Around 500,000 Nepalis are already leaving the country to enter the international labour market every year. What would happen if this stream turned into a flood of 1 million departures and the country became short-handed?

That is a distinct possibility considering that more than 660,000 persons had received labour permits as of the first 10 months of the fiscal year, and that figure does not include seasonal workers hopping across the border to India.

Experts say such a phenomenon is a sign of “depression” indicating that Nepalis don't want to live in the country because there's nothing for them here.

Labour productivity is an important economic indicator that is closely linked to economic growth, competitiveness and living standards.

“If the young labour force is leaving in droves, that’s a sign of economic depression,” said Ishwori Prasad Bhandari, director of the national accounts section at the National Statistics Office, formerly the Central Bureau of Statistics.

“This suggests that apart from the 500,000 youths who enter the labour market annually and leave the country, the country is also sending workers from the stock,” he said. “This trend will impact the existing productivity.”

When economic productivity is impacted, there is an economic slowdown, it heads to a recession and ends in depression, experts say.

While Nepalis are leaving the country in droves, hordes of semi-skilled Indian workers are coming from the opposite direction.

“That is not good for the economy. It makes the country dependent in labour too.”

Nepal is already dependent on imported fuel and food, with imports ballooning massively each passing year. When the population is not staying home, dependency on the labour market too is increasing.

According to Nepal Rastra Bank's macroeconomic report, in the first 10 months of the current fiscal year, the government issued labour permits for more than 660,000 Nepalis allowing them to work abroad, which is a historic high.

Among them, 421,279 individuals are new and 238,976 are renewed entries. This excludes Nepalis going to India for seasonal work and migration of students.

The increased number of labour migrants means increased remittance inflow, which is likely to hit a record high.

In the first 10 months of the current fiscal year, remittance increased by 23.4 percent to Rs1,005.18 billion.

In normal times, a country's economy grows. People's incomes tend to rise as the value of the goods and services the country produces—its Gross Domestic Product (GDP)—expands. But sometimes the GDP falls, and that's a sign that the economy is doing badly.

A recession is usually defined as a situation where the GDP falls for two quarters in a row. Nepal was officially in a recession until the second quarter of the current fiscal year, with the annual economic growth rate estimated to slow down to 1.86 percent as a result.

The first quarter growth rate of the current fiscal year is negative by 0.34 percent when compared with the fourth quarter growth rate of the last fiscal year. The growth rate in the fourth quarter of the last fiscal year was also negative by 0.24 percent.

The seasonally adjusted growth rate or the gross domestic product (GDP) for the second quarter may drop by 0.73 percent.

The National Statistics Office, which provides independent advice to the government, expects Nepal’s economy to slow down, growing by a mere 1.86 percent in 2022-23.

“We haven’t produced the third quarter report. But the annual forecast gives the entire picture of the economy,” said Bhandari. “The 1.86 percent annual growth rate is obviously a depressing figure even through there is no significant impact of the Covid pandemic now.”

How would a recession affect people? People lose their jobs. Unemployment rises. Graduates could find it harder to get work. Employees will not be able to get a raise to allow them to keep pace with inflation.

The pain of a recession, however, is not felt equally across society, and this causes inequality.

Economist Ramesh Poudel believes it’s too early to say the country has gone into a depression. “Obviously, we are in a vicious trap. We are in a recession. But that didn’t come overnight.”

The central bank report says that one of Nepal's major exports is labour, and most rural households now rely on at least one member's earnings from employment away from home.

Nepali workers have sought foreign employment as both agricultural and non-agricultural sectors struggle to generate new employment opportunities.

With limited arable land, landlessness is pervasive and the number of landless households has steadily increased in the farm sector.

In the non-agricultural sector, the slowdown in growth, especially since 2000-01 due to the Maoist insurgency which killed more than 17,000 people, further retarded the pace of employment creation, the report said.

Political unrest in the country adversely affected economic growth. According to the central bank, for most of the past decade, the economic growth rate hovered around a mere 3-4 percent, peaking in 2007-08 at 6 percent, following the Comprehensive Peace Accord between the Maoists and the government in 2006.

Then followed a period of severe power shortages when Nepalis were forced to live without electric lighting. Between 2007 and 2017, the country went through a massive electricity shortage that caused up to 18 hours of daily power outages.

“Until and unless we focus on manufacturing and agriculture, our dependency will keep on growing,” said Poudel, an associate professor at the Central Department of Economics, Tribhuvan University.

“The government should focus on attracting foreign direct investment (FDI) because we don’t have enough money to invest. And to attract FDI, good governance is a must.”

Economist Pushkar Bajracharya told the Post in a recent interview that the government has not acknowledged that the country is in crisis and failed to address pressing problems. “If the ongoing crisis is not dealt with in time, it could push the country to the brink.”

Insiders say that entrepreneurs have shuttered their shops and are seeking overseas jobs. The private sector—including the media industry, manufacturing, construction, wholesale and retail—is expected to see a contraction in the current fiscal year.

A series of events ranging from political paralysis and exploding inflation to growing corruption is pushing Nepal into a full-blown crisis.

The country's economy has long been characterised by an abysmally corrupt set of policies designed to provide subsidies to the elite while neglecting the vast majority of the population.

Jeevan Baniya, a labour expert, said they expect labour permit issuance to reach at least 800,000 by the end of this fiscal year, or by mid-July.

“There are no jobs. Even people who have work are unable to lead a decent life because of the pay structure. Inflation is so high and still increasing, causing distress to a large section of the population,” he said.

For most people, economic growth is good. It usually means there are more jobs. Companies are more profitable, and they can make larger payouts to employees and shareholders.

The higher wages and larger profits seen in a growing economy also generate more money for the government in taxes. It can choose to spend more on benefits, public services and government workers' wages, or cut taxes.

When the economy shrinks, these things can go into reverse; but governments normally do still have a choice on public spending.

Nepal's economy has run into money problems for the first time in nearly six decades, and the coalition government is struggling to fix them.

Following pressure to generate revenue, everything is being taxed now—from potatoes to onions. Even Nepalis planning to become foreign tourists have to pay taxes at home. Experts say this is a mockery of socialism.

Published on: 12 June 2023 | The Kathmandu Post