Outmigration trend in Nepal: Absentee population, destination and reasons

Based on the population census data (see blog post on demographic dividend and structural transformation using the same dataset), this blog post highlights key features related to absentee population (basically those who outmigrated for more than 6 months). Overall, the total absentee population increased to 2.2 million in 2021, which is over 3 times the number in 1991 (before the Maoist insurgency). In 2021, absentee population was 7.5% of total country's population, up from 7.3% in 2011 and 3.3% in 2001. 

Most of the absentees were out of the country due to salary or seeking job (77.3%), followed by dependent (10.4%), and study or training (9.6%) among others. Historical trend shows that while the share of absentees in India are decreasing, especially after 1991, the share of absentees in the Middle East and ASEAN countries is increasing. Recorded remittance inflow was as high as 25.5% of GDP in FY2015 and FY2016. It decreased to 22.7% of GDP in FY2023. 

Increasing outmigration

Large scale outmigration and subsequent remittance inflows have been defining features of the economy. The total absentee population, defined as those absent from household and gone abroad for more than six months before the census date, increased to 2.2 million in 2021, which is over 3 times the number in 1991 (before the Maoist insurgency). Of the total absentee population in 2021, 82.2% were male and 17.8% female. The share of male and female migrants in 2011 (1.9 million total absentee population) was 87.6% and 12.4%, respectively, indicating the more outmigration is being popular among females as well.

Most of the absentees were out of the country due to salary or seeking job (77.3%), followed by dependent (10.4%), and study or training (9.6%) among others. The share of absentees who identified study/training or dependent has increased compared to 2011 (5.8% and 6.8% in 2011), indicating the preference for study or training abroad (consistent with the increase in ‘no objection’ letter for abroad study or training), and spouse or children following their partner or parents abroad.

About 30% of the absentees in 2021 were of the 20-24 age group, and 76% of the 15-34 years age group, indicating the most of the outmigrants are young and the most active among the working age population. The largest number of absentees are in the Middle East countries (36.7%), followed by India (34%), ASEAN including Malaysia (9.1%), and other Asian countries (5.7%) among others. Among the absentees in the 15-35 age group, 38.8% are in the Middle East, 29.8% in India and 9.8% in ASEAN (including Malaysia). 

Historical trend shows that while the share of absentees in India is decreasing, especially after 1991, the share of absentees in the Middle East and ASEAN countries is increasing. It reflects the liberalization in passport issuance, and various push factors such as the lack of opportunities at home (alternatively, the opportunities in destination countries), and the political instability including the decade-long insurgency. 

Migration destinations have been shifting towards advanced countries as well. For instance, the share of absentees in European countries (including the UK) increased to 5.1% in 2021 from 1.6% in 2001. In Australia (popular amongst students and skilled workers) and Pacific countries, it increased from 0.3% to 4.3% over the same period. In USA and Canada, it increased from 1.3% to 4.0% over the same period. 

Almost 95% of those who went to the Middle East identified job (salary/wage, seeking job) as the main reason for being absent. Similar is the case with ASEAN countries. About 75% of the absentees who were in India identified job as the main reason. In the case of Australia, 70.3% identified study or training as the main reason. In USA and Canada, this was 41.0%. 

About 32% of the absentees were out for 1-2 years, and 27.5% for 3-5 years. It means that about 70.5% of the absentees were out for less than 5 years. Another 25.9% were absent for between 6 and 24 years. 

About 70% of the absentees had education up to SLC level (grade 10), 17% intermediate, 5.3% graduate, and 1.9% postgraduate. 

Annual outmigration

Data from the Department of Foreign Employment (DOFE), which records those migrant workers that take labor permit to work overseas, shows that outmigration is picking up pace after continuous decline since FY2015. It decreased to just 72,081 in FY2021. However, as international travel eased and economies started opening, outmigration has increased to level (497,704) close to the peak outmigration in FY2014 (527,814). About 44.1% of the migrants went to Malaysia, followed by UAE (11.9%), Saudi Arabia (11.2%), and Kuwait (4.0%) among others. 

Recorded remittance inflow was as high as 25.5% of GDP in FY2015 and FY2016. It decreased to 22.7% of GDP in FY2023.

Structural transformation in Nepal: Employment, sectoral shift and labor productivity

Based on the population census and national accounts data (also see blog post on demographic dividend), this blog post highlights key features related to structural transformation (employment, sectoral shift in output). Overall, the share of employment in agriculture is decreasing, but the share of employment in services in increasing. Industry sector's share in employment is recovering, but it is still below the peak in 2001, after which the political instability along with the intensification of the Maoist insurgency, power cuts, and poor industrial relations decreased its share in employment and GDP. It started to recover in the last decade. 

The sectoral shift in GDP follows the pattern in sectoral shift in employment but the pace of change is not commensurate -- services sector value added GDP grew at a faster pace than its share in employment, and industry's share in employment decreased at a faster pace than the decrease in its share in GDP. It means that the largest sector in GDP and its expansion was not jobs centric.

Labor productivity barely increased between 2011 and 2021 and productivity growth was negative in all sectors, with the highest dip in industry sector. At the broad economic activity level, labor productivity was positive in mining and quarrying; manufacturing; and public administration, defense, education, and health, etc. Manufacturing’s share in employment and GDP has decreased, but labor productivity has increased. Construction’s share in employment and GDP has increased but labor productivity has decreased. Labor productivity in wholesale and retail trade has reduced but its share in employment and GDP has increased. 

Structural change: sectoral value added and employment.

The share of employment in the agriculture sector is decreasing but the share of employment in the services sector is increasing. However, the shift in employment does not match the pace of shift in sectoral value added. The population census includes those who were employed as well as those not usually active in the last 12 months before the census date in employment figures, i.e. they had performed any economic activity in the reference period.

