SANGAM

Global Financial Crisis May Result In Fall Of Remittance
Sangam Prasain

Remittance has a crucial role in reducing poverty and sustaining the overall national economy. Keeping this in the mind, the developing world seems to be concentrating its efforts on promoting the foreign employment sector.
Remittance in developing countries is not only the bases to stimulate their economic development but also a sustainable means to improve each household’s conditions.
As far as Nepal is concerned, the remittance contribution to its overall growth momentum rose from Rs.47.5 billion in 2001/02 to Rs.142.7 billion in 2007/08.
Despite the gloomy global economy and growing losses of jobs by Nepalese migrant workers, the total remittance inflows by mid-February in 2009 has crossed Rs.100 billion, which is an increment by 67 per cent compared to the corresponding period last year.
According to Nepal Rastra Bank (NRB), the total volume of remittance inflows during the seven months of the current fiscal year was at Rs.100.7 billion whereas it was Rs.60 billion during the same period last year.
Similarly, the remittances to GDP ratio increased from 10.3 per cent in 2001/02 to 17.4 per cent in 2007/08.
Moreover, the share of remittance inflow through the official channel has increased by 60 per cent from 40 per cent. The date indicates that Nepal was still not touched by the monstrous global economic crisis, which entered from the world’s greatest economic players USA.
Although not yet touched by recession havoc, the Nepalese domestic is compelled with its own woes. The rapid population expansion and inadequate growth in the domestic economy has been compelling thousands of Nepalese to seek alternative at the foreign land.
However, there are different factors compelling Nepalese to travel abroad in search of job further complicating the country’s social and economic future.
At the outset, the decade long conflict was the core compulsion to the people to seek job in the foreign land.
Secondly, the limited arable land is forcing the farmer’s to switch their occupation to other sector and foreign jobs.
In the nonagricultural sector, such as industrial and service sector, the slowdown in growth, especially since 2000/01, due to the internal conflict have further retarded the pace of employment creation. The armed conflict has also created difficult to the people living in the rural areas, which attributed the flow of Nepalese to other job offering destinations.
The number of persons granted institutional permission for foreign employment was 182,043 and 214,094, respectively, in 2005/06 and 2006/07. The major destinations have been Malaysia, followed by Qatar, Saudi Arabia and United Arab Emirates.
According to the Department of Labor and Employment Promotion, the number of workers going abroad for employment has increased by almost 13 per cent in 2007/08 as compared to 2006/07, despite the gloomy world’ economy.
Now, when Nepal has been totally dependent in the remittance economy, the emerging global recession has posed a serious problem to the Nepalese working abroad, which could be a means to disturb the national economy drastically.
The International Monetary Fund (IMF) has said that the current crisis in the global financial markets has witnessed the worst in seven decades pushing financial capitalism of the world into severe turbulent.
This increasing recession is expected to threaten the world’s economy into a major global meltdown dropping the country’s GDP, domestic and foreign investments. There will be a severe impact in the country’s inflation pushing mass people to unemployment.
However, in regard to the Nepalese economy, Nepal has not faced any direct impact, so far, from the global financial crisis because Nepalese financial market is not open to investments from abroad.
Fortunately, Nepal will in one hand benefit from the global economic slowdown because the recession triggered the drastic fall in global oil prices from US$ 149 to below US$ 40 per barrel.
But the unfortunate part will surround in the remittance, according to the experts. Nepalese economist has claimed that Nepal could witness a return of over 300,000 job aspirants working in the foreign land those especially in the Malaysia South Korea and gulf countries.
They said that the severe blow of recession would affect semi skilled and unskilled workers. The return of Nepalese worker’s will have an impact on a balance of payment.
Similarly, the indirect impact of the economic crisis will propel the social sector into insecurity and doldrums. Sociologist and expert opinions that the returns of the Nepalese workers will make negative impacts to the society as there will be a rise in disorders and disputes.
The households of the foreign workers have been using their earnings to comfort their family living standards. With the money their children are getting private school education. Besides, their family standards have been improved through the earnings, which might come to the same level, as they become unemployed in their return.
Consequently, the poverty levels will rise as consumption levels and health status of the poor declines, which will invite high level disputes and disorders in the society.
A new study commissioned by the Asian Development Bank (ADB) titled, ‘The Impact of the Global Economic Slowdown on South Asia,’ notes that the sub region has been hit by capital outflows and weaker commodity prices, and faces a sharp slowdown in exports and remittances as the global troubles worsen.
It adds that governments could consider incentives to encourage overseas workers to remit money home, such as special savings instruments, and they should also discuss currency swap arrangements and other measures to keep their financial systems stable.
In the longer term, South Asian countries need to reduce their fiscal deficits, diversify their economies, step up infrastructure investment and boost intra-regional trade to take up the slack of lower demand from G7 nations, the study says.
There is a need of policies that need to be developed to encourage the use of remittances for promoting long- term national growth. Nepal needs to formulate policies that will ensure the investment of the migrants in the productive sectors especially in their country rather than spending them in the foreign land.
Many Nepalese migrants want to invest in the business sector in their home country. These types of investments on the part of remitters can lower poverty by expanding businesses in their home communities and generating jobs and income.
The state should ensure the migrants’ future as they return back to their country. It should provide opportunity to promote self-employment and create congenial environment to support their investment in different activities.
However, the economist claims that the remittance flows to the developing countries are expected to fall from 2 per cent of GDP in 2007 to 1.8 per cent in 2008. After many years of strong growth, remittance flows to developing countries began to slow down in the third quarter of 2008. This slowdown is expected to deepen further in 2009 owing to the global financial crisis.