Till the 1990s, agriculture provided a livelihood to more than 90 percent of the Nepali population. Today, the figure has come down to less than 70 percent. The share of agriculture to GDP was 34.4 percent during the period 2001-06. This had dropped to 25.6 percent by 2013-20. At the same time, remittance has been rising steadily. The percentage of remittance to GDP soared from a mere 9 percent in 2001-06 to 29.1 percent in 2013-20. This figure is consistent with the finding of the International Labour Organisation which shows that remittance flow into Nepal as a share of GDP doubled from 14.9 percent in 2005-06 to 32.1 percent in 2015-16, the fastest rate in South Asia, following a massive increase in labour migration. It is evident that Nepal's economy has been shifting from agriculture to remittance.

Remittance is the primary source of foreign exchange, and most of it is spent on importing consumer goods and energy. Recent data shows that 78.9 percent of the remittance received is spent on daily consumption, 7.1 percent on loan repayment, 4.5 percent on household property and 3.5 percent on education. Only 2.4 percent of the remittance is spent on capital formation. This clearly shows that Nepal has not been able to mobilise remittance in productive sectors, making the future of Nepal’s economy even more uncertain, unsustainable and vulnerable. The use of remittance in unproductive sectors will neither create jobs nor increase production and productivity. This will hit the economy in the long run, and result in the worst situation of a “remittance trap”.

Trade cycle

Recession refers to the phase of the trade cycle when there is a decline in economic activities as opposed to expansion during the alternating phase. There are several indicators that exhibit particular phases in the business cycle that are conventionally measured using real GDP. A decline in real GDP for two or more consecutive quarters indicates recession. The United States, Britain, Europe and also some Asian countries like Japan almost experienced a recession in 2008, according to the rule-of-thumb of two consecutive quarters of falling GDP. The International Monetary Fund says there is a recession when the real GDP growth rate drops to less than 3 percent.

Recession in high-income countries can hit the economies of middle-income countries. Middle-income countries are where youths from low-income countries like Nepal find jobs. An economic downturn in middle-income countries could shrink employment opportunities for potential workers in low-income countries. Nepal’s growing labour force depends on foreign employment, particularly in middle- and high-income regions like the Middle East, East and South Asia, Britain, Eurozone, Australia, the United States and Canada. Also, if China and India were to suffer a recession, Nepal’s economy would be hit as these countries are major trade partners.

Depends on remittance

Nepal’s economy today depends on remittance, and its effects can be manifold. One, banks depend partly on real estate and auto loans. Both these sectors are unproductive, and can grow only when the country is able to achieve high economic growth. Two, manufacturing and other productive sectors are not booming, so bank lending depends on real estate and auto loans. During times of an economic downturn, these sectors will fare worse than other sectors of the economy, causing banks to collapse. This phenomenon will slow business activities in the economy. Three, the number of people living in poverty will rise if our youths lose their jobs in foreign countries. When these people return home, Nepali households will have a hard time. The result is more people will be pushed into poverty. In essence, if the foreign employment sector becomes more vulnerable and uncertain, it will badly hurt the livelihoods of poor and marginal households in Nepal.

Lastly, real estate is another growing sector of Nepal. Remittance is a key factor behind the rapid growth of this sector. In the past, a significant portion of remittance income was invested in real estate, particularly in the country's urban areas. If our youths lose foreign employment, their income will diminish. They will lose their capacity to buy real estate. Consequently, this sector will be affected faster than others.