1981: The share of agricultural value added in GDP was 60.9%, industry 12.4% and services 26.7%. The share of employment (as a share of those that had performed any economic activity in a reference period of the last eight months or 12 months before census date) in agriculture, industry and services sectors was 91.1%, 0.6% and 6.4%. The remainder did not state sectoral employment.

2001:  The share of agricultural value added in GDP was 36.6%, industry 17.3% and services 46.1%. The share of employment in agriculture, industry and services sectors was 65.7%, 13.4% and 20.7%. The remainder did not state sectoral employment. 

• Note that between 1981 and 2001, while the share of both agricultural employment and gross value added decreased almost by the percentage points, the share of industry sector employment increased faster than the increase in its share in GDP (14.3 vs 4.9 percentage points). Meanwhile, services gross value added in GDP grew at a faster pace than the share of services employment. 
• In essence, between those 20 years, the industrial sector exhibited jobs-centric growth.  

2011: The share of agricultural value added in GDP was 33.4%, industry 14.5% and services 52.0%. The share of employment in agriculture, industry and services sectors was 64.0%, 9.5% and 24.0%. The remainder did not state sectoral employment. 

• Note that between 2001 and 2011, the shift in agriculture (as a share of GDP) was faster than the shift in agriculture employment (decrease by 3.1 percentage points versus 1.7 percentage points). While industry’s share in GDP decreased by 2.7 percentage points, employment in industry sector decreased at a steeper rate of 3.8 percentage points. Meanwhile, services’ share in GDP increased by 5.9 percentage points but employment increased by 3.3 percentage points. 
• In essence, the industrial sector was not jobs centric as the decrease in employment was faster than the decrease in its share of GDP. Likewise, the gain in employment in the services sector was at a lower pace than the increase in its share of GDP.

2021: The share of agricultural value added as a share of GDP was 36.6%, industry 17.3% and services 46.1%. The share of employment in agriculture, industry and services sectors was 65.7%, 13.4% and 20.7%, respectively. The remainder did not state sectoral employment.

• Note that between 2011 and 2021, pretty much the same trend held like in the previous decade, and the share of services sector in GDP grew at a faster pace than its share in employment, indicating that the services sector growth was not jobs centric.

So, what were the structural changes in the last 30 years, the period which endured the Maoist insurgency, the overthrow of the Shah dynasty, the transition to a federal democratic republic, catastrophic earthquakes, and COVID-19 pandemic. 

While the share of agriculture and industry in GDP decreased, the share of services sector increased. The share of employment in these sectors also followed the same pattern, but at a varying pace. The agriculture sector’s share in GDP decreased from 47.7% in 1991 to 25.8% in 2021. The industry sector’s share in GDP decreased from 17.5% in 1991 to 13.8% in 2021. However, the employment in this sector increased from 2.7% to 12.6% in 2021. Employment between 1991 and 2001 increased but as the political instability intensified, it decreased between 2001 and 2011 and then recovered between 2011 and 2021. The services sector’s share in GDP increased from 34.8% of GDP in 1991 to 60.4% of GDP in 2021. Employment in the sector increased from 15.1% to 30.0% of the total employed over the same period. 

The overall trend is that agricultural value added and agricultural employment followed almost the same pattern (decreased by 21.9 percentage points and 23.9 percentage points), but there was employment gain in the industry sector despite a decrease in its share in GDP (9.9 percentage point increase versus 3.7 percentage point decrease). The services sector GVA grew at a faster pace than employment in the sector (increase by 25.6 percentage points versus 14.9 percentage points).

What could be the underlying reasons for these changes? The rural-urban migration has impacted agriculture activities and employment. In the industry sector, the share of employment is the highest in construction sector (8.1% in 2021 compared to 0.5% in 1991), indicating the boom in real estate and construction activities that were driven by the inflow of remittances. The share of employment in the manufacturing sector declined from a high of 8.8% in 2001 to 3.8% in 2021. This sector was one of the most affected by conflict, and policy as well as political instability, leading to fast erosion of cost and price competitiveness to imported goods. In the services sector, most people are employed in the wholesale and retail trade and repair of motor vehicles and motorcycles activity (12.5%), which also is the largest services sector activity as a share of GDP. About 2.2% were employed in transportation and storage, and 2.9% in education. 

FYI, in 2021, about 8.6 million people were employed in the agricultural sector, 2.0 million in the industry sector (of which 0.5 million in manufacturing and 1.2 million in construction), and 4.5 million in the services sector (of which 1.9 million in wholesale and retail trade). It includes those who had done any economic activity in the reference period (employed [10.3 million] and those not usually active [4.7 million]).

The number of hours worked has also decreased. About 65.5% of those who did economic work worked for 6 months and above, 18.2% between 3-5 months, and 16.2% less than 3 months. In 1991, 91.3% of those engaged in economic work worked for 6 months and above, 6.0% between 3-5 months, and 2.2% less than 3 months. It may, again, reflect the increasing trend of outmigration among youths, who tend to engage in a particular economic activity as a stop-gap measures to sustain livelihoods while in Nepal, and then immediately leave for work or study abroad once opportunity arises. 

Most of the workers are in low productivity, low skilled occupations such as agriculture, forestry and fishery (50.1%) and elementary workers (23%). 

Of the 9.0 million people who did not do any economic work, 46.9% said it was because they were student, 21.9% due to household chores, and 11% due to old age.

Census versus Nepal Labor Force Survey (NLFS) III: These may be different from the estimates in NLFS III, which estimated population at 29 million in 2018 itself. The working age population was estimated at 20.7 million (around 71% of the estimated population). Among the 20.7 million people of working age, 12.7 million were not in the labor force (61.3%). About 8 million people were in the labor force (7.1 million employed and 0.9 million unemployed). The labor force consists of individuals who are employed and those that are considered unemployed. The unemployment rate was estimated to be 11.4%. 

