WB REPORT ON BENEFITS AND COST OF REMITTANCES

Remittances over the years greatly supported Nepal to lower poverty and attain macro-economic stability, but it also enabled the government to brush aside the much-needed policy reforms, something which now threatens to cost the country dearly, revealed a latest World Bank (WB) study.

Benefits from remittances, which touched $2.5 billion in 2009/10, have not come for free, reads the report. At the household level, it has come at the cost of family separation, trafficking and abuses and expensive remittances services.

The cost at the macro-level is still high. It has caused loss of external competitiveness, decline in manufacturing and agricultural sectors, contributed to real estate bubble and increased dependency on remittances, leaving the country vulnerable to international instability.

“Worse, growing remittances over the years seeped in laxity of policy reforms, something which the country direly needed to enhance its productivity and competitiveness. This can cost the country dearly for longer term,” said Hisanobu Shishido, policy cluster leader at the WB.

The World Bank has pinpointed that the laxity in addressing policy weaknesses has left investment climate as muddled as in the past, thereby resulting in low private investment and job opportunities. “And absence of jobs at home is compelling more migration and resulting in more remittances. This has created a worrisome vicious policy cycle,” said Shishido.

The study has warned that high remittances and lack of policy corrections has exposed Nepal to risks of Dutch Disease, particularly as remittance has fueled demand, causing overall prices to go up, and this in turn has raised the cost of producing exportables or import substitutes, thereby leading to loss of competitiveness.

Migration for overseas jobs has caused decline in labor supply as well, leading to wage rise, and reduced willingness to work, as remittances increased income of family back home. Given such situation, the World Bank has pushed the government to do away with present policy laxity.

Despite identifying the cost of remittances, the report also acknowledges the positive contributions made by remittances like increase in income of a large number of population, rise in consumption, more education, better healthcare and improvement in houses, and suggested that the government reduce costs incurred at the social and household level.

Under this, the World Bank has suggested that the government enter into bilateral agreements with employer countries, strengthen the role of Nepali embassies in destination countries and open their embassies in Nepal.

“The government must effectively monitor the recruitment companies, penalize malpractices and take steps to reduce cost of remittances,” said Shishido.

As for the Dutch Disease, it has pushed the government to adopt prudent macro-economic management and improve investment climate and job opportunities at home.

“Better investment climate will also help reduce risk now and in the future for it ensures remittances flows will be invested productively and increase domestic job creation,” said Shishido.

Presently, almost half of the Nepali households have at least one migrant abroad or returnee and remittances constitute one-fourth income of all Nepali households. According to the study, one-third working male in overseas jobs are remitting 25 percent of gross domestic product.

Published on: 29 June 2011 | Republica