Remittance is a relief but not a long term solution

05 Jan 2010

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Nepal is likely to meet the target of halving the number of people living under extreme poverty (# 1 Millennium Development Goals ) up to 24 per cent of the total population by 2015. 

However, reduction in poverty is not synonymous to economic growth or infrastructure development in the country. Many semi-skilled and unskilled Nepalese fly to Gulf countries and South-east Asian countries due to lack of employment opportunities, growing insecurity and poor investment climate at home. 

The Department of Labour has recorded as many as 217,164 Nepalese who have left for more than four dozen countries in pursuit of foreign employment in the fiscal year 2007-08. 

Nepal received Rs. 209.69 billion remittances in the fiscal year 2007-08, the highest remittance recorded so far. The government data shows that the global economic meltdown did not affect Nepali labour markets abroad as predicted. According to the Foreign Employment Promotion Board, only 193 returnees affected by global crisis have claimed compensation so far. 

Experts argue that if there had been no remittance flowing, poverty would not have reduced from 41 per cent in 1996 to 31 per cent in 2004, especially at a time when the major foreign exchange generating industries like carpet, garment, pashmina and tourism were under-performing due to conflict. 

Despite remittance's substantial contribution to GDP, Nepal's economic growth rate stands at 3.9 per cent in 2008-09 against 5.3 per cent in 2007. Since a large per cent of the remittance is spent to meet daily expenditures and on real estates, the inflow of the remittance is less felt by households that do not receive it directly. The remittances cannot be a substitute for a sustained, domestically engineered development. Still, it can ease the immediate budget constraints of recipient households. 

Former Vice-chairperson of the National Planning Commission, Dr Shankar Sharma says, "the factors including remittance, high wage rate, reduction in fertility rate and urbanization have led to progress in achieving the target of reducing poverty. These factors had positive impact on economic growth in the country." He says the investment in the areas with comparative advantage like hydro-power needs to be given priority. "Agriculture needs to be boosted. We have strong comparative advantage for high value crops like tea, coffee, dairy products, off-season vegetables. These products can be promoted and value added," he says. 

Nepal Rastra Bank's working paper "Mobilising Remittance for Productive Use: A Policy-oriented Approach" 2008, suggests to craft effective and efficient public policies to channel remittances into productive projects. 

Dr Yubaraj Khatiwada, Vice Chairperson of the National Planning Commission says that the upcoming national plan will focus on domestic economy and create jobs at local level, heavily invest in infrastructure development as well as re-address the agricultural sector. "We will opt for mechanism that will encourage local production," he says. 

United Nations Millennium Campaign (UNMC) is supporting the country to develop a fundamental framework so that people's right to employment is realized. To achieve that, UNMC is working with the Constituent Assembly members by focusing on incorporation of economic, cultural, social rights into the new Constitution. It also works with the local bodies to integrate MDGs into the local government plans so that the policies are implemented in the grass roots. 

(For more information pls. contact seema.rajouria@undp.org, National MDG Advocacy and Campaign Specialist)