On sectoral employment, NLFS III showed agricultural, industrial and services has 21.5%, 30.8% and 47.4% employment share. Compared to the census 2021 data, the share of employment in agriculture is lower, industry and services higher. It may be because the definition of employment is narrower in NLFS III— the new definition of employment includes only work performed for others for pay or profit, i.e., production for own final use is not considered as employment.

Labor productivity

Let us compare labor productivity (real GDP in census year/number of people who performed any economic activity as recorded in the census) at constant FY2011 prices. 

Overall labor productivity barely increased between 2011 and 2021. It was NRs157,028 in 2011 and NRs159,832 in 2021. Between 2011 and 2021, labor productivity growth in all sectors (agriculture, industry, and services) was negative. 

At the disaggregated economic activity level, labor productivity was positive in mining and quarrying; manufacturing; and public administration, defense, education, and health, etc.

Comparing labor productivity and share of employment, we see that labor productivity in wholesale and retail trade has reduced but its share in employment and GDP has increased. Manufacturing’s share in employment and GDP has decreased, but labor productivity has increased. Construction’s share in employment and GDP has increased but labor productivity has decreased. Finance, insurance, and real estate activities share in employment and GDP has decreased, but labor productivity has increased. In fact, within it as well, it is real estate business activities, and professional and technical activities that are driving this activity’s high labor productivity.

Nepal's top remittance source countries in 2021

The KNOMAD/World Bank released new estimates of bilateral remittance flows for 2021. The top remittance corridors were: United States – Mexico: $52 billion; United Arab Emirates- India: $20 billion; Unites States – India: $6 billion; and Saudi Arabia – India: $13 billion. Note that these are not actual inflows, but estimates based on inward remittances to a country being allocated to various source countries in proportion to its stock of migrants in those countries, the per capita income (in purchasing power parity terms) in the destination countries, and the per capita income (again in PPP terms) in the origin countries.

Low- and middle-income countries (LMICs) (“Global South”) received about 56% of their remittances from high-income OECD (“Global North”), 27% from the GCC and other high-income countries (outside the OECD), and about 17% from the other LMICs. Interestingly, low-income countries received a larger share of remittances from the LMICs (including 15% from other LICs) than from the high-income countries. 

Some caveats regarding the estimates:  Informal inflows of both remittance income and migrant flows are not accounted for. Estimates may also be affected due to miscalculation of trade and tourism receipts as remittances, and vice versa; wrong attribution of the source of remittance to countries where the financial intermediaries (correspondent banks) have headquarters; and ban on outward remittance flows by countries. 

So, what were Nepal's top remittance source countries in 2021? According to the estimates, of the total $8.2 billion remittance inflows, Saudi Arabia accounted for 20.6%, Malaysia 20.5%, India 19.3%, Qatar 13.4% and United States 8.3%. The chart below shows remittances inflows to Nepal from 44 countries.

The chart below shows remittance inflows and stock of migrants. The stock of migrants in 2021 was estimated at 2.7 million. 

Meanwhile, the top remittance source countries have not changed much in the last decade. Korea, UAE and Kuwait have become important destination lately. Saudi Arabia and Malaysia have become prominent destinations for Nepali migrants. India has always been an important destination for employment, education, healthcare, etc.

The data also includes information on remittances from Nepal to other countries. It is estimated that $1.7 billion was sent from Nepal to India ($1.6 billion, which is close to remittance inflows from India), China ($82 million), Bhutan ($25 million), Pakistan ($1 million), and Bangladesh ($1 million). 

The chart below shows the stock of migrants and remittance inflows in 2021.

Note that the remittance inflows estimate by Nepal Rastra Bank (central bank) might differ. In FY2018, it estimated that 22.8% of total remittance inflows was from the USA, 13.4% from Saudi Arabia, 11.6% from Qatar, 10.1% from UAE and 10% from Japan.

Reintegration of returning migrant workers

It was published in Pandemic Borders, Open Democracy, 16 March 2021.

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As COVID brings migrants home, how can Nepal reintegrate returning workers?

Money from overseas makes up a quarter of GDP, and the effects of the pandemic are putting a squeeze on an already struggling economy

For Nepal, like other developing countries that depend on migrant remittances, the COVID-19 pandemic has dealt a severe blow.

Money sent home by the thousands of Nepali migrant workers abroad amounts to about 25% of the country’s GDP, making it one of the most dependent countries on remittances in the world.

Reverse migration since the spread of COVID-19 has compounded unemployment problems in an already lockdown-battered economy. This means that timely and meaningful reintegration of the returning migrant workforce should be one of the top priorities, especially given that international travel and the global economy are not projected to fully recover any time soon.

Reverse migration

Since the lockdown started in March 2020, there has been a steady inflow of migrant workers returning to their home countries. Nepali migrant workers in India travelled by road, often walking for days to reach the border. Those in other countries were repatriated on special chartered flights operated by the government.

There is no official data on the exact number of migrant workers who have returned to Nepal since the lockdown, but in May the Nepal Association of Foreign Employment Agencies estimated that over half a million migrant workers wanted to return, especially from the Middle East and Malaysia.

The Nepali economy is facing a potential slowdown in remittance inflows. And while a 2018 labour force survey estimated unemployment at 11.4%, a more realistic number based on a broader measure of labour under-utilisation puts it as high as 39.3%. Amid a slowing economy, an influx of returning migrant workers will exacerbate unemployment even further.

Remittances have supported household consumption, propped up government finances (as revenue from imports financed by remittances alone account for 45% of total tax revenue), boosted banking sector liquidity and credit growth, increased household spending on healthcare and education, and helped to maintain external sector stability despite a ballooning trade deficit. All this means that the country will face a tough time reintegrating returning workers.

Reintegration

With the healthcare crisis requiring more public spending just to provide emergency relief, this severely curtails the country’s ability to effectively fund reintegration of returning migrant workers. The government estimated that it would need about $1bn just for employment programmes to deal with the impact of COVID-19.

A large gap between expenditure and revenue means that Nepal will need more international support to boost social protection-related spending in the next few years. Internally, it will have to reduce wasteful spending such as funding of pet projects, bailing out consistently underperforming state-owned enterprises, and non-targeted subsidies.

