Rameshwor Prasad Khanal

The findings of the second Nepal Living Standards Survey (NLSS-II) done seven years ago were almost amazing. Between 1995/96 and 2003/04, the headcount poverty rate declined from 42 to 31 percent. This achievement came when the nation was passing through an abnormal period.

Due to armed conflict, development intervention in the rural area was severely constrained and industrial environment, in general, was deteriorating. Remittance was, therefore, attributed as the main factor contributing to this impressive decline. No less was the role of rise in farm wages, increasing urbanization and decline in fertility.

The final report of the NLSS-III has not yet been made public, but there are indications that poverty rate using the same basis as previous NLSS has gone down again significantly. Remittance has once again been cited as the economy’s pain-killer. What would have happened to the economy and consequently to the level of poverty sans remittance? This has rarely been debated.

Let us briefly examine the remittance story. Until 2001, remittance was least talked about because its magnitude was not significant to draw anybody’s attention. Export was the largest source of foreign exchange followed by official development assistance and then tourism receipts. Remittance was distant fourth. In just one year after 2001, remittance increased three-fold and secured second spot as the foreign-exchange contributor. In 2006, remittance surpassed exports and since then, the rise in remittance each year has been remarkable. Remittance now exceeds four times the annual exports.

In years prior to 2001, Nepal’s growth rate was robust compared to the years thereafter. Between 1991/92 and 1995/96, the average annual economic growth was 5 percent almost at par with nearest neighbor India, which grew at an average of 5.4 percent during the same period. In the period of five years after 1995/96, Nepal’s average growth rate receded to 4.7, while India inched upwards to 5.8. The story after 2001, however, is different. In the first five years of this millennium, our average growth rate barely exceeded 3 percent whereas most of our neighbors increased the pace, India, of course, leading the pack in South Asia.

Isn’t there any relationship between receding economic growth rate and upward trajectory of remittance? Those who left home for jobs outside the country were the most energetic and the productive ones. If rate of annual growth in remittance in these years is adjusted for annual inflation, then its contribution in national income is more or less offset by the losses in economic growth rate. It is not the absence of opportunities but suppression of opportunities due to escalating armed conflict that pushed these energetic people outside.

While remittance negatively affected the overall economic growth, it appears that it has created incentives for the agricultural sector. In the first place, due to additional disposable incomes in the hands of families receiving remittance, food prices have generally gone up. This is the reason why overall inflation remained very high in the last three years. The last three years are the ones in which remittance also increased sharply every year. Not only the landowning farmers have benefitted because of the rising prices of food-grains and other agricultural produce, the farm wages also have gone up sizably. The farm wage index has increased at a much higher rate than overall wage index. In the last three years, the farm wage index went up respectively by 20 percent, 24 percent and a by a whopping 32.3 percent in the recently concluded fiscal year.

There is still pressure on wages. August is the month when government committees in all district headquarters sit to fix the wage rate for the government construction contracts. Reports from districts indicate that the general demand is for yet another hike of more than 25 percent.

The rise in wages is good. First, it will incentivize farming activities and, naturally, the supply of farm workers will increase. Secondly, it will create disincentives for foreign employment. This is the strength of market mechanism, which prompts automatic adjustments.

Rising wages can, however, be a matter of worry for some. This is also the reason why many people often talk about the Dutch disease consequences of the remittance. Some industries and services—except those producing non-tradable goods and services— that cannot compete at the higher wage level can face problems. Non-tradable goods and services become costlier, but it will not mean a death blow to them.

The findings of a recently concluded survey have revealed strange numbers that are possible not just by the measures that government has taken. It seems that remittance has come into play in the far-reaching changes in our demography. The 2011 Nepal Demography and Health Survey reveals that in the period of three year preceding the year of survey, Nepal’s total fertility rate went down to 2.6. This means every woman during her child-bearing age would, on the average, have no more than 2.6 kids. Five years ago, it was 3.1. Twenty-five years ago it was 5.1. This number doesn’t come just out of the blue. It seems that there is some coherence. 2011 Census data have not been made public yet, but there are indications that the average annual population growth rate in the last decade has gone down to 1.6 percent or so.

What is surprising is that the decline in fertility rate has come along with decline in contraceptives prevalence rate (CPR). The contraceptives prevalence rate increased every five years and peaked at 44.2 percent in 2006. In 1996, it was just 26 percent. In 2011, it has declined to 43.2. Modern methods of contraception is the best way for child spacing and controlling fertility rate, here we see a declining contraception rate leading to reduced fertility rate. These two are supposed to have inverse relation, but we find an oddity.

Clearly, what contraception could not do was done effectively by migration for work abroad. Many youngsters leave the country for foreign employment after marriage as they need secure finances for the better education and upbringing of their children. Most of them leave alone and in countries where spouse cannot be accompanied. When couples stay apart in their most fertile years, this acts as a better deterrent than contraceptives. This is not to say that government’s improved health services and health awareness in general has not played its part. It certainly has, but remittance is what correlates better with this change in trend.

The total fertility rate of 2.6 is going to go down further in the next five years. The reason is that the number of people leaving the country each day for foreign employment remains unabated. Net outmigration in fact is rising. The consequences of a further decline will be that our population will be stabilizing around 30 million. If fertility rate is 2, it naturally means the population growth will be just at the replacement level without any net growth. However, for two reasons a country like Nepal needs a fertility rate of at least 2.3. First, we still have high infant mortality rate compared to others. Improvements have been made; further improvement is difficult due to infrastructure barriers. Secondly, condition of rural women has not improved much. Maternal mortality is still an issue before us.

There are other two implications of declining fertility rate. A spatial analysis shows that fertility rate in urban areas is only 1.6 implying that urban population growth in the coming years will come only by rural urban migration. As people move to urban areas, they will want to have fewer children. Already, the trend is rather bizarre. Nearly 39 percent of the married women with no kids report that they do not want a child soon and 31 percent of the women with one child report that they would not prefer a second.

Change in child spacing practices and declining fertility rates have resulted into change in the demographic structure as well. The preliminary disclosures of NLSS-III indicate that share of population of age between zero and 14 is down to 37 percent from almost 43 percent 15 years ago. In contrast, the share of population of age 60-plus has gone up to 9.1 percent from 6.8 in the same period. There are policy implications for this. The old-age pension expenditures of the government will go up. The government should also invest in geriatrics and gerontology.

Gradually receding younger population and parental concern for better education would also mean some relief to the society—political parties may not be able to recruit youths for all sorts of “forces” and “leagues”.

Published on: 8 September 2011 | Republica