Foreign Employment and Remittance in Nepal
A Seminar Paper
By
Soniya Mallah
Partibha Barai
Bachelor of Business Administration (BBA)
Second Semester
Macroeconomics for Business
Submitted To
Faculty of Management
Bhairahawa Multiple Campus
Tribhuvan University
2024
2023
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Introduction
Background of the Study
Foreign employment refers to being employed in a different country than that of a person's
origin. This usually occurs when job opportunities are limited in the person's home
country. This has mostly negative impact on the home country, but it has also some
positive impact such as lowering unemployment and receiving remittances from the
foreign land, which can be used to create new employment opportunities. In case of Nepal,
Foreign employment has been the hot topic since many decades. For Nepalese Foreign
employment is not any new jargon. Nepalese go to different foreign land of the world for
job opportunities and also for the good earning. A huge number of Nepalese workers go
to foreign country to work in the absence of proper and fruitful employment opportunities
in their own homeland. Foreign employment is nothing new to Nepal, and the total stocks
of Nepalese nationals working overseas (excluding about one million in India) in different
capacities is estimated to be about half a million (ILO-DFID 2002). The history of formal
entrance of Nepalese Citizens in foreign employment begins in 1814-1815 after the Nepal-
British India war. A total of 4650 Nepalese youngsters were recruited to the British armed
forces as a British-Gurkha regiment. Similarly, the migration of Nepalese people for other
employment purposes, such as working in the tea states of Darjeeling and the forest of
Assam, began in the second half of the 19th century. Economic migration to the Middle
East from the south Asia and other parts of the world was spurred- on by the oil boom in
the early 1970s. International Labor migration, mostly to Gulf States, Malaysia and other
South East Asian countries is a new phenomenon of migration in the Nepalese context
with about a 50 year long history. Unexpectedly, foreign employment has developed in
such a way that it has shifted the agricultural based economy towards remittance based
economy.
The reasons behind the attraction for foreign employment are
almost same in Nepal as in other corners of the world. Limited job opportunities, Poverty,
deteriorating agricultural productivity, political instability and various conflicts during
these several years are some motives behind foreign employment. There are many Villages
in Nepal where foreign employment has been commenced as a culture of the community;
that is, going overseas for work for awhile and returning with required money and the
experience of living in a different geographical area. The influence of relatives, friends
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and very own well-wishers have also played a prominent role in encouragement or
promotion of Foreign employment.
Remittance is defined as the transfer in cash or kind sent to or received by households over
the year. Remittance is the major source of foreign income to the developing countries like
Nepal increasing dramatically in size over recent decades. It is a periodically or regularly
transferred from international migrants to family members in their country of origin. It
represents one of the largest sources of financial flows to developing countries. Foreign
employment is gradually getting a major source of foreign exchange earnings and
sustaining the positive balanced of payment in Nepal. International migrants send their
money to the home countries through formal and informal channels. Formal channels are
related to the banking sector and money transfer operators. Language barriers and lack of
banking awareness for transferring money, some migrant workers may use informal
channels. Remittance income has been used on the domestic purpose such as managing
land and building, children education, health, entertainment and so on. Moreover it is used
in productive and commercial sectors in some extent to operate micro and macro level
business. Remittance is the major source of capital formation in the context of Nepal.
Furthermore, migration of the unskilled workers on return to their home countries acquires
practical and useful skills in abroad.
Although most of the migrants are male, but there is growing fascination and involvement
of women in foreign employment in recent days. In international labor market, the job
opportunities for Nepalese women are increasing in care industries and domestics works.
The involvement of women in foreign employment is helpful in the reduction of poverty
and improvement in basic needs such as food, basic goods, education, health care etc.
In recent times, with the increasing number of Nepalese attracted towards foreign
employment, various issues are also increasing widely such as increasing of fraudulent
activities and irregularities inside the country. Furthermore, the manpower agencies that
are working in foreign employment sector are being more business oriented than being
responsible towards foreign employees. The government service structure and service
delivery system are also not effective in responding in public demands.