To enhance governance and targeting, it may be useful to use digital platforms to identify eligible beneficiaries of various government programmes and possibly transfer any cash handout directly to their bank accounts.

Another way to support returning migrants is to provide them with access to affordable credit to help those who are willing to start their own business ventures

In fact, there already exists social protection and public workfare programmes that can be better utilised to quickly engage returning migrant workers at the local level. For example, the Prime Minister Employment Program, which guarantees a maximum of 100 days of employment at subsistence wage, has been severely under-utilised so far. From July 2020, until March 3 this year, it provided an average of six days of work for 25,852 people out of 743,512 listed unemployed people in its roster.

The programme was launched in early 2019 to reduce youth dependency on overseas jobs and to create job opportunities within the country itself. Ramping up this programme with adequate budgeting and targeting could be beneficial in the short term to employ returning migrant workers.

Unfortunately, a fallout of the ineffectiveness of this programme was that many migrant workers who returned home are again actively pursuing job opportunities overseas. For instance, by September 2020, there were long queues of migrant workers at the Indian border points waiting for an opportunity to enter India for employment.

Technical and vocational education and certification could be another option for reintegrating migrants who are willing to enhance their skills and perhaps change profession. This could be done in partnership between government and businesses.

Another way to support returning migrants is to provide them with access to affordable credit to help those who are willing to start their own business ventures. Programmes such as Youth and Small Entrepreneurs Self-Employment Fund are set up to subsidise interest on loans for self-employment, and could be used for this.

The fund has not been as effective as expected largely owing to politicisation, a high interest burden even after subsidy, and approval hassles. Since its launch a decade ago, there are just 72,789 recipients, including 6,500 between July 2019 and July 2020. The central bank has also launched a scheme to issue subsidised loans at 5% interest to returnee migrant workers, among others. However, the uptake has been slow.

Successful reintegration would not be possible without accelerated economic growth as domestic employment opportunities will remain constrained, contributing to the “push factor” for outmigration which compel folks to migrate overseas for employment and safety.

Short-term economic stabilisation measures followed by structural reforms to ensure sustained and inclusive economic growth are required. In this process, more digitalisation, better targeting and, most importantly, sound governance will be vital.

Key highlights of Nepal's 15th five-year plan (FY2020-FY2024)

National Planning Commission recently published the 15th five-year plan (FY2020-FY2024) taking also into account the effect of COVID-19 pandemic on the government’s priorities and the economy. This plan is considered as a first phase of a 25-year long-term economic vision that aims to position Nepal as a high-income country with per capita income of USD 12,100 by FY2044.  Its theme is 'generating prosperity and happiness' and aims to create the foundation of prosperity and happiness through economic, social and physical infrastructures to accelerate economic growth. 

The government is expecting Nepal to graduate from LDC category to a developing country status within this plan (by 2022 with per capita income of USD 1,400). This plan is expected to contribute to efforts to ensure that Nepal reaches a middle-income country status by FY2030 (with per capita income of USD 2,900) and achieve the SDGs as well. By the end of FY2024, per capita income is estimated to reach USD 1,595.

The plan emphasizes boosting investment in the sectors or thematic issues that are considered as drivers of economic transformation. These include transport, ICT, energy, education and healthcare, tourism, commercialization of agriculture and forest products, urbanization, social protection, subnational economy, and good governance, among others.

 By FY2024, the government wants to achieve a double-digit growth rate, increase per capita income of USD 1,595, reduce population under absolute poverty line to 9.5%, and increase share of formal sector employment to 50%. 

Some of the major national targets for 15th five-year plan (FY2020-FY2024) are as follows:

• Average GDP growth (at basic prices): 9.6%
• Average GDP growth (at producers' prices): 10.1%
• Per capita income: USD 1,595
• Export of goods and services: 15.7%
• Share of essential goods (agri, livestock, food items) in total imports: 5%
• Population under the absolute poverty line: 9.5%
• Population with multidimensional poverty: 11.5%
• Share of formal sector employment: 50%
• Unregistered (formal) establishment: 10% of total establishment
• Literacy rate (15+ years): 95%
• Road density: 0.74 km of road per sq km of land
• Households with access to electricity: 95%
• Population with access to internet: 80%
• Electricity generation (installed capacity): 5,820 MW
• Renewable energy: 12% of total energy consumption
• Per capita electricity consumption: 700 kwh
• Agricultural productivity (major crops): 4 MT per hectare
• Irrigable land with year-round access to irrigation: 50%
• Per capita tourist spending: USD 100 per day
• Human development index: 0.624
• Gender development index: 0.963
• Population covered by basic social security: 60%
• Social security expenditure: 13.7% of budget
• Global competitiveness index: 60
• Ease of doing business index: 68
• Travel and tourism competitiveness index: 3.8
• Corruption perception index: 98
• Nepali citizens with national ID card: 100%
• Population affected by disaster incidents: 9.8%

The NPC estimated average growth in agriculture, industry, and services sectors to be 5.4%, 14.6%, and 9.9%, respectively. By the end of the 15th plan, the government is targeting to increase the share of industry and services sectors to 18.8% and 58.9%, respectively, while the share of agriculture sector is to decrease to 22.3%. To achieve the stated average growth rate, the NPC estimated that NRs 9.229 trillion (at FY2019 constant prices and based on ICOR of 4.9:1; FYI, a lower ICOR indicates efficient production process) investment will be required over the plan period. Public, private and cooperative sectors are expected to contribute 39%, 55.6%, and 5.4%, respectively of this required investment.  

[The government is considering FY2019 as a base year for the long-term economic vision. So, the data is presented in FY2019 constant prices. However, this is not much helpful in doing comparative analysis including that of long-term plans and targets. National account estimates, public finance, and periodic surveys - based on which the numbers are estimated eventually- are either presented with different year as base year (FY2011 for NEA for now) or are in current prices (fiscal, monetary, external sectors, and household surveys.]

