Remittance is Nepal’s Lifeline – But Are We Relying on It Too Much?

If there’s one thing that’s been consistently propping up Nepal’s economy, it’s remittance. The money sent home by Nepalis working abroad has been a game-changer for the country, keeping the economy afloat, especially during tough times. Whether it’s during the Covid or the economic slowdown. Remittance has been the savior.

Just recently, the numbers went up again – in the first month of the fiscal year 2024/25, remittances shot up by 18%, hitting NPR 136.93 billion. That’s a lot of money flowing in, but the question is: are we too dependent on it? Let’s dive in!

The Rise of Remittance in Nepal

This 18% jump in remittances (from mid-July to mid-August) is impressive, but it’s not surprising. Every year, thousands of Nepalis head to places like Qatar, Malaysia, and Saudi Arabia for work. In just that one month, nearly 37,000 Nepalis got their final work permits, while over 22,600 renewed them. These numbers show how heavily our economy relies on foreign employment.

And here's the thing: while sectors like exports are still struggling, remittance is keeping things moving. In fact, in the first month of Fiscal year 2081/82 alone, the total net secondary income (which includes remittances) hit NPR 148.49 billion. Compare that to last year’s NPR 128.21 billion, and you get the picture — remittances are vital to our economy.

Boosting Nepal's Foreign Exchange Reserves

One of the biggest perks of this remittance inflow is its effect on Nepal’s foreign exchange (FOREX) reserves—Money sent home from abroad is what helps Nepal save up foreign currency, which we use to import goods and services from other countries. By mid-August 2024, Nepal had saved up a huge amount—about USD 15.58 billion. This is like a safety cushion for our economy, allowing us to keep buying important goods and services from other countries without any hassle.

Simply put, we have enough savings to buy goods for more than 16 months and services for 13.5 months. Since Nepal depends a lot on importing things from other countries, having these savings is really important. They help keep our currency stable and protect us from global economic shocks.

The Upside of Remittance

1. Fueling Spending and Investments: Remittances play a huge role in supporting many Nepali households, especially in rural areas. This money often goes into education, healthcare, or even buying land or property. All of this helps boost domestic spending, which in turn fuels our economy.
2. Helping the Government Stay Afloat: The government benefits too. Since we have enough foreign currency saved up, Nepal doesn’t need to borrow as much from other countries to cover its expenses. This frees up money for important things like infrastructure projects, public services, or even innovation that could drive future growth.

The Downside – Are We Relying Too Much on It?

But here’s the thing – while remittance is amazing, we’re also putting a lot of eggs in one basket. There are some pretty big risks if we continue to rely on it too heavily:

1. Too Dependent on Foreign Jobs: Nepal’s economy is tied to foreign labor markets, mostly in the Middle East and Southeast Asia. If something goes wrong – whether it's a political crisis, new labor laws, or an economic downturn in these regions – our remittance inflows could take a serious hit.
2. Brain Drain and Worker Exploitation: Every year, we see skilled and unskilled workers leaving the country in large numbers. This means we’re losing valuable human capital that could be driving Nepal’s development. And let’s not forget the harsh working conditions many of these workers face abroad. Exploitation is a real issue, and it’s something we need to tackle head-on.
3. Unproductive Use of Money: A lot of remittances end up being spent on consumption – buying land, houses, or everyday goods. While that boosts the economy in the short term, it doesn’t really contribute to long-term growth. The money isn't being channeled into productive sectors like small businesses or industries that could create jobs or spark innovation.

So, What’s the Way Forward?

We need to get smarter about how we use remittances. For starters, the government can offer incentives for people to invest in productive sectors like small and medium enterprises (SMEs), or industries that create jobs. That way, remittances can help build a more sustainable economy.?

Nepal is already on this path with some impressive initiatives. One of them is giving migrant workers priority access to IPOs—if they send home at least NPR 50,000 via formal channels, they get to invest in local companies like hydropower projects before the general public.

Additionally, the Social Security Fund (SSF) scheme now includes migrant workers as well. They can contribute to social security benefits, securing things like retirement or accident coverage, even if they're working abroad. These programs help Nepali workers invest in their future and support the country’s growth at the same time!

Another thing we should focus on is financial literacy. Many people who receive remittances don’t always know the best way to invest or save that money. Programs that teach financial management could go a long way in making sure remittance money is used wisely.

And lastly, it’s crucial for Nepal to negotiate better labor agreements with the countries where our workers are headed. By ensuring their rights are protected, we not only improve their well-being but also create a more stable flow of remittances.

Final Thoughts

There’s no doubt that remittances are keeping Nepal’s economy afloat, but the risks of relying on them are becoming clearer by the day. If we’re smart about it, we can turn this inflow of money into something more sustainable – something that helps the economy grow in the long run.

So, while remittances are a lifeline right now, they shouldn’t become a crutch. The future of Nepal’s economy lies in diversification, innovation, and making sure we invest in things that truly matter.