TOPICS: Getting the best out of remittances

It’s a few dollars there and a lot of rupees here. Some hardship there and a big fortune here. Money sent home by migrant workers abroad has started to change the lives of many households in Nepal. Though not a direct contributor to the government’s budgetary resource, remittance is, however, a key player in our access to foreign exchange.

The exodus of Nepali workers to join the international job market started only recently as more and more countries opened their borders to foreign workers and Nepalis became more aware of the foreign job opportunities. The money sent home by these migrant workers in the form of remittances is instrumental in our access to foreign exchange, apart from compensating for our trade deficit with other countries. Estimates for the current remittances vary between an annual Rs. 50 billion and Rs.100 billion.

In view of our economy going nowhere, lackadaisical effort of the government in creating domestic employment opportunities or in exploring avenues of investment, remittances have saved many households, and even the national economy to a large extent. Huge remittances increase consumption, which means more imports, which in turn boost customs collections, a key source of government revenue, apart from their effect of increasing deposits in the banking sector.

There are reasons why a developing country like Nepal needs to recognise the contribution of remittances to our economy and to properly manage and regulate its flow. Capital sources like international aid flows through bureaucratic channels, where corrupt officials often misuse money. Any type of international loan carries a cost in the form of interest payments. International investment also implies profit repatriation to the investing nation. In contrast, the capital resource from remittances goes directly to Nepali households and comes back into the economy in various forms. It is this stable source of financial flow that is more important to an underdeveloped country.

Not only households, the community can also benefit from remittances. Indonesians living in Holland have formed associations to pool remittances and channel them into financing public projects and small businesses in the towns from where they migrated.

As long as the migrants keep sending money home and household consumption rises, brain drain will help developing countries overcome the pressure of unemployment, besides giving access to foreign exchange through remittances. But once the migration begins at the top echelons then brain drain could cause worry.

Getting the best out of remittances, therefore, calls for government effort at creating an economic environment, which encourages families to channel their money into worthwhile domestic investment, rather than into consumption. But excessive dependence on remittances alone involves high risks in case of any disturbance to the foreign job market and cannot make up for the government’s failure to create jobs at home.