13 May 2020, NIICE Commentary 4635
Sunil Kumar Chaudhary
The unprecedented COVID-19 crisis has come with a dire economic outlook. The persistent increase of COVID-19 cases worldwide has fabricated widespread concerns in Nepal as well. The global economic slowdown and travel restrictions will affect migratory movements, and this is likely to decrease the remittances flow. According to the World Bank, global remittances are projected to decline sharply, by about 20 percent in 2020 due to the economic crisis induced by the current pandemic and shutdown of all socio-economic activities. For a poor country like Nepal, remittances are the most important buffer for unexpected life expenses and investments into shaping a better future. For remittances, the safety net is now frayed by job losses due to the lockdown and shutdowns of the factories and service sectors. COVID-19 is crippling the world economy and impacting the workers worldwide. In this scenario, Nepal is no exception, and is at the risk of losing its lifeline, which is international labour migration remittances.
Foreign Employment and Remittances
Foreign employment is the most significant motivation for international migration from Nepal. The formal and temporary migration began after people started to work in the British army following the Sugauli Treaty that was signed on 2 December 1815. However, recently, the scope for out-migration following military services has declined and more and more people have migrated for other types of jobs. Although India is the most popular destination of the international migrants from Nepal, its share has been decreasing with the rise of labour migration to other destination countries, namely the GCC countries and Malaysia in the last two decades. A decade long domestic conflict (1995-2006) and lengthening political transition forced most of the youth to enter into the labour market for to go abroad for employment and send money back to home to support their families. Apart from India, the most popular destinations for Nepalese migrant workers are Malaysia, Saudi Arabia, and Qatar, in addition to other countries including the United Kingdom, the United States, the UAE, Australia, Brunei Darussalam, Japan, and South Korea.
At present, Nepal has furthered its bilateral ties with 110 countries for foreign employment and has signed bilateral labor agreements with eight countries (Qatar, the UAE, Japan, South Korea, Bahrain, Israel, Jordan and Malaysia). Therefore, remittance have become an important source of foreign exchange earnings in Nepal. This is reflected in the fact that remittance inflows have outpaced foreign direct investment and Official Development Assistance (ODA) over the last few decades. According to the Nepal Rastra Bank, the remittance income of Nepalese working abroad was 879.3 billion rupees in the fiscal year 2018/19. The household survey (2010/11) reported the percentage of households receiving remittances increased from 32 percent in 2003/04 to 56 percent in 2010/11. The ratio of remittance inflows to GDP increased from 9.7 percent in 1999/00 to 29.6 percent in 2015/16 which is reduced to 25.4 percent in 2018/19. According to a World Bank report, Nepal was the top recipient of remittances as a share of GDP in South Asia and the fifth-most remittance-dependent economy in the world after Tonga, Kyrgyz Republic, Tajikistan and Haiti in 2019.
Impact on Remittances and Foreign Employment
According to the World Bank, the economic crisis induced by COVID-19 could be long and pervasive, when viewed from the perspective of migration. In the current situation, COVID-19’s effect on remittances in Nepal is disastrous as this major contributing area is at a serious risk. In the coming days, its effect seems to be twofold. On the one hand, the wages of the Nepalese workers may go down, on the other there are chances of economic recession in those countries. In the Gulf countries, where most of the Nepalese work, there is sharp decline in demand and prices for petroleum products. If they become unemployed, it will affect the country’s foreign exchange reserves causing severe impact on the Nepalese economy. Falling remittances could have knock-on effects in multiple areas of the domestic economy, harming government revenue and reducing liquidity in the banking industry. Remittance receiving households will have a hard time managing their household economy, especially the lower middle class strata
Nepal Government has stopped issuing new work permits for foreign employment since 13 March 2020 to contain the spread of COVID-19. The government’s decision to stop issuing permits to migrant workers will also have significant consequences for the country, where economic activities are driven by remittances. A drop in migration could swell the ranks of unemployed youth at home. During the Maoist movement, many youth became Maoists combatants not because of their ideological inclination, but because of the situation of unemployment. Therefore, increasing unemployment may trigger social unrest in the country once again.
The COVID-19 crisis has already put many Nepali migrants out of work. As fears of the pandemic spread in February and early March, a few hundred thousand workers returned to their hometowns and villages in Nepal. With the International Monetary Fund projecting a contraction in economies of the Gulf countries in 2020, many Nepalis are expected to lose their jobs. The entire foreign employment business has been halted indefinitely for the first time in last two decades. Due to the lockdown in India, Nepali migrant workers from India are also returning back to Nepal. According to the World Bank, remittances to Nepal are projected to fall by 14 percent.
Way Forward
The big challenge for the government will be how to manage the returning workers. The government should focus on employment targeted programs. The policy should be formulated to provide employment to them in different sectors such as agriculture, small scale industries, home and medium enterprises and service sector. Moreover, infrastructure deprived Nepal should come ahead with big infrastructure projects to soak up the daily workers and migrant workers. For that, the central government should implement different programs in collaboration with the state and local level government. Workers working in the informal sector and earning a living should be engaged in employment through labour-intensive technology. Policymakers should bring programs to attract domestic and foreign direct investment with priority to create more employment opportunities. Domestic and direct investment in the private sector must be encouraged to mobilize additional capital in labour-intensive industries and construction to increase employment in the country and meet the challenges of foreign employment. For that, government and private sector partnership is must coordinate.
Similarly, accelerating investment in agriculture with mechanization and diversification of the agriculture sector with more labour can be accumulated to reduce unemployment. The resources should be mobilized towards the agricultural revolution by taking the broken production linkage in agriculture, which is a reliable basis of the Nepalese economy. With the objectives to promote food security, improving the income level of farmers, import substitution and export promotion and mechanization in agriculture can be an important vehicle. Providing special concessions to the agricultural sector as well as to bring special economic package programs by evaluating the impact on industry and tourism sector and lowering the bank’s interest rates must be seen as a crucial resort to return back to normalcy. In order to increase domestic production, since Nepal imports most items that it can produce on its own, including food grains, the scope of imports from abroad can be narrowed by emphasizing on the production of such items. If such production can be increased, the imports can be reduced and employment opportunities can be created which will holistically aim at resolving the crisis arising followed by this pandemic.
