Journal of Advanced Management Science Vol. 5, No. 4, July 2017 Socio-economic Problems of Remittance Economy: The Case of Nepal Basu Sharma University of New Brunswick, Fredericton, Canada E3B 5A3 Email: [email protected] Abstract—Nepal is one of the poorest but top remittance discussion and analysis of the issues at hand in the proper recipient countries in the world. Remittance has stood out as context. In section three, important socio-economic one of the key factors in reducing poverty, improving problems arising from increasing level of remittances human capital and financing imports. However, remittance inflows are examined. These problems span over such has also led to moral hazard and the Dutch disease issues as health, safety, employment, and income phenomena through hollowing out of adult, productive household members and creating inefficiency in farm protection of migrant workers in destination countries. production due to shortage of labour and income Conclusions and policy recommendations are presented substitution effect. Furthermore, it has contributed to in the last section of the paper. increasing imports for luxury and semi-luxury goods, resulting in trade deficit. It has eroded competitive II. SOME STATISTICAL ARTIFACTS advantage of the country by weakening the export sector of the economy. At the micro-level, remittances have been Globally, 250 million people lived outside their responsible for family breakdowns, erosion of family values, countries of birth in 2015, representing 3.4 percent of the exploitation and inhuman treatment of migrant workers by world population. Most of these migrants were from employers, and problems of reintegration of migrants upon developing countries, and they sent home $432 billion return. This paper examines these issues so as to inform dollars in 2015 alone. As stated above, Nepal’s share of policymakers and researchers. this migrant population was 3 million—about 10 percent of the total population of the country. Remittances sent Index Terms—remittance, Nepal, socio-economic problems, brain drain, Dutch disease. home by them amounted to $6.6 billion dollars, which amounted to 29 percent of the gross domestic product of the country in 2015. And 56 percent of the households in I. INTRODUCTION Nepal received remittance [4]. Remittances are thus a very significant part of the national economy and family Remittances are, of course, a result of migrants’ incomes in Nepal. This is more so for families living in remittance decisions. There are theories explaining this rural areas under poverty. aspect of remittance phenomena in the literature [1]-[3]. Nepal has a long history of global migration. It started However, our focus in this paper is on the impact of in two streams. First, beginning over 200 years ago the remittance in the Nepalese economy and society. Looking British armed forces began to recruit soldiers from Nepal, at remittance as a percentage of gross domestic product called Gorkhas, to deploy them in wars fought by Britain (GDP), Nepal is the 3rd largest recipient of remittances in in different parts of the world [5]. Secondly and more the world. It accounted for 29% of the GDP in 2015. importantly, there have been cross-border flows of Over 3 million Nepalese (approximately 10% of the total Nepalese to India for employment and other opportunities population and 22% of the workforce) work as migrants for centuries [6]. While the British army recruitment of around the world, and send money home--remittance. Gurkhas is a fading phenomenon now, the cross-boarder However, remittance is also a mixed baggage. migration to India has remained a living experience for Provided other good economic policies are in place, it can Nepalese migrants. In fact, many Nepalese joined the become a part of a solution to problems such as poverty Indian Army and many sought employment in private alleviation and human capital formation through sector in India in the 1950s and 1960s. However, the investment in education and health. However, lacking scale as well as scope of migration has undergone a major such policies, there is a danger that remittances will push transformation in the last two decades. India is no longer the country into further economic and social problems. the only destination country for Nepalese migrants. The There is a gap in the literature insofar as addressing this Gulf countries (Saudi Arabia, Qatar, UAE, Oman and issue is concerned. This paper aims to provide a Kuwait), South Korea and Malaysia have appeared as comprehensive analysis of these problems in Nepal other close competitors for their destination. The scale resulting from over dependence on remittance and the has become so vast that about 1,500 Nepalese workers on policy mistakes on the way. average fly out from Kathmandu Airport to Gulf The paper is divided into four sections. In section two, countries and Malaysia every day [7]. And the scope has some statistical