Decelerating trend in remittance Impacts to be watched

According to recent World Bank estimates, in nominal dollar terms, recorded remittances sent home by migrants from developing countries reached $305 billion in 2008, a rise by about 15 per cent from $265 billion in 2007. In real terms, however, remittance flows to developing countries fell from 2 per cent of Gross Domestic Product (GDP) in 2007 to 1.9 per cent in 2008 and is projected to amount to 1.8 per cent of GDP in 2009 due to the global recession. The more important impact of the recession on migration may be a slowdown in the deployment of new workers, especially to the Gulf oil-exporting countries as well as to the East Asian countries such as Malaysia and Korea. Some sectors and corridors have been affected more by the crisis, such as construction related remittances moving from the Gulf States to South Asia.

The potential for remittances to lower poverty and economic vulnerability, improve family welfare, and stimulate local economic development has been of particular interest to Nepal’s policymakers. However, in the present scenario, where job markets are contracting in many parts of the world with the subsequent decline in the demand for foreign jobs, this has become an issue for Nepal since the country relies on remittances as a crucial source of foreign exchange.

Although growth in remittances was, until the end 2008/09, satisfactory despite the global economic recession, the volume of inflow to Nepal have faced some strains recently due to decline in outflow of new labor and return of migrant labor due to job losses. The number of workers going abroad for employment declined by 14.1 per cent to 56,282 in the first three months of 2009/10 compared to 65,502 in the corresponding period of the previous year. Likewise, workers’ remittances aggregated Rs. 51.75 billion, a rise of just 11.6 per cent compared to the 67.3 per cent growth in the corresponding period of the previous year. The deceleration in remittances has led to a current account deficit of Rs. 11.38 billion, thereby weakening the overall Balance of Payment (BoP) that also posted a massive deficit of Rs. 20.45 billion. As at mid-October 2008/09, the level of reserves was adequate for financing merchandise imports of 8.5 months and merchandize and service imports of 7.2 months, compared to their respective figures of 12.0 months and 9.8 months as at mid-July 2009. Hence, the data divulges that global recession is slowly starting to have some impact on the Nepalese economy in general and remittances in particular. Moreover, if the global recession prolongs, the adverse impact on foreign employment and remittances will be perceived more. In this context, the World Bank has estimated that remittances from the Gulf region, the major market for Nepali workers, could decline by 9 per cent in dollar terms in 2009, compared with a rise of 38 per cent in the previous year. Moreover, the recent debt crisis in Dubai pointed to the vulnerability of the global economy despite signs of recovery.

Although the impact of the debt payment standstill on remittance flows from Dubai’s overseas workers is unclear, Standard & Poor’s, the international rating agency, has mentioned that the Dubai debacle could have an adverse impact on remittance flows to South Asia.

To withstand the repercussions of the global crisis on foreign employment and remittances, human capital should be developed in accordance with the demands of the international labor market, and this should constitute an integral part of the overseas employment process in Nepal. There is also a need to conduct

continued assessment of the impact of the worldwide financial meltdown on the economic situation in those destination countries where there is a large number of Nepali migrant workers. This would assist in forming the basis for

estimating job losses for Nepali workers and the number of returnees.

Secondly, business facilitation for returnees should be accorded top priority. Policies and programmes to re-integrate the returnees can include improving self-employment opportunities, support for small and medium-enterprises (SMEs), and budget support to districts facing large returns.

Thirdly, a separate ministry along the lines of those in other South Asian countries (such as the Ministry of Expatriate Welfare and Overseas Employment in Bangladesh and the Ministry of Overseas Indian Affairs in India) needs to be created. Currently, issues pertaining to foreign employment are dealt by the Department of Foreign Employment under the Ministry of Labor and Transport Management.

There is clear indication that with the job cuts in the major countries where Nepali workers seek employment, the flow of remittances has started to decelerate. The global recession is something that they should have been prepared for. Since remittances are one of the major earnings of the country their decline will have serious ramifications for the economy and ways to deal these should be devised.

Dr. Pant is with Nepal Rastra Bank.