The government is supposed to create jobs for its citizens. To do so, our own government in Nepal has to specialize in the sectors with high export potential. For instance, it has the potential to export purified drinking water to the Middle East, hydropower to India and Bangladesh, and Himalayan herbs throughout the world.
But no government, either on the left or the right, has had a genuine agenda with which to make Nepal prosperous. Each government has rather made the country more and more dependent on export of human resources, emptying rural homes. The majority of these migrants are semi-skilled and unskilled and they have been migrating in great numbers to the Middle East and East Asian countries, while the relatively more skilled, educated, and talented ones are going to Australia, Europe, America, and Canada.
According to the World Bank, Nepal is getting an average yearly remittance of $1.7 billion, from $0 in 1976 to a maximum of $7.9 billion in 2018. In other words, we are a remittance dependent country.
Remittance helps sustain the Nepali economy in times of conflict and political chaos. Banks get liquidity. Government revenues increase and in turn, remittance helps to pull the economy out of debt trap (a situation of spending more than earning). In a state of conflict and political instability that has prevailed in the country since 1990, remittances are the source of economic lifeline for the poor, helping lift millions of them out of poverty. To an extent, it facilitates poor children in going to school, resulting in significant increase in child enrolment both in public and private schools. Nepal is also facing a large gap in international payments, which makes the balance of payments unfavorable. Remittance can correct this unfavorable situation.
There are dark aspects to remittance as well. First, the economy could face a real exchange rate depreciation, which of course will make the economy less competitive internationally. Second, it may undermine the incentive to work and can slow economic growth. Third, it increases household expenditure on consumer goods as consumption increases with an increase with remittance inflow.
The greater part of the remittance coming into Nepal has been spent on consumption. The rest is being invested in the city-centric real estate and ornaments, making the urban real estate more expensive. In comparison, there is little investment in human resource development and other productive sectors.
This tendency increases the import of consumer goods. This trend, if continued, may make the economy over-dependent on remittance.
Fourth, migrants are seeing their families break apart, and divorces are increasing with increasing physical distance between husbands and wives. This is putting a severe strain on social harmony.
Fifth, migrants incur great risks in working abroad and they have to toil to save enough to pay back their loans, while also helping maintain the livelihood of their families.
Sixth, the departure of both skilled and unskilled human resources creates labor shortages in Nepal. Finally, the deaths of Nepali migrant workers in foreign lands is becoming a growing problem: three to four dead bodies of migrant workers arrive in mortuary boxes at Kathmandu airport every day.
The dark side of the remittance economy of Nepal thus outweighs the bright side. The country is importing more and more. Exports are nominal in the context of imports. In 2020, exports and imports as a percent of GDP were 6.8 and 33.9 respectively, showing that imports are six times exports. Thus, in this context, remittance becoming the heart of the Nepali economy—which was 1.5 percent of GDP in the 1990s to 24.4 percent of the GDP in the 2010s, an increase of 16 times over the period in consideration—is fraught with risk.
As the unproductive sector absorbs the major chunk of remittance, continuation of this trend can push the Nepali economy towards a crisis. There is also a risk of discontinuity of remittance as it depends on labor demand in the global market.
Any fall in labor demand in the global markets would not only make the economy less sustainable but also increase the risk of an economic failure. In order to save the economy from these grave consequences, the government should design plans, programs, and policies to mobilize remittance in productive sectors. Let us use this money to create jobs on our own soil.
The author is a professor of economics at Tribhuvan University