The Economic Lifeline of Nepal: The Impact of Remittances from Nepalis Working Abroad

The Economic Lifeline of Nepal: The Impact of Remittances from Nepalis Working Abroad
Credit goes to Sangam Prasain

In the face of economic challenges and political instability, an increasing number of Nepalis are seeking employment opportunities abroad. The remittances they send back home have become a significant part of Nepal's economy, contributing to poverty reduction and improving living standards. However, this trend also raises concerns about the country's ability to harness its demographic dividend and the potential for a severe labor shortage in the future.

The Role of Remittances in Nepal's Economy

According to the Nepal Rastra Bank, remittance inflows reached a staggering Rs1.11 trillion in the first 11 months of the fiscal year ending in mid-June. This figure represents a 22.7 percent increase year-on-year. During the same period, Nepal issued labor permits to nearly 720,000 outbound youths. The remittances sent by these workers abroad have played a crucial role in lifting people from poverty and increasing the living standard of Nepalis.

The Allocation of Remittances

A survey conducted by Nepal Rastra Bank in 2014-15 shows that remittances are used for various purposes. Around 25.3 percent of the money received from migrant workers goes towards repayment of loans taken by the households, 23.9 percent is spent on buying food, clothes, and other daily essentials, 9.7 percent on education and health bills, 3.5 percent on marriage and other social occasions, and 3 percent on buying assets like land. Additionally, 28 percent is put aside in savings, and 1.1 percent is invested in businesses.

The Impact of Remittances on Poverty Reduction

Various studies have shown that a 10 percent increase in the share of remittances in a country’s GDP leads to a reduction of 1.6 percent of people living in poverty. In Nepal, poverty dropped from 25.2 percent in 2010 to 16.6 percent in 2019, largely due to a rise in remittance earnings.

The Potential Downside of High Remittance Inflows

While remittances have played a significant role in Nepal's economy, there are concerns about the potential negative impacts. The continuous outflow of young people could lead to a severe labor shortage in the future. Additionally, the trend of students going abroad, apart from migrant workers, is more worrying. Universities in Nepal have reported a massive drop in student enrollment, indicating a significant brain drain.

The Demographic Dividend: An Opportunity or a Curse?

Nepal has a large working-age population, with 65 percent of the total population falling in the 15-64 years age group. This demographic window of opportunity could lead to rapid economic growth if the working-age population is effectively mobilized. However, if Nepal fails to develop appropriate policies to retain its youth, the bulging youth population and labor force may even become a curse.

The remittances from Nepalis working abroad have become a lifeline for Nepal's economy. However, the country needs to address the potential negative impacts of this trend, including the risk of a severe labor shortage and the inability to harness its demographic dividend. It is crucial for Nepal to invest heavily in health and education, enhance the skills of its population, and create more job opportunities at home to retain its youth.