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Nepal’s Remittance-Dependent Economy Braces for Upheaval Amid COVID-19 Pandemic
Money sent by workers abroad has not declined yet, but the future looks uncertain as countries that host Nepali labourers impose travel bans
Chandan Kumar Mandal
The Kathmandu Post
30 March 2020
The government’s decision to stop issuing permits to migrant workers will have significant consequences for the country, where economic activities are driven by remittances, experts say.
While some analysts support the government’s move to end confusion among migrant labourers, others are worried about its ramifications on the economy.
“There had been a slowdown in the issuance of labour permits for individuals as well for agencies even before the government decision to stop issuing permits,” said Umesh Basnet, chief of Foreign Employment Office.
According to him, workers heading to Malaysia and the UAE rushed to his office fearing that they might not be able to leave the country and lose their jobs overseas. Even on Friday, the day the government’s decision came to force, nearly 400 migrant workers had queued up at the Foreign Employment Office, Tahachal in Kathmandu.
“The government’s decision to stop labour migration for some time is realistic,” said Arjun Kharel, a labour migration researcher at the Centre for the Study of Labour and Mobility, a think tank. “The government has made a good move by halting the issuance of labour permits rather than leaving migrant workers in confusion.”
Nepal’s foreign employment sector, already feeling the pinch of the Covid-19 outbreak since the government stopped workers going to South Korea in February, braces for more agony with workers’ departure completely halted for an indefinite period since Friday. This is the first time in over two decades that the government imposed such a blanket ban on Nepali workers leaving abroad.
“There’s not much that the government can do as countries that host Nepali labourers are also placing travel restrictions on foreigners even as they reel under an economic slowdown due to Covid-19” added Kharel.
All the major labour destination countries, which include Malaysia, South Korea and Gulf countries like Qatar, Saudi Arabia, Kuwait, the United Arab Emirates, have reported cases of coronavirus and have been scrambling to control its spread.
Earlier, this week Qatar imposed a temporary ban on travellers coming from 14 countries, including Nepal. The temporary suspension has already affected thousands of Nepali workers awaiting their departures.
On Saturday, Saudi Arabia, another major destination for Nepali workers, suspended all international flights to the kingdom for two weeks to contain the spread of the new coronavirus.
All these restrictions not only hurt Nepali migrant workers’ income, but also the country’s remittance-dependent economy as a whole, according to experts. Although the effect of the pandemic on the flow of remittances is yet to be seen, the bans and restrictions are likely to soon show their impacts on the money workers send home.
“The inflow of remittances over the last seven months is at par with the amount received during the same period last year,” said Gunakar Bhatta, spokesperson for Nepal Rastra Bank. “But no one knows how the figures will look like in the coming days or months.”
During the last fiscal, the country received Rs879 billion in remittances (around 25 percent equivalent of the Rs3.46 trillion-worth gross domestic product) from workers abroad, according to the central bank.
Before the ban was implemented, hundreds of Nepalis left the country every day to work in the Gulf and in Malaysia. The money they send not only reduces pressure on the government to create employment opportunities in the country, it also helps families meet their consumption expenses. It is also the single-largest source of foreign exchange required to finance import of essential goods and services.
“As a result of measures we took to discourage imports, the amount we spend on imports declined this year,” said Bhatta. “We have limited options when it comes to reducing imports as we cannot discourage the import of capital goods such as machineries and construction materials.”
Banks are also worried about a possible decline in remittances. “As remittance is one of the key sources of deposits in the banks, we are worried about a significant decline in deposits,” said Bhuvan Dahal, president of Nepal Bankers’ Association, a grouping of commercial banks’ chief executive officers.
However, not everyone thinks that the ongoing crisis will have a serious impact on remittances right away.
“The ongoing global economic slowdown is expected to be bigger than the 2008 recession. It also had an impact on Nepal’s foreign employment as the number of Nepali hired by foreign employers, which later picked up within one and a half year,” said Kharel. “Our government cannot do much here. There is uncertainty over how long this crisis will linger. To assess its impact, we have to wait to see how it unfolds in the coming weeks and months.”
According to Kharel, although the outflow of Nepali workers has been obstructed, only those who are back home for a break are affected. It may not dent the country’s remittances significantly, he said.
“We won’t see any effects in the next couple of months. The outflow has been affected, but the inflow of remittance would not stop immediately as our migrant workers are already in these countries, earning money,” said Kharel. “But the situation can worsen if the catastrophe continues for months and the host countries’ economy collapses.”
Recruiting agency operators, meanwhile, say the ban comes at a time when they were expecting a peak in recruitment numbers after the new year. According to Rohan Gurung, a foreign employment entrepreneur, Nepali workers had just started leaving as most projects abroad kickoff after the new year.
Gurung believes the ongoing health crisis can be a blessing in disguise and also a turning point for the country where the need for foreign employment has always been contested.
“Our civil society and even politicians always say that remittances are necessary. But the foreign employment business is always portrayed in a negative light,” said Gurung, who is also the ex-president of Nepal Association of Foreign Employment Agencies, an organisation of 760 recruiting agencies.
“If the labour migration stops for the next six months, we will have a clear picture of whether we need foreign employment at all or not,” he said.