What is happening to remittances in Nepal?

Sept. 26, 2016

The tide of money transfer to Nepal has changed in recent times, with potentially alarming consequences.

Nepal is a textbook example of a country that benefits from remittances. The Kathmandu Post has summarised well why this is the case:

“If there is one consistent narrative about Nepal over the last two decades, it must be about migration and remittances. Political and development activities in the country have always remained volatile. While political culture is punctured by intra- and inter-party fighting and external interference, economic development is beset by stalled projects and… eroding bureaucratic capacity. However, migration and remittances have been notably resilient to internal and external shocks, providing crucial support to the economy characterised by high unemployment and slow economic growth”.

In short, the money sent home by migrant Nepalis props up an economy that is not self-sufficient for the time being. Around 30% of Nepali GDP comes in the form of remittance, sent by thousands of workers who travel to (predominantly) Malaysia and the Middle East, specifically to work. As construction has boomed in Qatar, Saudi Arabia, and other places, so has the demand for migrant workers risen.

But what happens to a country so crucially dependent on remittance, when global demand for oil and commodities suddenly evaporates? Recently plummeting oil prices have cooled the pace of construction, and the Malaysian government even briefly implemented a ban on foreign workers (which has since been lifted, but with restrictions). All of this adds up to a decline of opportunities for Nepalis looking for work abroad. And if they aren’t earning, they aren’t remitting.

Many citizens appear frustrated by the government’s response to this deceleration in remittance. While Prime Minister Pushpa Kamal Dahal has been focussing on how to best use remittances to stimulate the economy, banks are doing little to use ‘remittance-fuelled liquidity’ to stimulate investment.

So while many talk about the multiples by which remittances exceed foreign direct investment, we have to question whether this resource is being used well. For the moment in Nepal, it appears not well enough. 


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