COVID-19 and Remittance Flows in Nepal: Potential Turning Point for Development

09.04.2020 | Articles | Posh Raj Pandey

The Nepali economy shows an atypical structural change over the past one and half decades – the movement of labor out of agriculture was not triggered by new jobs in industries or in high skilled professional services, but by foreign employment opportunities. The remittances sent by such migrant workers back home are estimated to constitute a quarter of the income of all households and almost two-thirds of the income for those receiving money from abroad. In addition, the remittances have contributed to reduction in poverty and human development by increasing household investment in education and health. At a macro level, remittances are a major stabilizer for the current account of balance of payments and foreign employment has acted as a safety-valve for the labor market by absorbing large share of new entrants into employment. The spread of Covid-19 has changed the scenario. Most of the destination countries for Nepali migrant workers have adopted non-pharmaceutical measures to contain the spread of virus such as lockdown and workplace closure which has significantly disrupted economic activities and hurt wellbeing and jobs. Furthermore, the covid-19 crisis has suppressed global demand for oil and resulted in collapse in the price of oil, key income sources of many destination countries of migrant workers. This has had a devastating economic impact both in the destination and source countries of migrant workers. This article assesses the potential impact of COVID-19 on remittance flows in Nepal.

Historically, foreign employment and remittances have played a defining role in the livelihoods of many people in Nepal. For migrant workers, both push and pull factors are in operation. Lack of adequate domestic employment opportunities and social and peer pressures are pushing uneducated and unemployed youths for overseas jobs. On the other hand, jobs with wage differentials and better amenities, social networks and opportunities for upward social mobility and family linkages are some of the pull factors, e.g., employment in the British or Indian army or in the Middle East or Malaysia. In addition, foreign employment has also been an instrument to diversify income sources and mitigate volatility of agriculture and other informal incomes of the household.

The Department of Foreign Employment (DOFE) of the Government of Nepal has issued approval for Nepali workers to migrate to 127 countries for employment in fiscal year 2019/20. However, it is difficult to assess the exact number of Nepalis working overseas, as different sources provide different numbers. The International Organization for Migration (IOM) estimates that 2.365 million Nepalis are working in foreign countries whereas the Foreign Employment Board provides the number as 1.487 million. The Nepal Labor Force Survey (NLFS) of 2017/18 provides that approximately 2.8 million Nepalis left Nepal for work during that year. The Nepal Association of Foreign Employment Agencies reckons that more than 2.6 million Nepalis are currently working in foreign countries. Even if we take the most conservative estimate, the stock of Nepali migrant workers overseas is at least 5% of the total population. It is difficult to keep records of migrant workers in India due to the open border between the two countries, and the aforementioned estimates exclude migrant workers in India.

Nonetheless, India remains the most popular destination for Nepali migrants, particularly for residents of western regions and border areas. Most of these migrants are engaged in the service sector. Although there is no official record of the number of Nepali migrant workers residing in India for employment, it is estimated that nearly 40% of the total Nepali emigrant population is in India. In recent years, there has been a significant increase in the number of migrant workers heading towards Gulf Cooperation Council Countries (GCC) and Malaysia. The data on the number of permits issued in 2019/20 shows that about 79% permits were issued to Nepali migrant workers to go to just four countries: Malaysia, Qatar, the United Arab Emirates (UAE) and Saudi Arabia (Figure 1). Such high concentration in a few destination countries indicates high vulnerability of Nepali migrant workers to socio-economic shocks as well as policy changes in these countries. From the gender perspective, labor migration from Nepal is predominantly male, with females constituting 9.5% of migrant workers in 2019/20.

The composition of skill categories of migrant workers shows that work related migration is dominated by unskilled or low skilled workers (59%) who mostly work in construction (21.1%), manufacturing (17.3%), hotel (9.3%) security services (7.0%) and as housemaids and cleaners (16.6%). A large proportion of women migrant workers are engaged in unskilled work such as housemaids and helpers. Country-wise composition of migrant workers shows that a large proportion of migrant workers in Saudi Arabia, UAE, Qatar and Kuwait work in construction whereas manufacturing and security services are the major occupations of Nepali migrant workers in Malaysia.