Monday, April 5, 2010

Remittances in Nepal after (during) the global economic crisis

This one comes from the IMF 2010 Article IV consultation in Nepal conducted last month. Here is a more comprehensive assessment done by the World Bank analysts.

Things to note:

  • Share of remittances to GDP has increased substantially since 2000
  • Number of outflow of workers is in line with increasing remittances inflow
  • Volatility in remittances is higher than in exports and aid but lower than in FDI
  • Remittances are driven by domestic GDP, host GDP and the stock of workers
  • As expected due to global financial and economic crises, the outflow of workers has declined.
  • The Gulf countries remains to be the most important destination for Nepali workers. The demand of Nepali workers in Malaysia is declining since FY2005/06 but this might increase as there is renewed demand recently. The growth rate in GCC and Malaysia is expected to be at pre-crisis level by 2012, which means there could be more demand (or at least no cut back) of Nepali workers.
  • Remittances are expected to grow but at a slower rate.
  • The decline in remittances have affected domestic financial system, consumption, and imports. It has indirectly affected tax revenue growth. The slow growth in remittances would mean that the economy needs to adapt with the negative facets of declining remittances.

The following are few charts that substantiate the main point discussed above: