Rising inflow of remittances is helping to keep the economy afloat despite the country bearing brunt of recent devastating earthquake, Tarai turmoil and subsequent unofficial economic blockade by India, say stakeholders. 

 

Data compiled by Nepal Rastra Bank (NRB) shows remittance sent by workers abroad increased by 19.4 percent to Rs 215.39 billion in the first four months (ending mid-November) of the current Fiscal Year 2015/16. 

 

Remittance flow had increased by 0.8 percent in the same period of the last fiscal year. 

 

Total remittance receipt of the first four months of 2015/16 is one-third of the total amount that the country had received in 2014/15. 

 

According to data of NRB, migrant workers sent home a total of Rs 617.28 billion in 2014/15.

 

Stakeholders point out a number of reasons behind rapid rise in the workers’ transfers. Suman Pokharel, secretary of Nepal Remitters’ Association, told Republica that the surge in number of workers flying abroad for employment in the previous years was the major reason behind rising remittance flow. 

 

According to Department of Foreign Employment, the number of workers taking final approval for foreign employment had increased by 16.4 percent to 527,814 in 2013/14 while it slightly went down by 2.8 percent in 2014/15. 

 

“The number of workers going for foreign employment is increasing with every passing year. Also their salary is increasing. This has led to surge in remittance flow into the country,” added Pokharel. 

 

He also attributed the money sent by workers to rebuild and repair their homes destroyed by the recent earthquake as the other reason behind rise in remittances. “Workers sent more money during this period as the Dashain/Tihar festival falls in October/November. Many workers also sent their saving to their family to rebuild their homes damaged by the recent quakes,” Pokharel, who is also the CEO of IME -- a remittance company, told Republica.

 

However, regulator sees a different reason behind the rise in remittances. NRB Executive Director Min Bahadur Shrestha told Republica that recent crackdown and other efforts of the central bank to curb informal flow of money has led to rise in transfer of money through formal channel. “Last year, remittance flow had gone up by a mere 0.8 percent in the corresponding period. But there has been a massive rise this year. This is mainly due to the use of formal channels by the workers to remit money,” he added. 

 

Another major reason behind the rise in remittance flow is the appreciation of US dollar vis-à-vis Nepali currency. “Workers are tempted to send money home when dollar is strong as their family gets higher value in domestic currency,” said Pokharel. 

 

According to the NRB, the value of US dollar went up by 4.21 percent to Rs 106.15 in mid-November compared to the value in mid-July. 

 

High remittance flow has helped to boost economic activities in the country even during the economic slowdown, according to stakeholders.  

 

“Though we do not have the exact data, we assume that a large portion of the remittance has been used by the earthquake survivors in rebuilding or repairing their homes apart from spending it on other regular household purpose, education and other purpose,” Shrestha said. 

 

“Remittance is increasing economic activities and keeping the economy afloat despite various problems that we have been facing,” he added. 

 

Rising remittance has also posed a big challenge to the central bank in its monetary management. With the flow of remittance increasing, bank and financial institutions (BFIs) are awash with excess cash generated from deposits. However, they have not been able to float loans in line with the increasing rate of deposit collection. The banking industry is sitting on a pile of loan-able amount of Rs 40 billion, while another Rs 138 billion has been stashed at the central bank.

 

“There is circulation of more money in the country, thanks to rise in remittance flow. This can push inflation up,” added Shrestha. 

Remittance sent by migrant workers has been helping to offshoot the current account deficit of the country arising from the huge trade imbalance. Statistics shows overall balance of payment recorded a significant level of surplus of Rs 83.88 billion in the four months of the current fiscal year compared to a surplus of Rs. 6.18 billion in the same period of the previous fiscal year.

 

Reasons for increase 

•    Higher number of migrant workers 

•    Growing use of formal channels for remitting

•    Appreciation of US Dollar vis-à-vis Nepali currency

•    Festive season (Dashain and Tihar)

•    Fund requirement for earthquake-hit families for rebuilding

•    Increasing salary scales at labor destinations

Impact 

•    Liquidity surplus in banking industry

•    Inflationary pressure

•    Challenge in monetary management

•    Earthquake-hit families getting money to finance rebuilding and repair of houses

•    Balance of Payment surplus

•    Rise in economic activities