ACE Institute of Management
Remittance Income in Nepal: Economic development perspectives
Submitted to: Mr. Sandeep Basnyat, Facilitator, EMBA
Rabi Kiran Adhikari, EMBA 3rd Semester
This Term paper provides an overview of remittance in Nepal and its development consequences. I would like to express my greetings to Mr. Sandeep Basnyat of ACE for his valuable guidance and support. I also thank Mr. Pradip Rajopadhyay for his encouragement and advice. I am also grateful to my Classmate for the information that they provided and for the extensive discussions and comments. The opinions expressed in this paper are solely for the term paper purpose and its do not necessarily reflect the views of any organisation.
Remittance as a major source of foreign currency to the developing nation has become a substantial component of making current account surplus in the balance of payments. It is argued that many workers from Nepal going abroad for employment are no doubt young, energetic, laborious and enthusiastic. 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 labor force to the domestic economy, they should be encouraged to come back again with 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.
Table of Contents
Remittance in developing countries has become a lifeline for economic development. By remittance we mean sending income in terms of money or goods in home by the migrants or workers who have their earnings outside their home country. Today due to the establishment of different agencies like Western Union, International Money Express (IME) etc, in several district headquarters of the country, the remittance flows has become popular for transferring cash or money in time to the recipients. However, it is difficult to calculate the exact size of remittance flows in Nepal due to the emergence of unofficial channels even though it has recorded in balance of payments account. (Ratha 2005). Remittance inflow has been growing substantially in recent years with a growing outflow of workers for foreign employment. Evidently, the inflow of remittance has contributed to reduce the level of absolute poverty, as found in the recent living-standard survey, even amidst political instability and economic stagnation. Despite this, increasing dependency on remittances has resulted in a number of negative consequences for the Nepalese economy, making it a parasitical economy suffering from the ‘Dutch-disease’ type effects. Remittances in Nepal primarily have three economic implications. First, it is a stable and growing source of the foreign-exchange reserve in the country. This is vitally important from the point of view of macroeconomic stability. Second, it is the important source of income of more than 56 percent of households. Third, when remittances are received through financial institutions, it increases money/credit base and enhances liquidity in the system. Apart from its impact on consumption and trade, increases in remittances have not translated into productive investment. In the absence of productive investment, caused primarily by collapse in the business and investment environment, remittances have continued to just facilitate a consumption-based city-centric economy. Increasingly, our economy is turning into a retail-trading hub, where money spent generates less in productive...
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