As the world slowly reopens after lockdowns, remittance inflows begin to improveAfter a significant slump in the month of Chaitra, there has been a slight increase in inflows, and officials believe that the downturn will not be as bad as predicted.
Despite projections of a massive downfall in remittances due to the Covid-19 pandemic, encouraging signs are emerging that the downturn might not be as bad as predicted.
Nepal Rastra Bank had projected a drop of over 15 percent in remittances in the current fiscal year which ends in mid-July, according to a senior official at the central bank. The World Bank in April had projected remittances to go down by 14 percent in the current fiscal year and the Central Bureau of Statistics, the same month, projected a reduction of Rs163 billion, or over 18 percent, compared to last fiscal year when the country received a total of Rs879 billion sent home by Nepalis working abroad.
“After a sharp drop in April, there has been a noticeable improvement in remittances,” said Gunakar Bhatta, spokesperson for the central bank. “Our projection is that remittances could decline in the range of 10 percent this fiscal year.”
According to the statistics from the central bank, the country received remittances amounting to Rs34.5 billion in Chaitra (mid-March-mid-April), compared to Rs71 billion in the same month the previous fiscal year.
But from mid-April to mid-May, the figure improved to Rs53.9 billion and according to preliminary figures from the central bank, remittances from mid-May to mid-June grew to Rs62 billion, according to Bhatta.
“Major reasons behind the surge in remittance after mid-April may be relaxations in lockdowns in the host countries and increased economic activities there,” he said. “Some may also have sent home money that they had failed to during the lockdown.”
The central bank expects a stable inflow of remittance to continue into the next fiscal year.
“We expect there won’t be a significant growth or downturn in the inflow of remittances next year provided the world does not see a second wave of Covid-19 infections,” said Bhatta.
National Planning Commission member Ram Kumar Phuyal, who is the coordinator of a team formed by the government to study the impact of Covid-19 on foreign employment and remittance, shares Bhatta’s optimism.
“Except in the month of Chaitra, there has not been a significant gap in remittance inflow, which suggests that the situation is not as alarming as it was initially thought to be,” he said.
The country’s foreign exchange earnings from exports and tourism have dropped sharply in the wake of the pandemic, leading to concerns about undue pressure on foreign exchange reserves.
Earnings from exports decreased to Rs3.3 billion from mid-April to mid-May this fiscal year compared to Rs8.7 billion last year. Likewise, earnings from tourism decreased to Rs600 million in the same month this fiscal year compared to Rs5.7 billion the same month last year, according to central bank statistics.
But officials believe that the improved remittance inflow, along with falling imports, has helped to maintain a healthy balance.
As of the first 10 months of the current fiscal year, the country’s foreign exchange reserves stand at Rs1.23 trillion which is adequate to sustain imports of goods and services for 10.8 months.
Economists, however, stress caution, saying that optimism could be misguided.
“I think most of the money sent home did not come from current incomes but what they saved earlier,” said economist Keshav Acharya.
He sees reduced job opportunities, particularly in the Middle East, due to a slump in oil prices.
“When the oil earnings shrink, there will be a corresponding decrease in construction activities and the demand for foreign workers will also decrease,” he said.
Despite uncertainty over job opportunities in the Middle East and Malaysia, the government has hastened to promote foreign employment once again, in the middle of the pandemic.
On June 19, the Covid-19 Crisis Management Centre decided to open up the foreign employment sector as per the proposal of the Ministry of Labour and Employment more than three months after suspending labour permits.
“We have already sent a proposal to the Cabinet for a decision,” Suman Ghimire, spokesperson for the labour ministry, told the Post. “Those who came home on leave will get first priority for foreign jobs as per our proposal.”
But, experts and officials say that as long as the pandemic remains, foreign labour markets will never be as vibrant as they were before the pandemic.
“Nepalis will not be seeing a rise in incomes in the next fiscal year, which will have an impact on the overall receipt of remittance, if not a significant drop,” said Phuyal.
Any drop in remittance, however, can have lasting impacts on the Nepali economy and on socio-economic indicators like poverty alleviation, say experts.
“Remittances are the driving force behind the drop in poverty in recent years as people’s livelihoods improved due to direct cash transfers,” said economist Acharya. “A labour shortage caused the labour cost to increase, which also helped reduce poverty in the country.”
Economists say that this is the right time to begin looking for an alternative to foreign employment as the pandemic has exposed just how dependent Nepal is on foreign jobs.
“The government needs to work to create the right environment for employment and self-employment at home, as many might not want to return to foreign countries after the pandemic,” said Acharya.