Foreign Employment and Remittance in Nepal

A Seminar Paper

By

Praptika Poudel

Bachelor of Business Administration (BBA)

Second Semester

Macroeconomics for Business

Submitted To

Faculty of Management

Public Youth Campus

Tribhuvan University

November 2023
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Introduction

Background of the Study

Foreign employment, a well-established practice in Nepal for many decades, involves

individuals working in a country other than their country of origin due to limited job
opportunities at home. While this typically has a predominantly negative impact on the
home country, it also brings some positive effects, such as reducing unemployment and
receiving remittances from abroad, which can potentially create new employment
opportunities domestically. For Nepalese, foreign employment is not a recent
phenomenon; they have been seeking job opportunities and higher earnings in various
foreign lands for a long time. Many Nepalese workers go abroad due to the lack of
proper employment opportunities in their homeland, and the total number of Nepalese
nationals working overseas is estimated to be around half a million, excluding about one
million in India (ILO-DFID 2002). The formal entrance of Nepalese citizens into foreign
employment dates back to the early 19th century, marked by recruitment into the British
armed forces after the Nepal-British India war. Additionally, economic migration,
including working in tea states and forests, began in the latter half of the 19 th century.
The oil boom in the early 1970s stimulated economic migration to the Middle East, and
over the last 50 years, international labor migration, especially to Gulf States, Malaysia,
and other Southeast Asian countries, has become a significant aspect of Nepalese
migration. Surprisingly, foreign employment has reshaped Nepal’s economy, shifting it
from an agriculture-based to a remittance-based economy. It seems like the paper you
mentioned follows a typical structure for academic research. The five sections you
outlined—introduction, review of literature, materials and methods, results and
discussion, and conclusions—provide a comprehensive framework for examining the
current flow of remittance in Nepal and its impact on economic development. If you
have any specific questions or if there’s anything you’d like to discuss further about this
paper, feel free to let me know!

Limited job opportunities, poverty, deteriorating agricultural

productivity, political instability, and conflicts are common reasons behind the attraction
for foreign employment in Nepal and globally. In many Nepalese villages, foreign
employment has become a cultural norm, where individuals go overseas for work,
returning with necessary funds and the experience of living in a different geographical
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area. The influence of relatives, friends, and well-wishers plays a significant role in
encouraging and promoting foreign employment.

Remittance, defined as the transfer of cash or kind sent to or received by households over
the year, serves as a major source of foreign income for developing countries like Nepal.
Its significance has increased dramatically in recent decades, being periodically or
regularly transferred from international migrants to family members in their country of
origin. This financial flow represents one of the largest sources of income for developing
nations. In Nepal, foreign employment has become a significant source of foreign
exchange earnings, contributing to a positive balance of payment. International migrants
use formal channels related to the banking sector and money transfer operators, while
some resort to informal channels due to language barriers and lack of banking awareness.
Remittance income is utilized for various domestic purposes, including managing land
and building, children’s education, health, and entertainment. Additionally, it plays a role
in productive and commercial sectors, contributing to micro and macro-level businesses.
Furthermore, the migration of unskilled workers returning to their home countries brings
back practical and useful skills acquired abroad.

In recent times, there is a growing fascination and increased involvement of women in

foreign employment, although the majority of migrants are still male. In the international
labor market, opportunities for Nepalese women are expanding, particularly in care
industries and domestic work. The participation of women in foreign employment plays
a crucial role in poverty reduction and the enhancement of basic needs, including food,
essential goods, education, and healthcare.

However, as the number of Nepalese individuals attracted to foreign employment rises,

various issues are escalating. Instances of fraudulent activities and irregularities within
the country are on the rise. Additionally, there's a notable shift in the focus of manpower
agencies in the foreign employment sector, becoming more business-oriented than
demonstrating responsibility towards foreign employees. Furthermore, the government's
service structure and delivery system are proving ineffective in responding to public
demands.
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Significance Of Remittance

The provided information highlights the crucial role of remittances in developing

countries, serving as a lifeline for economic development. Remittance income enables
recipient households to enhance spending on essential goods and services, invest in
healthcare and education, and build both liquid and fixed assets. The household-to-
household nature of remittances, as emphasized by the World Bank, makes them a direct
and significant tool for accelerating poverty reduction.

