Nepal ranks highest in receiving remittances

Nepal ranks as the world’s highest remittance-receiving country, according to the World Bank, with remittance inflows playing a vital role in sustaining household expenses. The ‘Nepal Development Update: International Migration and its Impact on Nepal’, published Wednesday, highlights that remittances contribute over a quarter of Nepal’s GDP, the highest ratio globally. This figure is nearly three times that of Pakistan, South Asia’s second-largest remittance recipient, where remittances account for 7.8 percent of GDP.

The report notes that remittance growth has strengthened Nepal’s foreign exchange reserves, with official remittance inflows recently reaching a nine-year high. It further emphasizes that remittances have significantly reduced poverty, cutting it by over 30 percent between 2011 and 2023.

David Sislen, the World Bank’s National Director for Maldives, Nepal, and Sri Lanka, praised Nepal’s reliance on foreign workers’ remittances. He stressed the importance of improving remittance management, fostering a robust domestic economy, and creating conditions that allow Nepalis to thrive both at home and abroad.

During a panel discussion titled ‘Making the Most of International Migration in Nepal’, Nepal Rastra Bank’s Deputy Governor, Dr Neelam Dhungana, discussed plans to increase remittance utilization, including encouraging formal remittance channels and offering a one percent additional interest rate for fixed deposit remittance accounts. Dr Dhungana also highlighted efforts to channel remittances into productive sectors.

Economic growth projected at 5.1 percent for 2024

Nepal’s economic growth is expected to rise, with the World Bank projecting a 5.1 percent growth rate for the fiscal year 2024, up from 3.9 percent in 2023. The increase is attributed to higher tourist arrivals, expanded hydropower production, and a boost in rice production. The report anticipates that Nepal’s economy will grow by 5.5 percent in 2025, largely driven by the private sector, thanks to a flexible monetary policy and relaxed regulatory provisions.

While the growth forecast does not factor in the impact of recent floods and landslides, the World Bank expects the construction, manufacturing, and wholesale and retail trade sectors to benefit from Nepal Rastra Bank’s policies. A projected 30 percent increase in tourism arrivals in 2024 is also set to stimulate growth in the service, transport, housing, and food sectors.

Hydropower production is forecasted to rise by 450 megawatts, while rice production is expected to grow by 4.3 percent, providing additional economic support. Sislen underscored the importance of maintaining this growth pace, calling for improvements in infrastructure, governance, human capital, and the private sector.

Inflation forecast

The World Bank forecasts inflation to hover around five percent in 2025 and 4.5 percent in 2026, following rates of 7.7 percent in 2023 and 5.4 percent in 2024. Private sector consumption is expected to rise by 1.8 percent in the 2024/25 fiscal year, with government sector consumption projected to increase by 5.8 percent. The current account surplus is expected to remain at 2.6 percent of GDP, and government revenue is predicted to grow by 20 percent.

Risks in the financial system

The report also highlights several risks to Nepal’s financial system, including high levels of non-performing loans that limit private sector credit growth, policy discontinuity that may hinder investment, and delays in capital expenditure implementation affecting infrastructure development. Additionally, regional instability and trade disruptions could negatively impact tourism and domestic demand.

The report also warns that economic shocks in Gulf countries and Malaysia, which host many Nepali migrant workers, could reduce remittance inflows, impacting household consumption, poverty alleviation, and human capital development. Migration from Nepal remains costly and unequal, with a challenging process for many.

Despite these risks, Vice-president of the National Planning Commission, Dr Shivraj Adhikari, remains optimistic. He emphasized Nepal’s gradual economic improvement, pointing to capital expenditure increases and budgetary process reforms as key steps towards macroeconomic stability. “The domestic product will increase, and more jobs will be created,” he stated.