gone abroad, agricultural land remains unused or poorly cultivated, which has resulted in poor agricultural yield as well as productivity. The country is spending hundreds of billions of rupees in food grain import. Similarly, import of other commodities has shot up due to remittances.

According to a record, 27, 796 labour permits were issued in 1999/2000 while 510,000 such permits were issued by the Department of Foreign Employment in 2014/2015. The migrants’ trend shows that in the 1990s, only a few thousand Nepalese went abroad for employment. In the first decade of this century, annually nearly 200,000 Nepalese went abroad for employment, and till the middle of the second decade, this trend continued to increase. But now it has started to decrease.

According to a recent report of the World Bank (WB), Nepal could face a slowdown in remittances. The “Nepal Development Update” released in June stated that a prolonged contraction in the departure of migrant workers is an early sign of a potential slowdown in remittances in Nepal.

The report’s focus chapter entitled “Remittances at Risk” highlighted a possible near-term risk of a decline in remittances. “A potential slowdown in remittances poses a significant near-term risk to Nepal because of its outsized role in the Nepalese economy,” the report said.

Remittance inflow slowed down by January 2016. In three months to April 2016, remittances contracted by 5.3 per cent (in dollar terms) compared to the same period of the previous year.

The decrease in the remittance inflow coincided with a sharp decline in the outflow of Nepali migrant workers. Following the Gorkha earthquake last year, the outflow of migrant workers declined significantly for 10 months in a row, with a contraction of 25 per cent by April 2016.

This was one of the steepest and longest declines in migrant worker departure, which exceeded the contraction in 2009. A weaker demand for workers from oil/commodity producing host countries, particularly the Gulf countries and Malaysia, is likely to have contributed to this decline, according to the report.

A small decline in remittance can have large macro-economic impacts, according to the World Bank. “To be clear, we are not expecting a rapid drop in remittances in Nepal. However, given the large size of remittances, even a small slowdown in remittance for Nepal can have a broad macroeconomic, poverty and fiscal impacts,” states the report.

Surely, if the remittance inflow declines, we will see a decrease in imports as well. Once imports decline, the national income will also decline because of the decrease in revenue as the government’s revenue is highly dependent on taxation from imports. Overall, decrease in remittance means multi-dimensional impact on the economy. It can be easily assumed that the biggest chunk of the remittance is used for imports.

It was a blunder on the part of the policy makers and successive governments to be unable to bring attractive development projects so that migrant workers could invest in them instead of letting their families to use the hard earned money on household expenditures. The country received billions of rupees in remittance, but it could not make a leap in infrastructure development, economic development.

Imagine a situation wherein all the migrant workers come back. Then we will have no money for imports, and we will have no food to eat at home. We may have roads, but we will have no vehicles to run because we will have no money to buy fuel. We export things worth less than a hundred billion rupees and import things nearly eight times as much.

Now that the first alarm bell has been rung, economic planners or the government has no option but to focus on agriculture so that the import of food grains can be slashed. It is one thing to import technology and equipment (medical or others) but to import food grains in an agricultural country like ours is a shame. To get rid of this shame or plight, the government must bring forth an attractive policy and programmes so that those who are abroad start investing in agriculture, tell their families to be involved in it instead of migrating to urban areas and living idly. The government must also focus on rural development by providing all modern basic facilities.

 

Import taxation

Education should also be skill-oriented. Construction of large infrastructure projects, including hydro-electric projects, may also open up new job opportunities. But even for that we may need foreign currency to purchase equipment. Yes, the government should introduce plans that will allow the use of remittance money to buy only equipment that we cannot make. For this to happen, all the political leaders must understand that a country dependent on only import taxation for its income is bound to be poor forever. This must be considered at a time when many leaders are talking of the country’s prosperity. The first alarm bell has rung, we have to take steps before the last one rings.

 

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