In Nepal, where 75 percent of remittances are allocated for basic needs like food,
medical expenses, school fees, or housing, and the remaining 25 percent presents
opportunities for savings, investments, and income-generating activities. This dual
impact on immediate necessities and long-term financial stability underscores the
multifaceted significance of remittances.

Additionally, the recognition of the International Day of Family Remittances on June 16

serves to acknowledge the hard work and sacrifice of millions of migrants who
contribute to the well-being of their families and communities through the financial
support they provide. If you have specific questions or if there’s anything else you’d like
to explore on this topic, feel free to let me know!

Nepal, characterized by a high unemployment rate and an agricultural economy, relies

significantly on foreign remittances. The millions of Nepal’s working abroad contribute
to reducing poverty levels, maintaining high living standards, and bolstering the
country’s foreign exchange reserves while addressing balance of payments issues
(Khanal, 2022). This influx of remittance not only fosters financial activities for low-
income households but also plays a pivotal role in alleviating unemployment and curbing
social crimes that may arise from financial desperation (Khanal, 2022).

The growth in remittance can be attributed to factors such as high oil prices and
employment opportunities arising from construction projects related to the FIFA World
Cup 2022 in Qatar. To further incentivize remittance, the Nepalese government has
introduced a one percent additional interest on bank deposits based on remittance
(Khanal, 2022). According to the World Bank, Saudi Arabia alone employed over 20
percent of Nepali emigrants as of 2019.

Prakash Kumar Shrestha, the executive director of the Nepal Rastra Bank, views the
increase in remittance earnings as a positive indicator for the Nepalese economy. This
growth not only facilitates the mobilization of more financial resources but also
contributes to easing the liquidity crisis faced by banks (Khanal, 2022).
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Statement of the problem

The increasing population and a lack of domestic job opportunities coupled with rising
poverty are significant factors driving the appeal of foreign employment in Nepal. In this
era of globalization, achieving a better living standard is a primary aspiration for today's
youth, making foreign employment popular among Nepalese. Unemployment and
poverty, however, remain strong drivers behind the growing interest in seeking
opportunities abroad. Moreover, political instability in the country adds to the causes of
the surge in foreign employment.

Unemployment stands out as a major challenge in Nepal, leaving many with no

alternative but to explore job opportunities in foreign countries. This pervasive issue
continues to be a pressing problem for the nation. The report emphasizes the crucial role
of remittance in the Nepalese economy, ranking as the second-largest source of income
after agriculture and significantly contributing to the GDP. Despite its importance, the
majority of remittance is directed toward household needs, debt repayment, and land
acquisition, with only a small portion allocated to productive sectors like agriculture and
manufacturing. The report underscores the potential for economic development if
remittance is channeled more into productive sectors. Though foreign employment helps
to uplift the economic status of the country, it has created different types of problems.
There are several challenges and problems faced by the workers departing from foreign
countries and working there. On this basis, this report is designed to address the
following research questions related to Foreign employment and remittance in Nepal:

1. What is the current status and the trend of labor migration from Nepal?
2. What is the impact of remittance inflow on Nepalese economy?
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Objectives
The inflow of remittance and foreign employment has emerged as a significant
economic phenomenon in the Nepalese economy. The country's reliance on
remittance has grown substantially, with the inflow witnessing a continuous
increase.
Thus, this report tries to know about the trend of migrants and remittance inflows
and its impact on the economy. The specific objectives of the study are mentioned
below:
1. To know about the current status and the trend of labor migration from Nepal
2. To examine the impact of remittance inflow on Nepalese economy
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Methodology

The report, examining the current status and trend of Nepalese migrants and remittance
inflow in Nepal and their impact on the economy, adopts a research design reliant on
secondary data and information. The necessary secondary data were sourced from
various government publications, including the Economic Survey of Finance from the
Ministry of Finance and the Ministry of Labor and Employment. Additionally, data used
in the report were gathered from publications of Nepal Rastra Bank (NRB) and the
publications and website of the World Bank (WB).
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Description and analysis