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Statement of the problem
With the growing population, lack of job opportunities within the nation and Poverty is
rapidly increasing which has been the major reason behind the attraction towards foreign
employment in Nepal. As this era is the era of Globalization better living standard is the
main thing for the today's youth because of which foreign employment is popular among
Nepalese youth. But unemployment and poverty is the strong factors for the increasing
interest in foreign employment. Likewise, Political instability is also one of the causes of
increasing foreign employment in Nepal.
Unemployment has been the major problem in Nepal due to which Nepalese has no other
option to go to foreign land for the job opportunities. So, it has been the challenging
problem of Nepal. This report also tries to show the importance of Remittance in Nepalese
economy. It is the second source after the agriculture which plays the important role in
GDP. The major portion of the remittance is used in the household sector and paying off
debts and buying lands. Only few portion is used in the productive sector like agriculture
and manufacturing. If the remittance is used in the productive sector than it can contribute
in the economic development.
Though foreign employment helps to uplift the economic status of the country, it has
created different types of problems. There are several challenges and problems faced by
the workers departing from foreign countries and working there. On this basis, this report
is designed to address the following research questions related to Foreign employment and
remittance in Nepal:
1. What is the current status and the trend of labor migration from Nepal?
2. What is the impact of remittance inflow on Nepalese economy?
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Objectives
Foreign employment and remittance inflow have become a major economic
phenomenon of Nepalese economy. The remittance inflow in the country has been
increasing and Nepalese economy heavily depends on it. Thus, this report tries to
know about the trend of migrants and remittance inflows and its impact on the
economy. The specific objectives of the study are mentioned below:
1. To know about the current status and the trend of labor migration from Nepal
2. To examine the impact of remittance inflow on Nepalese economy
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Methodology
The present report analyzes the current status and trend of Nepalese migrants and
remittance inflow in Nepal and its impact on the Nepalese economy. So, the research
design followed in the report is the secondary data and information were used.
The necessary secondary data were collected from the different government publication
such as: Publication of Economic survey of Finance (MoF), Ministry of labor and
employment. Some of the data used in the report were also collected from the publication
of Nepal Rastra Bank (NRB) and from the publication and website of world Bank(WB).
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Description and analysis
Literature review
World Bank (2018) highlighted that more than 247 million people or 3.4 percent of the
world population, live outside their countries of birth. Number of international migrants
rose from 175 million in 2000 to more than 247 million in 2013 and it increased in 251
million in 2015. The top remittance receipt's countries are India, Philippines, Mexico and
France in 2015. As a share of GDP, however, smaller countries such as Tajikistan(42
percent), Kyrgyz(30 percent), Nepal(29 percent), Tonga(28 percent) and Moldova(26
percent) are the largest remittance recipients. The study revealed that the high income
countries are the main source of remittances, USA is the largest with an estimated $5603
billion outflows in 2014. Saudi Arabia as 2nd largest followed by Russia, Switzerland,
Germany, UAE, and Kuwait. The six Gulf countries accounted for $98 billion in outward
remittances flows in 2014. Thus, WB focused on overall volume of remittances in the
world.
In a study conducted by IMF (2005) regarding the impact of remittances on growth over
an extended period (1970-2003) for 101 developing countries found no statistical link
between remittances and per capita output growth, or between remittances and other
variables such as education or investment rates. However, this inconclusive result
attributed to measurement difficulties arising from the fact that remittances may behave
countercyclical with respect to growth.
Pant (2006) explored remittance inflows to Nepal: Economic impact and policy options.
The remittances have been an important avenue of support for family members remaining
at home. As the number of workers going abroad for employment continues to rise, the
corresponding growth of remittances has become a critical flow of foreign currency into
Nepal. This has been partly the result of measures undertaken by the concerned officials
to streamline financial systems, dismantling controls and creating incentives, with the aim
of attracting remittances particularly through the official channels. Economic growth,
interest rate and exchange rate policies are crucial determinants of remittance inflows. In
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order to further encourage the inflow of remittances to the country through official
channels, and to promote the tendency to exchange these remittances of foreign exchange
into local currency, it is imperative that these policies be conducive to the inflow of
remittances.
