Nepal is among the top three least developed countries (LDCs) in terms of remittance inflows. Nepal, Bangladesh and Sudan accounted for 66 percent of the total remittance ($27 billion) flowing into 48 LDCs from 2009 to 2011, according to the Least Developed Countries Report 2012 released by the United Nations Conference on Trade and Development (UNCTAD) on Thursday. Their share was 44 percent in 2001.

Bangladesh topped the charts, receiving 44 percent of the total remittance, followed by Nepal and Sudan. The report says from 2009 through 2011, Nepal received more foreign exchange from remittances than from exports. Also, Nepal is among the nine LDCs where remittance inflows exceeded receipts of both foreign direct investment (FDI) and official development assistance (ODA) from 2008 to 2010. Remittance has played a key role in reducing poverty in LDCs over the years, but has ambiguous effects on inequality, according to the report. “Before remitting, one needs to migrate and migration has costs.

Therefore, only moderately poor citizens of LDC can migrate, whereas the poorest of the poor cannot migrate,” says the report. “It contributes to the inequality.” According to the report, it takes around $1,200 for a Nepali labour to migrate to Qatar—one of the major destinations of Nepali migrant workers— and it takes around seven months for the migrant to earn that money back.

Nepal Rastra Bank Governor Yuvraj Khatiwada, unveiling the report here on Thursday, said the aforementioned amount was beyond the paying capacity of the poor Nepali and that the government must find a way to facilitate them by providing foreign employment loans.

Another vice of remittance for LDCs has been brain drain, with some 2 million highly educated citizens from LDCs living abroad. Nevertheless, in case of Nepal, it has not been an issue because study shows most of the Nepali migrant workers are unskilled. However, remittance, of late, has spurred demand for education in Nepal and in the near future, it will contribute to the supply of skilled labour.

Despite contributing around 22 percent to the GDP, remittance has not been utilised for the country’s development. With 80 percent of total remittance being spent for consumption, it has not contributed to capital formation—a much needed requirement to increase investment and attain economic growth. “Of the total remittance, a meagre 2 percent is being utilised for capital formation in Nepal,” said Basudeb Guha Khasnobis, senior economist at UNDP.

However, with a huge chunk of remittance entering the country through formal financial channels, it has provided enough liquidity to banks and financial institutions. “At present, around three-fourth of the total remittance comes from formal channels,” said Khatiwada.

The governor said the country should not solely rely on remittance and should think about alternatives to finance imports. “We successfully withstood the global crisis in 2009, but a similar crisis might not be of the same nature in future,” he said.

Nepal, Bangladesh and Sudan accounted for 66 percent of the total remittance ($27 billion) flowing into 48 LDCs from 2009 to 2011.

Published on: 30 November 2012 | The Kathmandu Post