Bishwambher Pyakuryal

Globally, there still remains a severe business cycle contraction through reduced economic activities since recession exceeded almost twenty-four months deviating from the normal understanding that the reduction in a country’s GDP is at least for two quarters. For Nepal, failure in addressing unemployment problem has been a more serious threat to social cohesion than the anticipated damage of the global financial crisis. Nepal is still reeling under the effects of post-conflict syndrome and having difficulties in maintaining minimum level of growth. This article is an update on the most recent scenario of remittance economy with special reference to Nepal.

IMPACT

There is a strong correlation between economic variables and remittances which implies the fact that a long-term economic growth occurs as remittances increase. In Nepal, remittances have contributed to 26 percent growth in convertible currency reserves. On the other hand contraction in economic activities means decline in remittances, reduced investments, decline in wage rate, fall in aggregate demand, and an increase in unemployment rate.

Efforts should be made to watch the stages the remitters go through from the perspective of designing remittance-friendly policy and motivating the savers for sustainable development.

If we watch closely the post-crisis development in the world and the trend of remittances flow, the remittances in Nepal can be easily linked with the global financial crisis. Between mid-Nov and mid-December 2008, remittance inflow stood at 67 percent but this growth rate declined to 65 percent in the period between mid-December 2008 and mid-January 2009 and 57 percent during mid-February and mid-March 2009.

Between mid-February and mid-March 2009, there was a contraction in overseas employment by 9.7 percent. Thus looking at the continuing trend of the volume of remittance inflow, the Finance Ministry’s estimate of 15 percent growth of remittances in its mid-term review of the FY 2008/09 cannot be trusted.

METHODOLOGY OF ASSESSING REMITTANCES

A World Bank/DFID/ADB study (2006) had used three methods to evaluate the effects of migration and remittances on household consumption and poverty: A household–level analysis of migration choices estimated jointly with household consumption in each of the states using simultaneous switching regression model; a panel analysis of 72 districts of Nepal; and a cross-country model relating growth, poverty, and remittances. Based on the first i.e., simultaneous switching regression model, the findings show that poverty would have declined by 7.1 percentage points instead of the observed 11 percentage points if the incidence of remittances had remained unchanged between two surveys 1995-96 and 2003-04.

IMPACT OF MIGRATION

Migration has twin benefits. On the one hand, the quality of education improves with foreign education and on the other hand, the size of remittance income also increases. To give an example from the available information from a 2005 data, Nepal received US$ 1,126 million as remittance through 753,622 emigrants. This means, on average, each individual remitted US$ 124.5 per month. This amount is about 2.5 times higher than the monthly wage received by a worker with higher education or a trained worker and about four times higher than average GDP per capita per month. According to the Department of Labor and Employment Promotion, the number of workers going abroad for employment had increased by almost 13 per cent in 2007/08 as compared to 2006/07.

By the end of 2008, the contribution of remittances to GDP remained at 17.4 percent. Its share in total foreign exchange earnings increased from 36.6 percent in 2003/04 to 46.7 percent in 2005/06 at a time when corresponding share of exports dropped to 29.4 percent in 2005/06 from 34.5 percent in 2003/04. The share of remittances in current account has also increased to 46.7 percent from 29.8 percent between 2005/6 and 2008/09. The 26 percent growth in convertible currency reserves of Nepal’s banking system is also due to remittances. It indicates remittance is playing crucial role in savings, investment, growth, consumption, and poverty and income distribution. The setback on this front would mean a great loss to the nations’ economy and livelihood of the poor.

70 percent of the total Nepali workers in foreign countries are unskilled followed by 27 percent semi-skilled and three percent skilled. Although there is a demand of the semi/skilled labor (e.g. carpenter, plumber etc.) in the country, they go abroad as migrant workers because these professions at home are considered less prestigious and are less remunerative. This may be an issue for future policy consideration.

CONCLUSION

The issue elaborated and interpreted by the polluters on global warming is inevitable to create difficulties in achieving faster rate of growth through heavy industries in future in the developing world. The global discussion has therefore, begun in support of building small-scale eco-friendly industries at the grassroots level with the possibility of equity participation even by small savers especially the migrant workers who get access to world’s diversified markets and remit money back home.

The review of available literature shows, in general, remittances are found to be driven by the need to support migrant worker’s families, rather than by investment considerations alone. Therefore, efforts should be made to watch the stages the remitters go through from the perspective of designing remittance-friendly policy and motivating the savers for sustainable development. During the first phase, the workers put up efforts to recover the cost of migration. In the second phase, they intend to compensate the household expenses and if possible, and the final phase is preparing for returning home with savings in a mind to reinvest back home. The micro-level analysis of individual behavior of these returnees may be needed to address the possibility of reinvesting their savings.

To conclude, as finding out the impact of international remittances on local economic development demands detailed household-level data with regards to expenditure patterns of international migrant households, it is recommended that regular surveys be conducted on nationally representative samples of both urban and rural households to find out the nature and trend of huge amount of unofficial remittances.

Published on: 19 December 2009 | Republica