A nationwide migration survey conducted in 2009, Nepal migration survey 2009,
estimated that 41 percent of all the migrant workers were working in India, 38 percent in
the Gulf countries, 12 percent in Malaysia and 8.7 percent in developed countries (World
Bank, 2011) .The data provided by the Department of Foreign Employment (DoFE) also
corroborate the finding of the survey, excluding India. It shows that between 1993/94 and
2011/12 the cumulative share of Malaysia was 31.4 percent, the gulf countries ( Qatar,
Saudi Arab, UAE, Kuwait, Bahrain and Oman) was 65.3 percent and other countries
constituted a minuscule share of 3.3 percent (DoFE, 2015 ). Most of the migrants were
working in low paying job more than one-tenth of the migrant to India were working in
agriculture and 62 percent of migrants in Malaysia and about 27 percent in gulf countries
were working in manufacturing sectors. The number of migrant's workers, their level of
earning and the sending rate determine remittance inflows. Almost three quarters of the
migrants had delivered remittance to their homes. The sending rate of migrants in Malaysia
was the highest (78.8%) followed by India (73.3%) and the others (71.1%). The amount
of remittance received differed by migrant's destination. Households with the migrant in
the gulf received of Rs.163, 000/ year (2120US), in Malaysia Rs 113,000 (1470 US) and
in India Rs 62000 (800 US) whereas household within migrants in other developed
countries, received a much higher amount (World Bank, 2011). Almost half of the
remittance came from the gulf countries, however, in terms of the remittance single source
country, India was the largest source of remittance but its role in the total figure was found
to be declining over the period (Sharma, 2013). At the household level, about 56 percent
of the households received remittances in 2010/11, both from internal as well as external
sources. The share of external remittance in total remittances was 81.4 percent, a
substantial increase from 76.5 percent in 2003/04 and 55.3 percent in 1995/96. The
nominal average amount of remittance received by a household was Rs.80436 and
constituted about 31 percent of the income among remittance receiving household (CBS,
2011). Most of the remittance receiving household had used it for daily consumption
purposes and for paying loans. Nepal Living Standard Survey (III) shows that 78.8 percent
of the total remittance received by the house hold was used for daily consumption and 7.1
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percent was used for loan repayments. The use for capital formation was 2.4 percent and
0.5 percent was used for business purposes. Other uses were to acquire household property
(4.5%) and to educate children (3.5%) and the remaining (2.5%) was used for another
purposes. Remittance was typically spent on land and housing purchases. These were safe
investment for the households, but in macroeconomic terms, these were non-productive
assets, with no lasting impact on the country's real income. Remittance is outcome of
foreign employment. There was positive correlation between growth and quality and
quantity of outflow of labor. Growth of remittance strengthens expansion of local and
national economic activities. The inflow of remittance in Nepal seemed to be
expansionary. In 2017, it was estimated Rs.665.1 billion. In 2013 it was Rs 266 billion
slightly declined from 360 billion in 2012 but inclined from 228 billion in 2010. In 2008,
remittance was Rs 75 billion. In accordance with Nepal Rastra Bank (NRB) it was only of
40 percent out flowing labor. Its share was 50 percent in total foreign exchange and 14
percent of GDP in 2008 and 23 percent of GDP in 2013. At present its share to GDP is
about 29.6 percent and its share in foreign reserve is estimated to be 78.9 percent. At the
household level, remittance helps to smoothen consumption and investment in human and
physical capital. It also generates benefits to the community, through the expenses on
locally produced goods and services, and helps poverty reduction since the money has
been utilized for rural development. The IMF country report states that, in Nepal's case,
the penetration of the remittances into the remote villages had 248 helped in poverty
alleviation and in the absence of remittance the present level of poverty would be 36 to 37
percent (IMF, 2006). It indicates that remittance and poverty reduction were inversely
correlated.
Gaudel (2006) pointed out remittance as a major source of foreign currency to the
developing nation and it has become a substantial component of making current account
surplus in the balance of payments. He argued that many workers from Nepal going abroad
for employment are no doubt young, energetic, labourious and enthusiastic and they do
hard work for earning large remittance income to support their families. However, the
downside of remittances reflects the view that remaining young generation for long time
outside without family may increase their vulnerability and ultimately they will have a
tendency to leave their homeland. Thus, in order to recover the loss of economically active
labour force to the domestic economy, they should be encouraged to come back again with
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skilled knowledge for utilizing their savings and working experience for development to
the productive areas in accordance with the priority of the national development plans.