As a share of GDP by FY2024, the expected impact on macroeconomic indicators are as follows:

National accounts (focused on increasing investment through savings mobilization)

• Average GDP growth (at producers' prices): 10.1%
• Per capita income: USD 1,595
• Export of goods and services: 15%
• Gross domestic savings: 22%
• Gross national savings: 47.5%
• Gross fixed capital formation: 41.6%

Fiscal sector (focused on allocation and implementation efficiency, and fiscal discipline for expenditure management; maximize revenue mobilization and taxpayer-friendly tax administration)

• Total budget: 43.3%
• Recurrent expenditure: 17.9%
• Capital expenditure: 18.6%
• Financial management: 6.8%
• Revenue: 30%
• Income tax: 10%
• Foreign debt: 5.7%
• Domestic borrowing: 4.3%

Monetary and external sector (focused on controlling inflation, balance of payments stability, and financial stability)

• Average annual Inflation: 6%
• Export of goods and services: 15%
• Import of goods and services: 49%
• Remittances: 22.1%
• Foreign investment: 3%

Meanwhile, the average financing gap to achieve the SDGs is estimated to be NRs 585 billion per year for the entire period of 2016 to 2030 (SDG period). It is on average 8.8% of GDP for 2016-19, 12.3% of GDP for 2020-22, 13% of GDP for 2023-25, and 16.4% of GDP for 2026-30. The overall annual financing gap is estimated at 12.8% of GDP throughout the period of 2016 to 2030.

Impact of lockdown on employment, remittances and food security in Nepal

Measuring the human cost of lockdown in Nepal

Mushfiq Mobarak, Bishal Chalise and Corey Vernot write in Nepali Times:  

One of us (Mobarak) has been leading a team collecting large-sample data on the rural poor across 90 villages in Kailali and Kanchanpur to track labour mobility, wages, remittances, food security, and mental health before and after the lockdown. We collected five rounds of data from 2,600 households in monthly intervals since September 2019, and conducted the most recent round of phone surveys in April, 2020 immediately after the lockdown measures were enforced.

[...]Total hours in income-generating (wage or non-farm business) work for prime-age males have decreased 75% since January. Men are spending a bit more of that time on their own farm, but even accounting for that, total work hours are significantly below even the pre-harvest lean season in October. [...]The lockdown has had even larger effects on migrant families, because there has been a 61% dip in the remittance receipts since lockdown. A large part of this is because migrants who would normally be away, earning income elsewhere, were forced to return home; 65% of the migrants who were in either India or other cities in Nepal during 1 January – 1 April 2020 returned home in a rush during the first two weeks of April. Further, individual migrants who are still away are only able to send half of what they used to send before the lockdown. [...]Some 65% of our respondents worried about having enough food in the house when we spoke to them in late April. As a benchmark, that number was 67% in September-October 2019 (during the pre-harvest lean season), and 43% in January after the rice harvest. 

[..]In an experiment, when we provided some of these poor, rural, migrant-dependent households loans during the pre-harvest lean season in 2019, they invested a large portion of that money buying fertiliser. Agricultural investment was significantly higher than those who did not receive such loans.

CBS projects Nepal's GDP to grow at 2.3% in FY2020

On 29 April, Central Bureau of Statistics (CBS) estimated that Nepal’s economy (at basic prices) will likely grow at 2.3% in FY2020, down from 6.7% revised estimate for FY2019. The projected growth rate is lower than the government’s 8.5% target. The growth estimates by CBS is based on the assumption that the COVID-19 affected economic activities will start to pick up pack from mid-May (last quarter) except for tourism activities (hotels & restaurants, and international travel). 

In FY2020, the growth is largely driven by electricity, gas and water output. This might be based on the expectation that the government will be able to bring online Upper Tamakoshi and few other hydropower projects by mid-July as a few large infrastructure projects are not severely affected by COVID-19 pandemic related disruption to labor, supplies and capital.

Overall, agricultural, industrial and services sectors are projected to grow by 2.6%, 3.2% and 2%, respectively. Agricultural sector contributed 0.8 percentage points, industrial sector 0.5 percentage points and services sector 1.07 percentage points to the overall projected GDP growth of 2.3%. These projections are based on eight to nine months data and the assumption that economic activities will gradually pick up from mid-May (expect for international tourism). 

Specifically, electricity, gas and water sub-sector is projected to grow at the fastest rate (28.7%, up from 9.1% in FY2019), followed by fishing (7.2%, up from 5.6% in FY2019), health and social work (7.1%, up from 6.8% in FY2019), and public administration and defense  (6.9, up from 5.5% in FY2019). All other economic activities are expected to grow at a rate lower than in FY2019. Construction; mining & quarrying; manufacturing; transport, storage & communications; and hotels and restaurants activities are expected to contract in FY2020. 

Industrial output would have contracted if it were not for the high growth projection for electricity and water sub-sector's output. Delayed monsoon, slow capital spending and lack of business confidence amidst the lower-than-expectation performance of the government had already created an environment where GDP growth was projected to be lower than in FY2019. The strict lockdowns and social distancing rules to contain the spread of COVID-19 exacerbated the slump in economic activities. 

Agricultural output is projected to grow at 2.6%, down from 5.1% in FY2019, largely due to a delayed monsoon, shortage of fertilizers, use of substandard seeds and an armyworm invasion. The labor, harvest and supplies disruptions due to COVID-19 exacerbated the situation. The CBS expects wheat and vegetables output to grow despite the effect of COVID-19 on agricultural market and supply chains. 

