Shankar Ghimire

To understand the severity of the impact of Covid-19 on Nepali households due to a decrease in remittance flows, it is necessary to reflect upon the country’s pattern of migration for work. According to the 2011 census, about 25 percent of Nepali households had at least one member away from home for work or study. The 2014 Population Monograph published by the Central Bureau of Statistics estimated that five million, or almost 20 percent of the population, lived and worked in foreign countries. According to a 2018 report issued by the Ministry of Labour and Employment, 85 percent of the labour migrants from Nepal went to the seven countries in the Gulf region. Many of the migrants who work in foreign countries are at risk of losing their jobs, if they have not already, due to the Covid-19 pandemic.

According to World Bank data, Nepal received about $8.1 billion in personal remittances in 2019. This amount represents over one-fourth of the GDP, currently about $30 billion. According to a report from the International Growth Centre, current estimates show that remittance flows across the globe are going to decrease by about 20 percent. Nepali migrant workers in the remittance sending countries are disproportionately involved in sectors such as domestic and care work, construction, hospitality, travel and tourism, food and agribusinesses. These sectors have been severely impacted by Covid-19, and if Nepal follows the global trend in remittances, the local economy will see a decrease of about $1.6 billion. This is a significant figure given the size of the economy. 

Impact at the micro level

Remittance is a lifeline for migrant families in Nepal, as it represents a majority of their income. Due to a decrease in remittance, families would have lower spending on food, healthcare, clothing, housing and education. The severity of this problem will be long-lasting, as this is not a typical cyclical economic shock. While the first thought seems to affect those households that are remittance dependent, it is going to bring a broader economic impact on the overall economy. It will channel its way to non-remittance receiving families as well through interconnected social relationships present in the informal Nepali economy.

The economic fallout will be realised more by those who are directly impacted by the reduction in remittance receipts and have no savings. Since remittance is a vital source of income for poor households, it will reduce their purchasing capacity. As a result, it will impact their productive investments in essential sectors such as healthcare services, education and agriculture. Remittances have a meaningful impact on children’s lives. According to a policy brief by the United Nations Network on Migration, families spend 75 percent of remittances, on average, to cover expenses on essentials such as food, school fees, medical expenses and housing, affecting children’s diets, learning outcomes and health.

Remittances are also associated with lower levels of child labour. Research shows that remittances help with higher spending on education that will improve the children’s educational achievements in the long run. The expected decrease in remittances on households can potentially push back decades of progress made on diverse Sustainable Development Goals, including poverty reduction, income inequality, nutrition, health and education. Besides, it might increase the suicide rate, crime rate, unrest and disruptions in society.

Impact at the macro level 

At the macro level, how the reduction in remittances will impact the economy is another essential question. The Nepali rupee is devaluating relative to the United States dollar. So those who rely on remittances are likely to receive more money in hand. However, the import-dependent economy of Nepal will have to spend more on foreign goods. So the increase in rupees will not contribute to the local economy as expected. It results in a loss of tax revenue and foreign exchange reserves that may create a balance of payments crisis. The Nepali economy is likely to be hit as almost all remittance sending countries have been equally impacted by this crisis, and livelihoods and employment are going to be stressed for most Nepali migrants.

The public authorities can adopt several measures to mitigate the current crisis. Coordination between the government and its policymaking bodies is essential to help build financial resilience in the aftermath of the remittance shocks. Nepal Rastra Bank will become a pivotal player to come up with the appropriate policies to create such resilience.

It is necessary to monitor remittance related data for better management of the potential shocks. This includes keeping track of transfer channels, frequency as well as the amount of remittance from individuals. On that note, the government can offer incentives to encourage migrants to use formal banking channels to transfer remittances instead of informal channels. These incentives include reducing or removing fees and relaxing the normal thresholds on transfers and account balance. This will likely encourage migrants to remit more often as well as help the government and the central bank to develop appropriate policies.

It is also necessary to encourage migrant families to save rather than spend most of the money received. To that end, local financial institutions can be mobilised to persuade their clients and remittance recipients to maintain a savings account so that a portion of their remittances is saved. Such savings will help increase investment as the situation improves. Another essential policy move would be to encourage financial institutions to provide low-interest and collateral-free loans for investment purposes. These policies will be helpful in turning the pandemic into an opportunity for growth.

The debate on remittance is currently focused on international flows. The issue is equally important for internal remittance flows as well. Hence, not only Nepal Rastra Bank but local financial institutions too have an unprecedented opportunity to tap the benefits of the crisis and innovate new ways to collect, transfer and mobilise the money to boost the economy in the long run.

Published on: 13 August 2020 | The Kathmandu Post