Srivastava and Chaudhary (2007) explored the role of remittance in economic
development of Nepal. The analysis has been carried out with linear and log-linear models
under multiple regressions. The impact of remittance has been seen most remarkable in
the GDP and GNP both in nominal and real terms. In the nominal GDP and GNP, the
remittance shows 61 percent and 72 percent impact respectively while in real term it shows
48 percent and 55 percent respectively. It has also shown positive impact on the PCI but it
is comparatively low (four percent in nominal and one percent in real terms). The findings
are positive except for labour force, but they are marginal which show that remittance has
not been used effectively so as to increase the real growth rates of the economy.
Shrestha (2008) has analyzed the contribution of foreign employment and remittances to
Nepalese economy. He concluded that remittances sent by the migrant workers are an
effective tool for poverty reduction. Though foreign employment is boon to the economy,
the facilities are inadequate to back up the increasing trend of migration. The government
should play proactive role to promote foreign employment by inducting and adhering to
the policy of economic diplomacy.
Karagoz (2009) has made an empirical research on the remittances and economic growth
in the case of Turkey. The study showed that remittance flow has statistically meaningful
but negative impact on growth. On the other hand, exports and domestic investments
positively affect the economic growth, while foreign direct investment has no meaningful
affect. Turkey which met with regular and massive labour migration to abroad after 1960s,
is still one of the most remittance gain countries in the world.
Azam and Khan (2011) has empirical analyzed the impacts of workers’ remittances on
economic growth of Azerbaijan and Armenia’s economies. The statistical analysis has
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been made through simple log linear regression model and the method of least square has
been used. The study concluded that worker remittances are significant and have positive
impacts on economic growth and development. The findings suggested that the relevant
authorities of both the countries need to formulate appropriate policies in order to
encourage worker remittances and such remittances must be utilized more efficiently.
Pant (2011) explored the harnessing remittances for productive use in Nepal. He concluded
that remittances contribute largely to the national economy. At the household level,
remittances help to reduce poverty, improve standard of living and attain higher
educational levels. At the macro level, remittances could be used for entrepreneurship and
productive investment which in turn increases job opportunities and income of the people.
Remittance inflows help to augment foreign exchange reserves and improve the current
account position.
Javid, Arif and Qayyum (2012) have analyzed an impact of remittances on economic
growth and poverty. The empirical evidence showed that remittances affect economic
growth positively and significantly. Furthermore, the study also found that remittances
have a strong and statistically significant impact on poverty reduction. So, the importance
of remittance inflows cannot be denied in terms of growth enhancement and poverty
reduction that consequently improves the social and economic conditions of the recipient
country.
The study of the literature further reveals that theoretical and empirical evidences on the
impact of workers' remittances on economic development and growth have made the issue
debatable because some researchers are in favor of remittances positive impacts while
some negate its outcomes but a few are of the view that there are no relations between the
two. However, comparatively the major portion of literature found is in favor of positive
impact of workers’ remittances on economic growth and development of developing
countries.
Empirical review
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Increase in the inflow of remittances to Nepal
The surge in remittances in FY 2021/22 is by a smaller percentage (4.8%), against a 9.8%
increase in FY 2020/21. Despite this minimal increase, the amount reaching the range of
trillions is worth notifying as it is significant and indicative of the gradual revival of the
country’s migration sector, which had seen a temporary halt during the peak of COVID-
19.
The remittance inflows to Nepal increased from NPR 87.1 billion (USD 0.68 billion) to
NPR 92.4 billion (USD 0.72 billion) from mid-May to mid-June 2022 alone, which is a
6.12% increase from the previous month. A continued surge in the upcoming months can
likely revive the country’s income. Figure 1 depicts the annual trend of remittance inflows
to Nepal over the last four fiscal years.
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Figure 1: Annual remittance inflows to Nepal in four consecutive FYs (in NPR
billion)
Source: Current Macroeconomic and Financial Situation of Nepal (ending mid-July 2022)
Encouragingly, the number of Nepali workers, including institutional and individual (new
and legalized) workers, taking approvals for foreign employment also increased from
72,081 to 354,660 in the last month’s data of the FY 2021/22 (ending mid-July 2022). The
increase signifies a whopping 392% jump from the previous year, majorly because of the
relaxation of lockdowns and COVID-19 restrictions. Furthermore, increasing employment
opportunities with increased salaries in destinations such as Malaysia, Qatar, India, and
others also contributed to this positive trend. Likewise, the number of Nepali workers
seeking renewed entry approvals increased by 198.5% to reach 282,453 in mid-July 2022,
against a decrease of 46.8% in the previous corresponding period (Figure 2).