artifacts are presented so as to situate the grown so much that Nepalese migrant workers are ©2017 Journal of Advanced Management Science 285 doi: 10.18178/joams.5.4.285-290 Journal of Advanced Management Science Vol. 5, No. 4, July 2017 allowed to work in over one hundred countries around the for assisting migrant workers in resolving disputes with world [8]. employers in destination countries, ensuring observance Formal migration requires possession of a labour of labour rights by employers, and taking actions to permit issued by the Government of Nepal. The permit promote overall welfare of the migrant workers in can be obtained individually or via recruitment agencies. destination countries. Data on such labour permits issued by the Government of Remittances have begun to play a major role in the Nepal are presented in Table I below [9]. transfer of international resources to developing countries. They are now almost three times the size of official TABLE I. NUMBER OF LABOUR PERMITS ISSUED (2008/09 TO development assistance. They are also catching up with 2013/14) FDI fast. In the case of Nepal, there is very little FDI as Year Via Recruitment Individually Total the existing deficiency in infrastructure and government Agency Secured policies have failed to attract major foreign investors. A 2008/09 163,886 56,079 219,965 2009/10 225,200 68,894 294,094 prolonged political instability has further exacerbated the 2010/11 240,977 113,739 354,716 situation. Official development aids are modest, 2011/12 260,030 124,635 384,665 amounting to about 7 percent of the GDP in recent years. 2012/13 395,676 55,158 450,834 Remittances have picked up the slack, and their increase 2013/14 443,483 78,395 521,878 over time has been anything but spectacular. Remittance Source: Department of Foreign Employment. Retrieved from as a percentage of the gross domestic product of Nepal https://asiafoundation.org/resources/pdfs/MigrationReportbyGovernmen tofNepal.pdf. on August 16, 2016. have more than doubled between the years 2002 and 2015. Data presented in Fig. 1 below substantiate this As the data show, the number of out-migrants has point [10]. more than doubled between 2008/09 and 2013/14. The destinations for these migrants were Malaysia (40.9%), Saudi Arabia (22.9%), Qatar (20.3%), U.A.E. (11.2%), and Kuwait (2.1%). Even though the Government of Nepal allows Nepalese to migrate for employment in 108 countries at present, the rest accounted for only 2.6% of the total migrants [9]. As mentioned above, labour permits for foreign employment can be secured via recruitment agencies or individually. According to the data in Table I, huge increases in the permits sought have Figure 1. Remittance flows in Nepal, 1995-2015 come via the recruitment agencies. This increase in part For remittances as a percentage of GDP, World Bank Group. can be explained by the current practice of perverse http://data.worldbank.org/indicator/BX.TRF.PWKR.DT.GD.ZS?context incentives related to fee overcharge and compensation of ual=default&locations=NP. Retrieved on August 17, 2016. agents used by recruitment companies. This issue will be Furthermore, foreign exchange earnings from discussed further later. remittances have far exceeded foreign currencies The Foreign Employment Act of 2007 provides for the available through tourist income, merchandise exports legal and policy framework for migration. Under the and foreign aid over the years. Put differently, the share provision of this Act, the Department of Foreign of remittances in total exchange earnings exceeded those Employment (DFE) was established with a mandate to from merchandise exports and foreign aid beginning maintain a database of labour permits issued, to around the year 2001. This trend continued for the next investigate grievances filed by migrants, and to impose 15 years with the gap becoming wider every year. This is penalties to offending parties. Also, cases not resolved at revealed from the data presented in Fig. 2 below [11]. the DFE level are referred to the Foreign Employment Tribunal, also created under the provision of the Act, for adjudication [9]. Thus the Government of Nepal has begun to pay attention to problems faced by migrants in recent years. The Foreign Employment Promotion Board was established under the provision of section 38 of the Foreign Employment Act. The Board is chaired by the Minister for Labour and Employment, and is tasked to explore new destinations, provide pre-departure orientation training, and provide advice to the government on the fixing of service charges. In addition, the Board is mandated to manage the Migrant Workers’ Welfare Fund, established under the Act. The Act also requires appointment of labour attaches in destination Figure 2. Share of Remittances in Foreign Exchange Earnings countries with a presence of 5,000 or more Nepali migrant workers. The attaches are given responsibilities Source: Nepal Rastra Bank.