Kathmandu, May 9:

With a continuous rise in the inflow of remittances, money earned by Nepalis working overseas has become a vibrant contributor to the gross domestic products (GDP) of the country. It has surpassed exports as the top contributor to foreign exchange earnings.

A significant rise in the contribution by remittances to the GDP from 11.5 per cent in 2000-01 to 16.8 per cent in 2005-06 is a clear testament that its role in the national economy is gaining stature. It has now positioned itself as the top contributor to foreign exchange earnings for the last five years. This was revealed in a Nepal Rastra Bank (NRB) report on ‘Inflow of Workers’ Remittances: Nepal’s Experiences’ presented at SAARC-Finance seminar on Management of Workers’ Remittances in SAARC Countries, today.

The share of remittances in total foreign exchange earnings increased from 36.6 per cent in 2003-04 to 46.7 per cent in 2005-06, whereas the corresponding share of exports dropped to 29.4 per cent in 2005-06 from 34.5 per cent in 2003-04.

The growing remittances have led to a surplus in the current account, thereby strengthening the overall balance of payment position. The share of remittances in total current account soared to 46.7 per cent from 29.8 per cent in the past five years. Growth of 26 per cent in convertible currency reserves of the banking system is also due to increasing remittances. The report also shows that the inflow of remittances through official channels registered a dramatic rise from Rs 47.53 billion in 2001-02 to Rs 97.68 billion in 2005-06.

However, it doesn’t take into account the flow through informal channels, as the econometric analysis and available household surveys show that unrecorded flows through informal channels may add 50 per cent or more to recorded flows.

Quoting the findings of the Nepal Living Standards Survey-II, the report says that remittances have had a positive effect on the economy through various channels such as savings, investment, growth, consumption, poverty alleviation and income distribution.

However, it has cautioned that the use of remittances have been more concentrated in unproductive sectors like real estate and daily consumption.

It has pointed out the need for policies to encourage the use of remittances to promote longer-term growth and income security. Nepal needs to further devise policies that send more remittances through official channels, increase the levels of remittances by encouraging migrants to hold their savings in financial assets rather than holding them abroad and encourage migrants to become investors in productive assets in the country. Lauding the role played by remittances in socio-economic development in the region, NRB governor Bijaya Nath Bhattarai pointed out that there lies a challenge of steering remittance flows through formal channels and towards productive use.

He added that capitalising on the huge reservoir of labour through consistent policy would pave a path of uplifting people of South Asia.

“Even though remittance flows in South Asia is growing, the challenge remains in exploiting their vast potential to help build a strong, equitable and dynamic region,” he said.