Most migrant workers have to spend their earnings on basic needs, they cannot buy bonds

THE National Migration Survey report published recently shows that Nepal’s economy is gradually entering into a vicious policy cycle of remittance.

The report shows that symptoms of the Dutch disease— erosion of external competitiveness, decline in the manufacturing sector, higher disposable incomes and rising wage rates, appreciation of the real exchange rate due to large amounts of foreign exchange inflow, shortage of labourers both in the agriculture and manufacturing sectors, increased dependency on remittances and vulnerability in the country’s external sector— have been witnessed in the economy.

The report, however, reveals a positive impact of remittance at the household level. Families receiving remittance are enjoying a comparatively better quality of life now than in the past. One can observe that these families have been slowly overcoming the debt burden, relatively comfortable houses with good toilets are being constructed, children are studying in private schools if they are available nearby, and televisions and mobiles have become common amenities. New market centres are emerging in the periphery; new kinds of small businesses such as public telephone booths and cyber cafes; beauty parlours and cosmetic shops, readymade garment outlets and stationery stores have increased; employment opportunities in private schools and colleges has expanded and families are shifting from rural areas to cities and new market centres. Including macro economic vulnerability, Nepal is paying heavy social costs for the above mentioned social changes: Two Nepali workers die abroad daily, a significant size of the active labour force is absent at home due to which domestic growth is being affected and agriculture is losing its attraction among farmers, extramarital affairs in families who have members working abroad are reported to have risen tremendously, kids are becoming obstinate and are less enthusiastic in their studies and parents are feeling helpless in their old age. Communities are facing hardships due to the absence of youths, especially males. Against this backdrop, Nepal must calculate whether the cost or the benefit is higher and devise social, economic and diplomatic policies to reduce the cost and increase benefit. For the last couple of years, remittance inflow has been registering a dominating figure in the Balance of Payments table and surpassing export and tourism earnings.

This year, Nepal has received Rs 260 billion which is 19 percent of the GDP. In this context, some macro economists argue that the government should develop policies to channel remittances into the productive sector. They argue that the government can generate development funds through bonds or motivate remittance earners to invest in productive areas on their own. But this seems to be a fantasy if seen from the recipient household’s perspective. The survey report shows that Nepal receives 48.9 percent of the remittance from the Gulf and 10 percent from Malaysia. A Nepali worker in these regions normally earns about Rs 15,000 monthly. And they have their own expenditure priorities at home—repaying loans, kids’ education fees, financing social rituals such as marriages of family members and other family obligations. Due to the rising and higher rate of inflation prevailing in Nepal for the last few years, spending on consumption, clothes and houses is very large and rising. Thus, foreign employment for them is a means of livelihood that is helping to improve their living conditions but not giving much.

The report states that about 19 percent of the total remittance comes from India. Various surveys and the census say that normally youths from the mid-west and far west go to India to work in low-paying jobs that barely provide them a hand-to-mouth existence. In this context, no policy of channelling remittance into productive investments will work. Therefore, the urgent need is to raise the income level of Nepali workers, control the malpractices of recruitment companies here and of the employers in the host countries and arrange safe and efficient remitting services. The government should negotiate with the labour importing countries for implementation of the host countries’ labour laws with national treatment to Nepali workers, ILO standards and for signing and implementing bilateral labour agreements.

The same report states that 21 percent of Nepal’s remittance comes from the developed economies. But its sustainability will be in question in the future. The government of Nepal issued foreign employment bonds last year. However, they couldn’t attract remittance earners as expected. In 1951, Israel introduced this policy. It conducted a series of road shows across the US to inform and attract non-resident Israelis and appealed to them to contribute to the national development process. India issued Diaspora bonds for its BOP crisis correction during the 1990s. But in the case of Nepal, home work seems to have been inadequate. Our fiscal policy advisors should first come up with what productive investment of remittance means in our context. Can our migrant workers invest in government bonds? Do they have adequate entrepreneurial skills to best use their hard-earned and meagre savings? When more than 78 percent of the remittance gœs to households which are facing hardships to solve their hand-to-mouth problems, they will not come to invest in bonds. Foreign employment bonds are an attraction only for those who are doing low-income work in the developed regions and are willing to come back.

In addition, resumption of an attractive business environment, profitability and sound macro economic fundamentals can only attract Nepali migrants in the developed regions. A budget speech with fancy words alone will not channel remittance into the productive sector. Instead, it will simply show nothing except the finance minister’s grasp of literature.

A budget speech with fancy words alone will not channel remittance into the productive sector. Instead, it will simply show nothing except the finance minister’s grasp of literature

Published on: 20 July 2011 | The Kathmandu Post