Industrial output is projected to grow at 3.2%, down from 7.7% in FY2019. Within industrial sector, electricity, gas and water subsector is expected to grow at the fastest rate: 28.7%, up from 9.1% in FY2019. The CBS expects a substantial addition of hydroelectricity to the national grid by mid-July. All other industrial sector activities are expected to contract. Mining and quarrying activities are projected to grow by -0.7%, down from 8.9% in FY2019, as mining and quarrying of stones, sand, soil and concrete is affected by the lockdowns and social distancing rules. Similarly, Construction activities are projected to contract by 0.3%, down from 8.1% growth in FY2019 as a combination of slow capital spending and the strict lockdowns affected output.  Manufacturing activities are projected to contract by 2.3%, down from 6.8% growth in FY2019. In addition to the COVID-19 related lockdowns and containment measures, manufacturing sector has been suffering from a lack of private sector investment as well as loss of both domestic and external markets due to eroding cost and quality competitiveness. Stable supply of electricity and improved industrial relations were not sufficient to drastically boost manufacturing output as expected. 

Services output is projected to grow at 2%, sharply down from 7.3% in FY2019, making it the most affected sector due to the lockdowns and supplies disruptions. Within service sector, wholesale and retail trade activities are expected to grow by 2.1%, down from 11.1% in FY2019. This reflects a drastic drop in import demand (as remittance-financed imported goods are traded in the domestic market) and sale of agricultural and industrial goods. Since travel and tourism activities were severely affected by COVID-19 pandemic, hotels and restaurants sub-sector is expected to contract by 16.3% and transport, storage and communications by 2.4%. The growth rates in FY2019 were 7.3% and 5.9%, respectively.  Financial intermediation is projected to grow by 5.1%, lower than 6.2% in FY2019, reflecting reduced income of NRB, BFIs, insurance board and companies, securities board, EPF and CIF. Real estate activities are expected to slowdown to 3.3% from 6.1% in FY2019. Education sector is expected to slowdown to 3.0% from 5.1% in FY2019. Public administration and defense is expected to grow at 6.9%, up from 5.5% in FY2019. Similarly, health and social work is expected to growth at 7.1% from 5.7% in FY2019. 

On the expenditure side, GDP (at market prices) is expected to grow at 2.3%, drastically down from 7% in FY2019. Consumption is expected grow at 3.2%, down from 5% in FY2019. However, public and private gross fixed investment and inventory (change in stock) are expected to contract. Net exports is expected to growth at 5.5% (compared to a negative growth rate last fiscal) thanks to a higher rate of decrease in imports compared to exports. 

Here are quick takeaways from the latest GDP projection.

First, the strict lockdowns, supplies and travel disruptions, and social distancing norms have severely affected almost all sectors. Particularly hit are industrial and services sector activities. Overall, consumption slowed down but investment (both public and private) contracted.

Second, GDP growth was projected to be lower than in FY2019 even before COVID-19 pandemic affected Nepal. Delayed monsoon and shortage of inputs had dented prospects for higher agricultural output. Slower than expected capital spending during the first half of FY2020 had affected construction, and mining and quarrying. Industrial sector was in stress due to low capital utilization. Slowdown in remittance inflows had affected services sector activities (particularly, import dependent wholesale and retail trading). The COVID-19 onslaught exacerbated the economic outlook. 

Third, the CBS’s projection might be a bit more optimistic. A majority of the economic activities happen in the second half of fiscal year. This is also the period when COVID-19 hit Nepal and the government resorted to necessary containment measures like strict lockdowns and social distancing. The CBS expects lockdowns to loosen by mid-May and economic activities to gradually normalize. However, this may be challenging because of the disruption to labor and supplies markets and subdued consumer demand. For instance, the dispersal of labor (internal and external migrant workers) is hard to reverse quickly. Contagion conscious businesses may find it hard to fully open shops and activities. Same with casual workers and informal sector workers. It will be challenging to ramp up construction activities for the rest of the year because contract award and work commencement usually happened in the second half. Additionally, if hydroelectricity generation (addition to the national grid) is less than expected by mid-July, then it will affect the growth projections too. 

Fourth, fiscal stress will be heightened as revenue dwindle but expenditure needs shoot up. Employment demand under prime minister employment fund will increase as jobless people resort to making use of social protection schemes (think of it as automatic stabilizer in employment market). Similarly, there will be increased pressure for direct cash transfer to the newly jobless workers and vulnerable groups.

Fifth, with adverse external environment (weak export demand, slowdown in Indian economy, likely fall in remittances and FDI, etc), and weakened internal production, GDP growth in FY2021 might still be muted. Private sector investment may remain subdued given the large uncertainties and additional cost to businesses due to the lockdowns. Worse, some might simply go out of business and default on loan payments. In times like this the public sector really has to ramp up consumption (direct cash and in-kind transfers, support to MSMEs) and investment (high capital spending exploiting the low hanging fruits) to stabilize falling aggregate demand. 

Fiscal deficit in India and rebooting the economy

Govt needs clear 'entry and exit plan' on fiscal expansion: Shaktikanta Das

From Business Standard: The coronavirus pandemic will expand the government’s fiscal deficit beyond 3.5 per cent of India’s gross domestic product (GDP), said Reserve Bank of India (RBI) governor Shaktikanta Das as he called for a "well calibrated roadmap” to manage finances. “The 3.5 per cent fiscal deficit target for this year will be very challenging to meet,” Das told news agency Cogencis in an interview. "It has to be a judicious and balanced call keeping in mind the need to support the economy on one hand and the sustainable level of fiscal deficit that is consistent with macroeconomic and financial stability.” “There has to be a very well calibrated and well thought out roadmap for entry and exit.” The RBI has not yet taken a view on monetising the government deficit.

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Rebooting the economy: India needs a stimulus package of at least 5% of GDP

Ashok Gulati writes in Financial Express: My humble assessment is that this may not take us far enough as the real problem is collapse in demand. And, that demand may not pick up easily as the virus is likely to stay with us for quite some time, and we may again have lockdowns as and when the viral infection surges. This will surely limit our travels and shopping for non-essentials. However, there is one demand that can easily revive, and that is food. The NSSO survey of consumption expenditures for 2011-12 revealed that in an average Indian household, about 45% of the expenditure is on food, and almost 60% of the expenditure of the poor is on food. We do not have information about consumption patterns in 2020, but my guess is that an average Indian will still be spending about 35-40% of their expenditure on food; for the poor, this expenditure would be about 50%. And, herein lies the scope to reboot the economy.

