In the first month of the current fiscal year, Nepal has received Rs 136 billion worth of remittances. This is an 18% increase compared to the same period last year. Remittances account for around 23% of the gross domestic product. Remittances make up a large portion of the economy. Remittances also account for a large part of foreign exchange reserves. About half of the imports are sustained by remittances.
Chart 1: Remittance Inflow in the last 5 years
Source: Economic Survey (2080), Ministry of Finance
In the first month of this fiscal year, 36,928 people received new labor permits while 26,647 people renewed their existing labor permits for foreign employment. In the fiscal year 2080/081, a total of 7,37,375 people went abroad for employment after receiving new labor permits and renewing their labor approvals. Qatar, Malaysia, UAE, Dubai, and Kuwait were the major destinations for foreign employment. In recent years, Japan and European countries have become attractive destinations for employment. Nepal has formally opened up 111 countries for foreign employment.
Chart 2: Labor Permits for the Destination Countries
Source: Annual Labor Approval Statement (2080), Department of Foreign Employment
Opportunities
Remittance inflows have increased the country's foreign reserves. Remittances have also helped migrant workers' families meet their basic requirements. According to data from the Nepal Standard of Living Survey (4th), 5.5 million households in Nepal, or almost 83%, rely on remittances. Remittances have increased consumption and boosted spending. 72% of the total remittances received are spent for consumption. This has temporarily increased economic activity. However, without investment in domestic production, imports have surged dramatically. This has posed a challenge to the government's objective of increasing domestic output while decreasing imports. Increased remittances have contributed to higher rates of school enrollment, access to health care, and poverty reduction. A study found that every 10% increase in remittances reduces the poverty rate by 1.1% (Byanjankar and Sakha, 2021). Nepal has approximately 20.27% of the people living below the poverty line. In the Sixteenth Five-Year Plan, the government offered strategies to deploy youths to high-income countries and raise remittance inflows. Nepal's per capita income is roughly $1,450, with a target of increasing it to $1,456 per person in the coming fiscal year.
Two-thirds of remittance income is spent on basic household necessities. Sustaining this level of spending through local jobs is nearly impossible, prompting many people to seek overseas employment. According to a survey done by the Nepal Standard of Living, only 1.2% of remittance income is allocated for capital formation, with 0.4% going to commercial investments and 15.8% to debt repayment. The data illustrated below indicate that the majority of people from low-income neighborhoods are forced to seek international jobs, often taking out large loans to do so.
Chart 3: Utilization of Remittances (in percentage)
Source: Nepal standard of living survey (4th), National Statistics Office
Challenges
Remittances have boosted income levels, leading to higher consumption. However, domestic production has not increased at the same rate, leaving the country reliant on imports of essential products from foreign nations. In the first 10 months of the current fiscal year, nearly Rs 13.3 billion in products were imported, while exports have steadily declined. According to the most recent data from Nepal Rastra Bank, overall exports during this period were Rs 1.26 billion. A study indicates that every percentage rise in remittances results in a 0.2% loss in exports. (Role of Workers’ Remittances in Export Performance of Nepal: Gravity Modeling Approach) The average age of migrant workers is between 30 and 34. Domestic production has fallen as a significant portion of the active workforce is engaged abroad. Many cultivable fields remain idle due to a lack of manpower. The social impact of foreign work is considerable, with important implications for social institutions. A new study found that prolonged separation from parents has psychological impacts on children. In the short run, the trend of foreign employment has reduced the strain on employment management in politics and administration. However, analysts believe that such career options are not a long-term solution.
Government Approach, Policy, and Achievement
According to Article 33 of the Constitution, employment is a fundamental right. The National Employment Policy of 2071 has a long-term goal of transforming the available local workforce into a competitive entity capable of contributing to a productive, resourceful, and secure sector that promotes economic health and dynamism, ultimately lowering poverty. The Foreign Employment Policy of 2068 seeks to offer safe, well-managed, dignified, and dependable options for overseas employment. It emphasizes the economic and non-economic benefits of foreign employment in alleviating poverty and promoting long-term social and economic development. The Sixteenth Five-Year Plan also aims to increase per capita income to USD 2200 and reduce the population below the poverty level by 12%.
To improve services and address issues about foreign employment, the Department of Labor and Employment has launched a new Shramadhan program. The government has also launched the Returnee Entrepreneurship Program to use the knowledge and expertise gained from foreign employment to promote entrepreneurship in the country. Last year, the Prime Minister's employment program aimed to employ 86,000 people, while it was able to employ 91,585 people. The Prime Minister's employment program has spent Rs 18.43 billion since its inception in 2075. For this fiscal year, the government has allocated Rs 6 billion for this program. It aims to employ at least two hundred thousand people for at least a hundred days.
The World Bank has invested $120 million in loans for the Prime Minister's Employment Program, aimed at transforming youth employment. As of the current five-year plan, this program has expended Rs 16.68 billion. Despite an initial goal to provide skill training to 59,500 youths, the 61st annual report from the Attorney General indicates that the program's outcomes have not fully aligned with its objectives. Last year, the Department of Labor and Occupational Safety aimed to provide skillful training conducive to foreign employment for 30,000 youths across 39 districts. However, the training was completed for only 21,600 individuals across 38 districts. The Nepal Securities Board has mandated companies issuing new shares to allocate 10% for individuals employed abroad.
Conclusion
Employment destinations contribute to foreign currency stabilization, relieving pressures produced by unemployment during times of economic uncertainty that affect the general economic environment. Increased unemployment has a direct impact on the economy and our society. Reduced income leads to lower consumption and savings, limiting investment and economic expectations. Without fresh investments, job creation stagnates, worsening the unemployment rate. Rising unemployment promotes social instability and increases crime rates. The government should maintain a consistent foreign employment policy. To increase young competitiveness in the international market, the government must prioritize skill development training. Efforts to create local employment opportunities must be encouraged to eradicate poverty and align with the government's long-term strategic goals. The current surge in remittance inflows may have positive short-term effects, but it will lead to dependency in the long run. Responsible entities need to prioritize domestic production to successfully minimize the growing trade deficit.
