KATHMANDU, APR 05, 2013
The country’s trade deficit is growing as the relative income from remittance has contributed in growing consumption among Nepalis.
Nepal received Rs 360 billion ($4 billion) as remittance income in the first seven months of the current fiscal year.
In the review period, trade deficit also widened by Rs 271.2 billion. Data of the first seven months shows that the amount of remittance income and amount of trade deficit is almost perfectly correlated.
The positive correlation shows that both trade deficit and remittance income are moving in near perfect sync.
“Remittance has increased the income of households which is mostly spent in consumption, increasing the demand for commodities, and since Nepal’s manufacturing capacity is pretty limited, demand for imported goods has soared,” said senior economist Dr Chiranjibi Nepal.
“Higher consumption can be good for developed countries but is not beneficial to a country that has to import even the basic necessities,” he added.
Of the total households, 55 per cent receive remittance from members abroad, according to the preliminary report of Nepal Living Standard Survey -III released by the Central Bureau of Statistics.
Of the total remittance received, 79 per cent is consumed by families and only three per cent goes to capital formation, with the rest being spent on repaying debts and on education, according to the National Migration Survey.
“Nepal is suffering from the Dutch disease brought in by remittance, as it has contributed in the expansion of consumption without actually boosting national productivity,” added Dr Nepal.
Dutch disease refers to the situation in which an economy actually suffers due to increase in income, mostly arising from a large inflow of foreign exchange. The concept is related to an increase in exploitation of natural resources and consequent decline in manufacturing sector.
However, in many developing countries like Nepal, increase in labour export for remittance is showing a detrimental effect in the overall development in the long run.
In the last fiscal year, Nepal received remittance worth Rs 360 billion, while its export earnings stood at Rs 72 billion and it imported goods worth Rs 462 billion.
Likewise, the manufacturing sector contributed a mere Rs 95 billion in the Gross Domestic Product (GDP) worth. The industrial sector — that is considered a mass employment generator — witnessed a growth of 1.69 per cent, while remittance income surged by 41 per cent.
“Since the country’s balance of payments situation is in surplus and foreign reserves are also swelling thanks to remittance, policy makers are complacent as there is not much pressure to create a conducive and productive environment to create jobs,” said Dr Nepal.
“The more the income through exported labour, the more the government will encourage Nepalis to go abroad for work, while the home turf becomes barren and without able manpower,” he added.
According to the Department of Foreign Employment, a little over 155,000 Nepalis have left for foreign employment by the first half of this fiscal year, which is a 20.4 per cent increment in comparison to that of the previous year.
At present, 52.8 per cent of the total households have at least one absentee member.
Increasing unemployment has not only fuelled the migrant outflow but also helped widen the trade deficit as the the remittance they have been sending is widely spent on consumption rather than on capital formation.
According to the Central Bureau of Statistics, only four per cent of the remittance is used in capital formation, which needs to be increased to strengthen the economy.
Source: THT
The country’s trade deficit is growing as the relative income from remittance has contributed in growing consumption among Nepalis.
Nepal received Rs 360 billion ($4 billion) as remittance income in the first seven months of the current fiscal year.
In the review period, trade deficit also widened by Rs 271.2 billion. Data of the first seven months shows that the amount of remittance income and amount of trade deficit is almost perfectly correlated.
The positive correlation shows that both trade deficit and remittance income are moving in near perfect sync.
“Remittance has increased the income of households which is mostly spent in consumption, increasing the demand for commodities, and since Nepal’s manufacturing capacity is pretty limited, demand for imported goods has soared,” said senior economist Dr Chiranjibi Nepal.
“Higher consumption can be good for developed countries but is not beneficial to a country that has to import even the basic necessities,” he added.
Of the total households, 55 per cent receive remittance from members abroad, according to the preliminary report of Nepal Living Standard Survey -III released by the Central Bureau of Statistics.
Of the total remittance received, 79 per cent is consumed by families and only three per cent goes to capital formation, with the rest being spent on repaying debts and on education, according to the National Migration Survey.
“Nepal is suffering from the Dutch disease brought in by remittance, as it has contributed in the expansion of consumption without actually boosting national productivity,” added Dr Nepal.
Dutch disease refers to the situation in which an economy actually suffers due to increase in income, mostly arising from a large inflow of foreign exchange. The concept is related to an increase in exploitation of natural resources and consequent decline in manufacturing sector.
However, in many developing countries like Nepal, increase in labour export for remittance is showing a detrimental effect in the overall development in the long run.
In the last fiscal year, Nepal received remittance worth Rs 360 billion, while its export earnings stood at Rs 72 billion and it imported goods worth Rs 462 billion.
Likewise, the manufacturing sector contributed a mere Rs 95 billion in the Gross Domestic Product (GDP) worth. The industrial sector — that is considered a mass employment generator — witnessed a growth of 1.69 per cent, while remittance income surged by 41 per cent.
“Since the country’s balance of payments situation is in surplus and foreign reserves are also swelling thanks to remittance, policy makers are complacent as there is not much pressure to create a conducive and productive environment to create jobs,” said Dr Nepal.
“The more the income through exported labour, the more the government will encourage Nepalis to go abroad for work, while the home turf becomes barren and without able manpower,” he added.
According to the Department of Foreign Employment, a little over 155,000 Nepalis have left for foreign employment by the first half of this fiscal year, which is a 20.4 per cent increment in comparison to that of the previous year.
At present, 52.8 per cent of the total households have at least one absentee member.
Increasing unemployment has not only fuelled the migrant outflow but also helped widen the trade deficit as the the remittance they have been sending is widely spent on consumption rather than on capital formation.
According to the Central Bureau of Statistics, only four per cent of the remittance is used in capital formation, which needs to be increased to strengthen the economy.
Source: THT
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