Migrating labour is a common feature of developing countries when their domestic economic capacity cannot absorb the big labour population by the provision of reasonable wage rates. In the context of Nepal, the decade-long conflict has been responsible, among other factors, for precipitating the trend. Most of the rural youth have joined the rebellion, been displaced or left the country in search of work. Of the 19 countries that absorb Nepali workers, the major ones with respect to the number of workers permitted by the government last year, are Malaysia, Qatar, Saudi Arabia and the UAE. During FY 2062/63, the government permitted 178,000 workers, a yearly hike of 29 per cent.

The importance of income from remittance has been increasing with time. Remittances increased by 48.8 per cent in FY 2062/63 as compared to the previous year, resulting in the influx of Rs.97.53 billion (around 18 per cent of the GDP). The channels of remittance have changed too, taking a more formal shape of late. But under-reporting in this regard as a result of the lack of clear-cut reporting guidelines is a great problem.

Despite the sluggish growth and internal conflict, Nepal’s major economic indicators have remained positive due mainly to strong support from remittance income. Needless to say, remittance income has had a positive impact on foreign exchange reserves, financial sector deposits, stock market trading, real estate, among other areas, whereas it has had an adverse impact on the Indian currency reserves, supposedly regulated through the Hundi channels of the Indian agents.

Most of the remittance income is believed to be used for consumption purposes. The increase in consumption level has no doubt had a corresponding impact on the aggregate demand, but because of the sluggish GDP growth, the increase in consumption has largely benefited the sale of imported goods. If remittance income is measured in terms of the percentage of GDP, Nepal falls in the list of top 20 countries. Thus it cannot be denied that remittance income has played a significant role in reducing the level of poverty from 42 per cent to 31 per cent, largely through the increase in labour wages in rural agriculture and industrial sectors.

By nature, remittance income, based on unskilled (non-technical) workers, may not be sustainable as these labourers cannot compete in the international market if, for instance, the major importing countries decide to cut back on the number of imported labourers. In such circumstances, the economy might take a sharp downturn due to unfavourable exchange rates, loss in foreign exchange reserves, cutback in consumption, and ultimately, reduction in disposable income of the rural people. Hence it becomes prudent to focus on skill enhancement and market diversity. Similarly, remittance from the British army has been a sustainable source of income for the country. But in the changed context, the ex-army as well as the working army men might prefer to keep their savings in the UK. It is also likely that they might transfer their liquid assets from Nepal if they decide to settle in the UK. Hence loss to Nepal in terms of both capital outflow and cut in remittances.

Considering the sizable remittance income, the practice of using GDP in economic analysis might not present a true picture of the country’s economy. A more useful basis might be calculation in terms of gross disposable income. Similarly, public policy should be pro-poor with the introduction of a quota system in manpower companies, which, in turn, might be bolstered by institutional credit. Providing primary job training and working knowledge compatible with the language, tradition, culture and legal system of the concerned labour importing country will also help increase the confidence and efficiency of the labourers. Nepal, through its missions abroad, may take market surveys to identify labour markets suitable to Nepali workers in terms of similarities in socio-cultural background and climatic conditions, in addition to concern for higher wages.

Agreements with major labour importing countries based on the ILO conventions and initiation for the establishment of a SAARC forum to protect the basic rights of the regional workers working abroad would not only help solidify the spirit of regional cooperation but also safeguard the interests of Nepali labourers. Similarly, credit facility and life insurance should be arranged through the manpower companies. It is the workers’ right to seek work abroad if they cannot be absorbed into the country’s workforce. However, brain drain of the professional, technical and high-skilled workforce has had an adverse effect on the country’s development. In the long run, the government has to take an initiative on behalf of the skilled manpower to ensure a sustainable flow of remittances whereas, for the short term, it needs to develop infrastructure for the investment of the remittance income.

Dr. Paudel is an ex-economic advisor, NRB