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Dependence on remittances: The sustainability factor
Two actions are urgent to sustain the economy. One‚ mobilization of the bulk of remittance inflow in the productive sector would help to create employment opportunities. Two‚ vocational education‚ along with skill-based training‚ is urgent to boost the morale of migrant Nepali labor.
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Nepalis living and working in foreign countries send money regularly to their families back home. Examples from past history include Middle Easterners living in Europe, Latin Americans in the United States, and Koreans, Filipinos in Japan and Nepalis in India. Remittances constitute a significant amount of national income. Although the use of remittances varies from country to country, the recipients of remittances commonly rely on them for living costs, education and investments.

After the World War I, Nepali youths have continually migrated to foreign countries for livelihood. The growth of migration has rapidly accelerated in the last two decades after Nepal underwent policy changes conducive to open and liberal economy. In the beginning, the thrust of these economic policies was to either privatise or dismantle public enterprises. Policy failures have continued because of the inability of the private sector to operate such enterprises. Actions have not stopped in spite of the negative implications on the economy in the short as well as in the long run. It created chronic unemployment. Obviously, economic transformation did not produce significant positive changes but started to decline over time. In addition, since the late 1990s Nepal experienced a decade-long armed conflict. It has been estimated that the conflict cost the nation around 2.5 per cent of GDP growth per annum since 2000.

A significant number of Nepali youths, over two million, work in different countries of the world. India, East Asia, Middle East are particularly popular destinations for employment. Over 1100 Nepalese leave the country every day in search of greener pastures. The outflow of people in search of opportunities in foreign countries has increased over the years. It seems that employment for potential Nepali workers depends on the need of the foreign countries. These youths send remittances to their families back home. The number of youths going abroad as migrant workers from Nepal and remittances they send back home have amazingly increased over the years, and it is believed that remittance plays a significant role in providing livelihood to the majority of people who live in rural areas. Nepal received around US $ 2.9 billion remittances in 2009 which jumped from US$ 0.8 billion in 2004, an increase of 262 per cent. Remittances contributed 18 per cent share to the total GNP of Nepal in 2006, the highest among the South Asian countries. In 2004, remittances covered 14.2 per cent of GDP which jumped to over 22 per cent in 2009. These data reveal that

the dependence of Nepali economy on remittances has been increasing over the years and this trend looks to continue in the days to come.The expenditure trend of the remittances received indicates that it may have significant role in reducing poverty. Out of the total remittances, 78.9 per cent is spent on daily consumption followed by repaying loans (7.1 per cent), household property (4.5 per cent) and education (3.5 per cent). This pattern of the use of remittances indicates that there is a big implication on the livelihood of the people as major portion of the remittances is spent on consumption. Merely 2.4 per cent of the remittances is spent on capital formation. Lack of employment generation due to the unproductive use of remittance will definitely hit the economy hard in the long run as the country is deep in the remittance trap.

For many developing countries, the remittances that their citizens send from abroad constitute a large source of foreign exchange than international trade, aid, or foreign investment. That seems true for Nepal also. The remittance total was four times greater than export earning, 81 times greater than FDI, 8 times greater than the earning from tourism and nine times greater than grants in 2009. Tourism is a promising sector in Nepal. Income from tourism seems to fluctuate, indicating fluctuation in the employment opportunities. Export and tourism earning as per cent of GDP were 11 per cent and 5 per cent respectively in 2009. This indicates that the progress of domestic sector that earn foreign exchange is not as encouraging as remittance. Many scholars have expressed their concerns over the non-sustainability of the economy if it depends only on remittance. In the context of weak economic performance, it would be unimaginable to absorb an increasing labor force in the domestic market. It would definitely put the country in trouble if there is a mass return of foreign workers. The mass return of youths is possible if the benefits from the services they are supposed to provide to the host country in terms of taxes are not greater than their earnings.

As seen above, the bulk of remittances has been spent presently on consumption. Two actions are urgent to continue and sustain the economy. One, mobilization of the bulk of remittance inflow in the productive sector would help to create employment opportunities. Two, vocational education along with the skill-based training is urgent to boost the morale of Nepali labor in the international labor market.

The former ensures sustainability of the economy even without remittance, and the latter helps to increase the bargaining power of migrants to get reasonable wages in the international labor market.

source:PROF. DR. KAMAL RAJ DHUNGEL(2014),"Dependence on remittances: The sustainability factor", The Himalayan  Times,9 Jan 2014

2014-01-14

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