Literature review

The World Bank (2018) highlighted that more than 247 million people, constituting 3.4
percent of the global population, live outside their countries of birth. The number of
international migrants increased from 175 million in 2000 to over 247 million in 2013,
reaching 251 million in 2015. In 2015, the leading countries in remittance receipts were
India, the Philippines, Mexico, and France. However, when considering the share of
GDP, smaller nations like Tajikistan (42 percent), Kyrgyzstan (30 percent), Nepal (29
percent), Tonga (28 percent), and Moldova (26 percent) emerge as the largest remittance
recipients. The study further revealed that high-income countries serve as the primary
sources of remittances, with the USA leading with an estimated $560.3 billion outflows
in 2014. Saudi Arabia ranks as the second-largest, followed by Russia, Switzerland,
Germany, UAE, and Kuwait. The six Gulf countries collectively accounted for $98
billion in outward remittance flows in 2014. Consequently, the World Bank focused on
the overall volume of remittances worldwide.

(Adhikari, 2021) discovered an insignificant relationship between remittance and health

development. The indication that remittance is not effectively reducing malnourishment
is attributed to the substantial investment of a large proportion of remittance in children’s
education and the socio-economic background of those who migrated. On the other hand,
(Srivastava & Chaudhary, 2007) argued that the most significant contribution of
remittance lies in funding the welfare and improved livelihood of receiving households,
addressing basic needs, enhancing health and education, and, to a smaller extent,
contributing to savings. The mere collection of remittances in banks and financial
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institutions, according to Srivastava and Chaudhary, should be channeled through proper

channels in different layers of the economy to achieve fair goals, poverty alleviation, and
the sustainable development of Nepal.

In a study conducted by IMF (2005) regarding the impact of remittances on growth over
an extended period (1970-2003) for 101 developing countries found no statistical link
between remittances and per capita output growth, or between remittances and other
variables such as education or investment rates. However, this inconclusive result
attributed to measurement difficulties arising from the fact that remittances may behave
countercyclical with respect to growth.

Pant (2006) explored remittance inflows to Nepal: Economic impact and policy options.
The remittances have been an important avenue of support for family members
remaining at home. As the number of workers going abroad for employment continues to
rise, the corresponding growth of remittances has become a critical flow of foreign
currency into Nepal. This has been partly the result of measures undertaken by the
concerned officials to streamline financial systems, dismantling controls and creating
incentives, with the aim of attracting remittances particularly through the official
channels. Economic growth, interest rate and exchange rate policies are crucial
determinants of remittance inflows. In order to further encourage the inflow of
remittances to the country through official channels, and to promote the tendency to
exchange these remittances of foreign exchange into local currency, it is imperative that
these policies be conducive to the inflow of remittances.

A nationwide migration survey in 2009 (World Bank, 2011) estimated that 41 percent of
migrant workers were in India, 38 percent in Gulf countries, 12 percent in Malaysia, and
8.7 percent in developed countries. Data from the Department of Foreign Employment
(DoFE) support this, indicating that from 1993/94 to 2011/12, Malaysia constituted 31.4
percent, the Gulf countries 65.3 percent, and other countries 3.3 percent (DoFE, 2015).
Most migrants took low-paying jobs, with over one-tenth in India working in agriculture,
62 percent in Malaysia, and around 27 percent in Gulf countries working in
manufacturing. Remittance inflows are determined by the number of migrant workers,
their earnings, and the sending rate; almost three-quarters sent remittances, with the
highest rate in Malaysia (78.8%), followed by India (73.3%) and others (71.1%).
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Remittance amounts varied by destination, with Gulf households receiving

