REMITTANCES
Benefiting All Sectors
- By KESHAB POUDEL
Khil Man Thapa, 42, a resident of Bhiman village of Sindhuli District, 200 miles east of capital Kathmandu, sends Rs.10,000 monthly from abroad supporting his five family members living in the district capital of Sindhuli. Khilman’s two sons and a daughter are now going to nearby boarding schools.
After the escalation of Maoist insurgency five years back, an un-skilled Thapa decided to go to Dubai through an employment agency. “Along with sending three children to boarding school and taking care of my family members of four, I have also bought one bigha of land in Dhalkebar village of, Mahottari district. Had I remained in the village, I would not have saved money to buy the land and send my children to boarding school,” Thapa said.
There are more than a million people like Thapa who are benefiting from the foreign employment and helping to sustain the local and national economy by sending remittances. In most of the district headquarters and the capital city, remittances sent by the people like Thapa is helping to boom the construction industry as well as real state business. As the performance of Nepal’s agriculture, tourism and manufacturing sector continue to see negative trend, booming foreign employment sector is reviving Nepal’s economy.
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Rural life: Witnessing slow transformation |
Semi-skilled Habibulla Rahim, 35, from Lahan of Saptari, 300 miles east of capital has a similar story to tell. Rahim is sending Rs.15,000 monthly from Saudi Arabia to feed his family of six including two children.
Working in a Saudi Construction Company in Riyadh, Rahim has to pay about 10 percent of his money to send as remittance. “When I sent first consignment of money through my neighbor, my family did not receive it. Now, I am sending my money through commercial bank and my family members collect it in the district headquarters Rajbiraj,” said Rahim, who had come on leave.
One can see the contribution of remittances even in remote parts of Nepal, as it is the only source for poor Nepalese families. A large number of people from far west and mid-western region are working in different towns in India.
Preliminary study shows that most of the money is either being spent in consumption by the family or to buy land and property. “Remittances have been invested to build houses in Pokhara but they are all empty. These kinds of investment need to be discouraged and diverted to productive investment,” said Dr. Shanker Sharma, vice chairman of National Planning Commission (NPC).
Many people are spending the remittances to educate their children. There is a correlation between the money coming into the rural areas and increase in the enrolment of children in schools. Remittances have played a major role improving the overall social and human development indicators.
With the intensification of insurgency, a large number of people migrated in search of employment opportunities abroad as well as in urban centers. Although the mobility of young people has already created labor shortage in agriculture sector, this is helping to increase the income. Thanks to the growing construction boom in Kathmandu valley and other urban centers, there is high demand of workers. The internally displaced populations are fulfilling it.
Due to high economic growth in Southeast Asian countries and South Asia, the demands of un-skilled laborers have gone up abroad also. The high oil prices boost the construction industry in oil-rich Gulf countries. Nepalese workers find this as an opportunity. The high economic growth rate in India also demands more unskilled workers.
Recently, the demand of Nepalese workers in Malaysia went up. It is one of the main destinations for Nepalese workers. Even in a country like Afghanistan, there is high demand of retired Nepalese police and security personnel. Many foreign diplomatic missions in Afghanistan are guarded by Nepalese security personnel.
A recent study has revealed that the remittances play a major role in reducing the incidence of poverty in Nepal. According to Nepal Living Standard Survey (NLSS II), there is drastic reduction in poverty in rural areas as remittances are bringing significant changes.
As internal as well as external migration continues to grow, the volume of remittances reaching rural households has gone up. With the escalation of insurgency, there is a growing cycle of internal migration from rural to urban and external migration to overseas and neighboring country. Although urban to rural remittances has declined, the external migration continues to increase.
“Migration generates substantial welfare gains and reduces poverty. It benefits to the countries of origin mostly through the remittances,” said Dilip Ratha and William Swaw senior consultants of the World Bank. “Remittances also finance education and health expenditure, and ease credit constraints on small business. Migration boosts welfare for most households. Cross-country evidence shows that a 10 percent increase in per capita remittances lead to a 3.5 percent decline in the share of poor people,” said senior consultant of the World Bank.
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Migrant workers: Supporting home |
Remittances are important resource for Nepal’s development. “Remittance is, in a very significant way, transforming urban and rural areas as well. The construction activities we have seen throughout this last three or four years sustained growth, which is very broad-based and spread out throughout the country. We think that this is playing very significant role in not only maintaining macro-economic stability in Nepal at a very difficult time when a small shock could have destabilized the economy but is also contributing to poverty alleviation. And the reason that we think this is something that will be sustained is that due to the conflict a lot of people want to leave the country. It is not a happy story from their point of view but flip side of this means there will be remittance growth,” said Sultan Hafeez Rahman, resident representative of Asian Development Bank, Nepal office.
The large inflow of remittances from abroad changes the pattern of personnel income transforming consumption style. One of the problems the people working abroad face is how to channel back their money through secure way. Despite involvement of many international banks and financial institutions, people still have to pay high cost to send the remittance. The system like hundi continues to exist. Many poor migrants either send money through their friends or hundi paying high service charge and it is often insecure. There is considerable scope for reducing remittance costs faced by poor migrants.
High remittance costs faced by poor migrants can be reduced by increasing access to banking and strengthening competition in the remittance industry. Government should not tax remittances or direct the allocation of expenditures financed by remittances.
“We must develop program to reduce the costs in channeling the remittances. Nepalese banks are encouraged to go abroad to bring the money through formal channel,” said former chief secretary Bimal Prasad Koirala. “The present high cost for sending remittances to Nepal is risky as well as inappropriate.”
Challenges for Future
Many Nepalese working abroad are facing many challenges. In some cases, agents cheat them. Most importantly, there is a need to provide skilled training to Nepalese going abroad.
Welfare of Nepalese working abroad needs to be addressed. The government has to negotiate for labor accord with various countries. “If we train Nepalese going abroad, their income will increase by many folds. As most of the Nepalese going abroad are illiterate and untrained, they can be easily cheated. Many Nepalese sell their houses and lands to go abroad. The government has already initiated a program to provide loan through the banks to those who cannot afford money to abroad,” said Dr. Sharma.
As remittance is playing vital role to rejuvenate the country’s economy, the time has come to develop the plan to use remittances in productive sectors. So that, its contribution to national economy can be felt by all for the long-run.