[...]But, eastern Uttar Pradesh, Bihar, Jharkhand, West Bengal, and Odisha, from where much of the migrant labour goes to other parts of India, will face a double challenge. In these states, agriculture, with tiny farm holdings, was already saddled with large labour force, engaging almost 45 to 55% of their total labour force. Non-farm income from wages and salaries, through migrant labour, was one important source of their income. This is now severely hit. In all probability, these staes’ overall per capita incomes in rural areas may shrink, at least in the short run, raising issues of swelling poverty, hunger, and malnutrition. In such a situation, how does one reboot the economy and also take care of a worsening situation on the hunger and malnutrition front?

A special investment package, a la USA’s Marshall Plan in 1948, for the eastern belt of India to build better infrastructure, agri-markets and godowns, rural housing and primary health centres, schooling, skilling will go a long way to revive the economy, and augment incomes of returned migrant labourers in these states. Rising incomes will generate more demand for food as well as manufactured products, giving a fillip to growth engines of agriculture as well as the MSME sector. Building better supply chains for food, directly from farm to fork, led by the private sector will not only augment export competitiveness of agriculture but also ensure a higher share of farmers in consumers’ rupee. This broad-based development in the hitherto laggard region of India will lay down the foundation for the long-term, demand-driven growth of industry in India.

Remittances to South Asia projected to decline by 22.1% in 2020

The latest Migration and Development Brief from the World Bank projects that global remittances will decline by 19.9% in 2020 due to the economic crisis induced by the COVID-19 pandemic and shutdown. Remittances to low and middle-income countries (LMICs) are projected to fall by 19.7% to $445 billion. The fall in FDI is expected to be much larger. 

South Asia is projected to see 22.1% decline in remittances. It is expected to see mild recovery in 2021 but medium-term downside risks persist. The deceleration of remittance inflows is due to COVID-19 outbreak and oil price decline. 

• In India, remittances are projected to fall by about 23% in 2020, to $64 billion, from a 5.5% growth and receipts of $83 billion seen in 2019.
• Remittances to Nepal are expected to decline by 14%, dropping to about US$7 billion in 2020.
• Remittances to Sri Lanka are expected to decline by 19%, dropping to about US$5.5 billion. 
• In Bangladesh, remittances are projected at $14 billion for 2020, a likely fall of about 22%.
• In Pakistan, the projected decline is also about 23%, totaling about $17 billion, compared with a total of $22.5 billion in 2019, when remittances grew by 6.2%.

The COVID-19 presents particular challenges:

1. Economic crisis could be longer, deeper and more pervasive than the recent growth estimates. The decline in fuel prices and lockdowns have affected sectors that depend on migrant workers in host countries. Migrant workers are more vulnerable to employment and wages losses in host countries.
2. It has disproportionately affected food and hospitality, retail and wholesale, tourism and transport, and manufacturing. 
3. Developed countries that depend on migrant workers in agriculture sector will face labor shortages when farming season begins. 
4. Cross-sectoral mobility of workers is affected. It is hard for low-skilled migrant workers to move to other sectors. During the global financial crisis in 2009, many migrant workers moved from construction to agriculture and retail. Now, health and information technology require high and specific skills, which is missing among many migrant workers.
5. Internal migrants without access to housing, basic water and sanitation, health facilities, or social safety nets are more vulnerable to the crisis, especially lockdowns, travel bans, and social distancing measures.

Impact of COVID-19 on migration and remittances

Excepts from Peter Gill's article in The Diplomat:

Nepali deaths and illnesses abroad portend long-term trouble for the Nepali economy at home. In the past, international labor migration has been an essential lifeline for Nepali families coping with domestic crises, from a civil war that raged from 1996-2006 to an earthquake that brought homes crashing to the ground in 2015. But the current crisis is unlikely to afford Nepalis this opportunity. Nations worldwide have erected barriers to human movement, and job opportunities from New York to Mumbai to Seoul will likely plummet in the aftermath. COVID-19’s long-term consequences could be devastating for Nepal. A recent World Bank report predicted a severe drop in GDP growth over the next three fiscal years, stating that “the risk of falling into poverty is high, and it will increase into 2020.”

It is difficult to overstate the importance of migration and remittances to millions of Nepali families.  Nepalis have long depended on seasonal agricultural and military work in India, and after 1990, increased access to passports opened up new types of work in destinations from the Middle East to Southeast Asia and beyond. Constructing high-rises in Dubai, guarding private homes in Kuwait, or working on assembly-lines in Penang often paid more than anything available in Nepal.

[...]Migration insinuated itself deep into the Nepali macroeconomy, becoming a keystone on which other sectors depended. “Remittances have been crucial to support growth, particularly by sustaining a high consumption level, which comprises over 85 percent of GDP,” says Chandan Sapkota, an economist at the Nepal Economic Forum. “Remittances have also been crucial in meeting a high revenue growth, as over 45 percent of government revenue is based on duties imposed on import of goods financed by remittance income. Remittances have been the major source of deposits in banks and liquidity.”

The COVID crisis has already put many Nepali migrants out of work. As fears of a pandemic spread in February and early March, a few hundred thousand workers returned to their hometowns and villages in Nepal. But most migrants were prevented from returning after the Nepali government announced a nationwide lockdown on March 24. Some were able to maintain their jobs abroad, but many others were fired or took unpaid leave and are living off meager savings. Reports have emerged of workers being forced into unsafe, crowded conditions in Malaysia and Qatar. In the United Arab Emirates, some Nepalis have been evicted from their homes. Meanwhile, hundreds of Nepalis remain stuck at the Indian border, having walked for hundreds of miles through the Indian lockdown only to be denied entry by the Nepali police. The government maintains that quarantine facilities are inadequate to cope with returnees from abroad.

