Remittance, sent by Nepali migrant workers from abroad, has been lifeline to national economy for years. But pandemic-induced instability in the international labour market sent jitters in the domestic financial health. The country looked to remittance as reliable means to overcome recession resulting from widening trade deficit, depleting foreign reserves and soaring inflation, among others. Though excessive dependence on remittance is not good idea for building self-reliant economy, Nepal largely relies on it due to weak manufacturing base and lackluster performance of service sector. Now with the increase of remittance by around 21 per cent, optimism has grown regarding the smooth economic recovery. A report, released by Nepal Rastra Bank on Friday, states that with the surge in the remittance inflow, there is a significant improvement in the foreign currency reserves in the last fiscal year. Foreign exchange reserves are essential to achieve the development needs and economic stability and its health indicates how sound our economy is.

The government had imposed restrictions on the import of luxury items to check foreign exchange decline but this had its own negative implications for revenue collection. Now it appears that trade restrictions can do no real good to the economy. Free market should be allowed to work in spontaneity in line with the open economic policy. According to the NRB, the gross foreign exchange reserves increased by 26.6 per cent to Rs.1, 539.36 billion by mid-July 2023 from Rs.1, 215.80 billion in the same period last year. Foreign reserves crisis faced by the Sri Lankan economy was an eye opener to South Asian countries. Sri Lanka few years back became unable to pay its foreign debts, purchase essential items like food, fuel and medicine after its foreign reserves dwindled. Some media outlets had even speculated of emergence similar crisis in Nepal but the economists had dismissed such wild presumptions. Limited export, minimal foreign direct investment, remittance inflow through informal means and decline in tourism due to COVID-19 had shrunk the foreign exchange reserves.

The country received as much remittance as Rs. 1,220.56 billion last year. This is an increase of 21.2 per cent to 9.33 billion in the review year compared to a rise of just 2.2 per cent in the previous fiscal year. The report mentions that the Balance of Payments (BOP) too remained at a surplus of Rs. 290.52 billion in the review year against a deficit of Rs. 255.26 billion in the previous year. Remittance and tourism are the major sectors contributing to foreign exchange earnings. Now tourism sector is reviving steadily. Remittance income is compensating the shortcomings in foreign exchange reserve because an inflow of Rs. 100 billion a month is really a big amount. The government should also come up with the stimulus plans to improve the tourism sector.

Remittance money may also be coming in through informal channels which are not accounted for in the central bank’s report. The Nepali migrant workers should be encouraged to use formal channel to send their money as only the remittance coming through legal ways adds to the foreign exchange reserves of the state. With valid work permit, they can now open the remittance Saving Account and send money through formal channels in their designated bank accounts in Nepal. This initiative of the NRB has helped in increasing foreign reserves in the country and there is a call to facilitate to send home the income of Nepalis studying abroad.

Published on: 21 August 2023 | The Rising Nepal