Rs.163,000/year, Malaysia Rs.113,000, and India Rs.62,000 (World Bank, 2011). Nearly
half of remittances came from Gulf countries, although India was the largest single
source, its role declining over time (Sharma, 2013). At the household level, 56 percent
received remittances in 2010/11, with external remittances accounting for 81.4 percent, a
substantial increase from 1995/96 (55.3%) (CBS, 2011). The nominal average remittance
received per household was Rs.80,436, constituting about 31 percent of income (CBS,
2011). Households primarily used remittances for daily consumption (78.8%) and loan
repayments (7.1%), while 2.4 percent went to capital formation and 0.5 percent for
business purposes (Nepal Living Standard Survey III). Remittance recipients often
invested in land and housing, considered safe but non-productive assets. Remittance, an
outcome of foreign employment, showed a positive correlation between growth and the
quality and quantity of labor outflow, strengthening local and national economic
activities. In 2017, remittance was estimated at Rs.665.1 billion, contributing
significantly to foreign exchange, GDP, and foreign reserves. At the household level,
remittance facilitated consumption, investment in human and physical capital, and local
economic activity. According to the IMF (2006), remittance penetration into remote
villages helped alleviate poverty, and without it, the current poverty rate would be
higher. Gaudel (2006) emphasized remittance as a major source of foreign currency for
developing nations, contributing to current account surpluses. However, he raised
concerns about the downside, suggesting that the extended absence of the younger
generation could increase vulnerability, urging strategies to encourage their return with
skilled knowledge for national development.

Srivastava and Chaudhary (2007) explored the role of remittance in economic

development of Nepal. The analysis has been carried out with linear and log-linear
models under multiple regressions. The impact of remittance has been seen most
remarkable in the GDP and GNP both in nominal and real terms. In the nominal GDP
and GNP, the remittance shows 61 percent and 72 percent impact respectively while in
real term it shows 48 percent and 55 percent respectively. It has also shown positive
impact on the PCI but it is comparatively low (four percent in nominal and one percent
in real terms). The findings are positive except for labour force, but they are marginal
which show that remittance has not been used effectively so as to increase the real
growth rates of the economy.
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The literature study presents a debate on the impact of workers' remittances on economic
development and growth, with theoretical and empirical evidence supporting various
perspectives. Some researchers argue in favor of the positive impacts of remittances,
while others negate its outcomes. A minority view suggests no relation between the two.
However, a predominant portion of the literature supports the positive impact of workers'
remittances on the economic growth and development of developing countries.

Empirical review

Increase in the inflow of remittances to Nepal

Despite a smaller percentage increase (4.8%) in remittances during FY 2021/22,

compared to the 9.8% rise in FY 2020/21, the noteworthy fact is that the amount has
reached the range of trillions. This increase signals the gradual revival of Nepal's
migration sector, which faced a temporary halt during the peak of COVID-19.

Remittance inflows to Nepal surged from NPR 87.1 billion (USD 0.68 billion) to NPR
92.4 billion (USD 0.72 billion) from mid-May to mid-June 2022, indicating a 6.12%
increase from the previous month. The continued surge in the coming months holds the
potential to further revive the country's income. Figure 1 illustrates the annual trend of
remittance inflows to Nepal over the last four fiscal years.
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Figure 1: Annual remittance inflows to Nepal in four consecutive FYs (in NPR
billion)

Source: Current Macroeconomic and Financial Situation of Nepal (ending mid-July

2022)

Encouragingly, the last month’s data for the FY 2021/22 (ending mid-July 2022) reveals
a significant rise in the number of Nepali workers seeking approvals for foreign
employment, including both institutional and individual (new and legalized) workers.
The figures surged from 72,081 to 354,660, marking a substantial 392% increase from
the previous year. This surge is primarily attributed to the relaxation of lockdowns and
COVID-19 restrictions, creating a more favorable environment. Additionally, enhanced
employment opportunities with increased salaries in countries like Malaysia, Qatar,
India, and others have further fueled this positive trend. Similarly, the count of Nepali
workers seeking renewed entry approvals witnessed a remarkable 198.5% increase,
reaching 282,453 by mid-July 2022. This contrasts with a 46.8% decrease in the previous
corresponding period, as illustrated in Figure 2.
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Figure 2: Annual number of labor approvals in the last five FYs

Source: Department of Foreign Employment(ending mid-July 2022)

As per the annual data ending mid-July 2022, an increasing number of Nepali workers
sought labor approvals for Saudi Arabia, Qatar, and United Arab Emirates (UAE) among
many others. Table 1 shows the top 10 destination countries:
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Table 1: Top 10 labor destinations of Nepali migrant workers in the last three FYs
(institutional and individual – new and legalized)

S.N. Country 2019/20 2020/21 2021/22

1 Saudi Arabia 39279 23324 125374

2 Qatar 29835 22131 76822

3 UAE 52085 11611 53846

4 Malaysia 39167 106 25770

5 Kuwait 8974 2 22786

6 Bahrain 3305 3146 7592

7 Romania 1930 1954 6423

8 South Korea* 3542 16 4253

9 Oman 1996 1556 3627

10 Cyprus 1447 1003 3222

*Including EPSSource: Department of Foreign Employment

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However, India, which is unaccounted for in the official data, remains one of the largest
migration destinations for Nepalese living in the border regions of the neighboring
country.