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Figure 2: Annual number of labor approvals in the last five FYs
Source: Department of Foreign Employment(ending mid-July 2022)
As per the annual data ending mid-July 2022, an increasing number of Nepali workers
sought labor approvals for Saudi Arabia, Qatar, and United Arab Emirates (UAE) among
many others. Table 1 shows the top 10 destination countries:
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Table 1: Top 10 labor destinations of Nepali migrant workers in the last three FYs
(institutional and individual – new and legalized)
S.N. Country 2019/20 2020/21 2021/22
1 Saudi Arabia 39279 23324 125374
2 Qatar 29835 22131 76822
3 UAE 52085 11611 53846
4 Malaysia 39167 106 25770
5 Kuwait 8974 2 22786
6 Bahrain 3305 3146 7592
7 Romania 1930 1954 6423
8 South Korea* 3542 16 4253
9 Oman 1996 1556 3627
10 Cyprus 1447 1003 3222
*Including EPSSource: Department of Foreign Employment
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However, India, which is unaccounted for in the official data, remains one of the largest
migration destinations for Nepalese living in the border regions of the neighboring
country.
FIGURE 3: Remittance inflows to GDP
A remittance inflow to GDP (%) in Nepal was reported at 24.25 % in 2020, according to
the World Bank collection of development indicators, compiled from officially recognized
sources. Nepal - Remittance inflows to GDP - actual values, historical data, forecasts and
projections were sourced from the World Bank on March of 2023.
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Major findings
The main objective of this report was to know or observe about the current status and trend
of foreign employment in Nepal and the inflow of remittance and its contribution in
Nepalese economy. Moreover, the report tried to identify the historical scenario of foreign
employment in Nepal and inflow of remittance in Nepal. Secondary data were used to
show the composition of foreign employment and remittance in this report.
The main destinations of Nepalese workers are Gulf countries and Malaysia. Sixty percent
of total workers are employed in the Gulf countries. By country wise Saudi Arabia, Qatar,
UAE, Malaysia are the main destination of the Nepalese workers. In 2021/2022 125374
workers has gone in Saudi Arabia, 76822 workers has gone in Qatar, 53846 workers has
gone in UAE, and 25770 workers has gone to Malaysia.
The number of workers going abroad for foreign employment has increased by almost
4830 percent 2021/2022 as compared to 2020/2021. The remittance received by Nepal
jumped by a record 20.4 percent to Rs378.04 billion during the first four months of the
current fiscal year.
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Conclusion
Foreign employment is the source of remittance which has played a vital role in poverty
reduction and expansion of economic activities in Nepal. The increase in remittance results
availability of foreign currency in the domestic market and raises national savings. The
remittance play in attaining macro-economic stability in the country. There is the positive
correlation between foreign employment and remittance. It means, foreign employment
and remittance is highly associated with each other. Though increasing remittance has its
own advantage, it would eventually lead to economic failure if the flow of remittance is
disrupted. There is a massive leakage in actual remittance inflow because most of labor
prefers to send their earning through informal channels. So, the government should make
plans to encourage the migrants to follow the formal channels to send their earning.
More Nepalese workers are accepted in East and South Asia as well as the Gulf countries
because of their low skills and cheap wage- Payment and also, they be ready to do whatever
job is given to them. Government should improve the curriculum in school so that it can
provide more practical based knowledge, conduct consultation meetings with the experts,
occupation groups, trade unions and foreign employment enterprise to make rules and
regulations for the promotion and management of foreign employment occupation.
Government should monitor the manpower agencies providing foreign employment
services for their efficiency and transpiring. There are many incidences of fake
employment contracts, visas and forged documents etc. So effort should to make foreign
employment business safe, well- managed and decent as well as protect the rights and
interest of foreign bound workers and foreign employment entrepreneurs.
REFERENCES
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