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Country falls into remittance trap

The rosy economic picture painted by increased remittance will make the economy vulnerable in the long run.

“The increased outflow of human resource is alienating the manpower sector along with making the government lethargic towards propelling economic activities,” cautioned economist Dr Chiranjibi Nepal. The first six months of the current fiscal year recorded a 37.1 per cent increment in remittance as compared to the corresponding period of last fiscal.

By mid-January, Nepal received remittance worth Rs 162.3 billion while the record for the corresponding period of last fiscal year saw remittance grow by 11.5 per cent amounting to Rs 118.4 billion, according to Nepal Rastra Bank’s data for the first six months. Over one month, remittance has grown by Rs 29 billion improving the overall economic indicator of the nation. Moreover, the recent appreciation of the US dollar in terms of Nepali currency has also contributed in increasing remittance inflow.

Despite the widening trade deficit, the substantial increase in remittance has brought about a surplus in the Balance of Payments (BoP). This fiscal year, Nepal’s account has seen a monumental growth in surplus as by the first half, BoP account is positive by Rs 66.7 billion thanks to remittance.

However, the seeming improvement in economic statistics solely based on increased remittance has an alarming side to it. “Higher remittance has removed the pressure for government to expand economic activities and generate employment opportunities. As a result growth prospects for Nepal are very slim,” pointed out Dr Nepal citing the example of marginal rate of development expenditure undertaken in six months.

According to the Department of Foreign Employment, a little over 155,000 Nepalis have left for foreign employment by the first half of this fiscal year which is a 20.4 per cent increase in comparison to that of the previous year.

At present, 52.8 per cent of the total households have at least one absentee member who is away from home, according to the preliminary report of Nepal Living Standard Survey-III released by the Central Bureau of Statistics. Of the total households, 32 per cent families have members away in foreign countries. Likewise, 55 per cent of the total households receive remittance from members abroad.

But most of the remittance money is spent on consumption, whereas only two per cent is used for capital formation, which reveals the bleak economic growth for the future.

“The government has been lethargic due to the swollen economy because of the easy money and has completely ignored economic activities,” he said, adding, “For short-term it might be good for the country but the prolonged outflow of workers has left our resources unutilised which will be dangerous for the future generation as industrial and agriculture production will drop.”

source: The Himalayan Times, 21 March 2012



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