FIGURE 3: Remittance inflows to GDP

In 2020, the remittance inflow to GDP in Nepal was reported at 24.25%, as per the
World Bank’s collection of development indicators, which is compiled from officially
recognized sources. The data on Nepal’s remittance inflows to GDP, including actual
values, historical data, forecasts, and projections, were obtained from the World Bank in
March 2023.
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Major findings

The primary goal of this report was to observe and understand the current status and
trend of foreign employment in Nepal, along with examining the inflow of remittance
and its contribution to the Nepalese economy. Additionally, the report aimed to provide
insights into the historical scenario of foreign employment and remittance in Nepal,
utilizing secondary data to showcase the composition of foreign employment and
remittance. The main destinations for Nepalese workers are the Gulf countries and
Malaysia, with 60% of total workers employed in the Gulf countries. Saudi Arabia,
Qatar, UAE, and Malaysia are the prominent destinations, with 125,374, 76,822, 53,846,
and 25,770 workers going to these countries in 2021/2022, respectively. The number of
workers going abroad for foreign employment increased by an astounding 4,830% in
2021/2022 compared to the previous fiscal year. During the first four months of the
current fiscal year, Nepal witnessed a remarkable 20.4% increase in remittance, reaching
Rs378.04 billion.
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Conclusion

The main goal of this report was to understand the current status and trend of foreign
employment in Nepal, observing the inflow of remittance and its contribution to the
Nepalese economy. Additionally, the report aimed to provide insights into the historical
scenario of foreign employment and remittance in Nepal, utilizing secondary data to
showcase the composition of foreign employment and remittance. The Gulf countries
and Malaysia are the primary destinations for Nepalese workers, with 60% of total
workers employed in the Gulf countries. Prominent destinations include Saudi Arabia,
Qatar, UAE, and Malaysia, with 125,374, 76,822, 53,846, and 25,770 workers going to
these countries in 2021/2022, respectively. The number of workers going abroad for
foreign employment saw an astounding increase of 4,830% in 2021/2022 compared to
the previous fiscal year. During the first four months of the current fiscal year, Nepal
witnessed a remarkable 20.4% increase in remittance, reaching Rs378.04 billion.
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REFERENCES

[1] Amjad, Rashid (ed.), (1989). To the Gulf and Back: Studies on the Economic Impact
of Asian Labour Migration. New Delhi: ILO/ARTEP.

[2] Banjara S., Karki S.,and Dumre A.(2020). Assessment of remittance and its impacts
on economic growth in Nepal. Archives of Agriculture and Environmental Sciences,
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[3] Bhattarai, R. (2007). International Migration, Multi-Local Livelihoods and human

security: Perspective from Europe, Asia and Africa, Institute of Social Studies.

[4] Dahal, P. (2014). The impact of remittances on economic growth in Nepal: an

analysis of a significant basis of Development htts://doi.org/
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[5] Dhungana, B.R. (2012). Remittance and Nepalese Economy. Retrieved from
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[6] Department of Foreign Affairs (DoFE). (2014). Labour Migration for Employment A
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Employment.

[7] Katuwal Chhetri, R, KC, Prabhat,Dhakal, S.C. (2020). Remittance and its Impact on
Nepalese Economy available at www.actascientific.com

[8] Ministry of Finance (MoF), (2007). Economic Survey, FY 2067/68, 2071/72,

2075/76. Kathmandu, Government of Nepal.
[9] Ministry of Labour, Employment and Social Security (MoLESS), (2015). Labour
Migration for Employment, A Status Report for Nepal: 2014/15.

Websites:

www.worldbank.org

www.undp.org