Falling remittances could have knock-on effects in multiple areas of the domestic economy, harming government revenue and reducing liquidity in the banking industry, says Sapkota, the economist. Along with tourism — another sector sledgehammered by the crisis — remittances are a key source of foreign currency, crucial in an import-dependent country like Nepal. The national bank holds enough foreign exchange reserves to cover more than eight months’ worth of imports – a comfortable cushion in normal times, but then these are not normal times.

Economic impact of COVID-19, policy measures required and how to finance deficit in India

Adapted from McKinsey & Company's latest brief on Getting ahead of coronavirus: Saving lives and livelihoods in India

In scenario 1, the economy could contract by about 10 percent in the first quarter of fiscal year 2021, with GDP growth of 1 to 2 percent in fiscal year 2021. In this scenario, the lockdown would be relaxed after April 15, 2020 (when the 21-day deadline is due to expire), with appropriate protocols put in place for the movement of goods and people after that. Our economic modeling suggests that even in this scenario of relatively quick rebound, the livelihoods of eight million workers, including many who are in the informal workforce, could be affected. In other words, eight million people could have their ability to subsist and afford basic necessities, such as food, housing, and clothing, put at severe risk. And with corporate and micro-, small-, and medium-size-enterprise (MSME) failure, nonperforming loans (NPLs) in the financial system could rise by three to four percentage points of loans. The amount of government spending required to protect and revive households, companies, and lenders could therefore be in the region of 6 lakh crore Indian rupees (around $79 billion), or 3 percent of GDP.

In scenario 2, the economy could contract sharply by around 20 percent in the first quarter of fiscal year 2021, with –2 to –3 percent growth for fiscal year 2021. Here, the lockdown would continue in roughly its current form until mid-May 2020, followed by a very gradual restarting of supply chains. This could put 32 million livelihoods at risk and swell NPLs by seven percentage points. The cost of stabilizing and protecting households, companies, and lenders could exceed 10 lakh crore Indian rupees (exceeding $130 billion), or more than 5 percent of GDP.

Scenario 3 could mean an even deeper economic contraction of around 8 to 10 percent for fiscal year 2021. This could occur if the virus flares up a few times over the rest of the year, necessitating more lockdowns, causing even greater reluctance among migrants to resume work, and ensuring a much slower rate of recovery.

What policy measures are required?

[...]Several measures have already been announced to provide liquidity, limit the immediate NPL impact, and ease personal distress for needy households in India. These amount to around 0.8 percent of GDP. Additional measures could be considered to the tune of 10 lakh crore Indian rupees, or more than 5 percent of GDP in fiscal year 2021. All the estimated requirements may not necessarily be reflected in the fiscal deficit of the current year—for example, some support may be structured as contingent liabilities that only get reflected when they devolve. However, a package of this order of magnitude may be essential in supporting those dealing with the possible steep declines in aggregate demand and in protecting the financial system from the possible solvency and liquidity risks arising from stressed companies if scenario 2 or scenario 3 plays out.

[...]Consideration could be given to an income-support program in which the government both pays for a share of the payroll for the 60 million informal contractual and permanent workers linked to companies and provides direct income support for the 135 million informal workers who are not on any form of company payroll. India’s foundational digital-identity infrastructure, Aadhaar, enables effective mechanisms for direct support, including through the Pradhan Mantri Jan-Dhan Yojana (PMJDY) and Pradhan Mantri Kisan Samman Nidhi (PM-KISAN) programs and to landless Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) beneficiaries. Concessions for home buyers, such as tax rebates for a time-bound period, could stimulate the housing market and unlock the job multiplier.

For bankruptcy protection and liquidity support, MSMEs could receive liquidity lines from their banks, refinanced by the Reserve Bank of India and a loan program for first-time borrowers could be administered through SIDBI.3 Substantial credit backstops from the government could be instituted for likely new NPLs Timely payments to MSMEs by large companies and governments could be encouraged by promoting bill discounting on existing platforms.

For large corporations, banks could be allowed to restructure the debt on their balance sheets, and procedural requirements for raising capital could be made less onerous. The Indian government could consider infusing capital through a temporary Troubled Asset Relief (TARP)-type program (such as through preferred equity) in a few distressed sectors (such as travel, logistics, auto, textiles, construction, and power), with appropriate conditions to safeguard workers and MSMEs in their value chains. Banks and nonbanks may also require similar measures to help strengthen their capital, along with measures to step up their liquidity and the liquidity in corporate-bond and government-securities markets.

How to finance?

Given that India’s fiscal resources are constrained, the Reserve Bank of India may need to finance a portion of such incremental government spending. The spending could be tracked as a COVID-19 portion of the budget to boost transparency. The inflationary effects may be low, as lockdowns severely constrict demand and the fiscal support provided would be a substitute for expenditure rather than additional stimulus. Price increases could, however, occur in some sectors, such as food, so appropriate steps would be needed to maintain harvests and keep the food supply chain operating smoothly.

Overall, devising a credible, systemwide, stabilization package would benefit from being executed in a timely fashion so it can influence the pace of recovery and help avoid severe damage to livelihoods, the economy, the financial sector, and society.

Following the first wave of stabilization measures, attention could shift to implementing the structural reforms needed to increase investment and productivity, create jobs quickly, and improve fiscal health. This could mean introducing further reforms in infrastructure and construction and accelerating investments in health, affordable housing, and other urban infrastructure. States could accelerate spending, and institutions such as NIIF4 could deploy domestic and long-term foreign capital faster. Such reforms could also enable Make in India sectors to become globally competitive and boost exports (such as electronics, textiles, electric vehicles, and food processing), strengthen the financial sector, deepen household financial savings and capital markets, and accelerate asset monetization and privatization to raise resources.