The flow of money sent by Nepalis working abroad tapered off by four percent in the first two months of the current fiscal year even as the number of people leaving the country for employment purpose and salary of those recruited abroad continued to increase.

Remittance income in between mid-July to mid-September of this year stood at Rs 84.48 billion, as against Rs 88.03 billion in the same period of last fiscal, shows the latest Macroeconomic Report of Nepal Rastra Bank (NRB). This is the first time in years that the remittance income had dropped.

One of the reasons for the fall is the strengthening of Nepali currency vis-à-vis US dollar over the last one year. A year ago, each dollar, on average, was fetching Rs 96.61 in August and Rs 103.85 in September. This August, each dollar, on average, was traded at Rs 97.31, while in September the average exchange rate stood at Rs 97.24. But many say the strength of around 6.5 per cent gained by the currency in the last one year should not be used as the sole reason to justify the fall in remittance income.

Had this been the case, remittance income in dollar terms should have remained stable or gone up. But NRB report shows 1.1 per cent drop in remittance income in dollar terms in the two-month period to $871.0 million. This has prompted NRB to suspect rise in the practice of using illegal channels to send money home from abroad.

“Our initial survey shows no decline in remittance income of households. This means the flow of remittance to the country has not tapered off. It’s only that greater number of overseas workers is now using informal channels to send money home,” Chief of the Research Department at NRB Min Bahadur Shrestha told The Himalayan Times. NRB reached this conclusion because the number of Nepalis leaving the country for employment purpose has not declined and neither has their salaries.

Although there is no data on increment in salary and allowances of Nepalis working abroad, data of last fiscal show 16 per cent rise in the number of people who accepted placements in overseas companies. NRB is continuing its investigation into what encouraged many Nepalis working abroad to use informal channels to send money home.

The latest drop in remittance income has caused the country to post current account and balance of payments (BoP) deficit after more than a year. Nepal posted a current account deficit of Rs 9.98 billion and a BoP deficit of Rs 10.49 billion in the first two months of the current fiscal year.

Current account is the sum of difference between exports and imports of goods and services, net income from abroad and net current transfers. Current account surplus indicates that the country has the ability to finance its imports through its own income. Similarly, BoP gives a picture of the entire financial transaction made by the country with the rest of the world. A positive BoP indicates that the money flowing into the country from abroad is higher than the outflow, thus, implying that the nation can finance its own imports and make payments to overseas parties without relying on loans.

The country was continuously posting current account and BoP surplus from the fifth month (mid-November to mid-December) of fiscal 2012-13. That trend received a jolt in the second month of this fiscal also because of drop in exports and income from foreign tourists.

The country’s exports of merchandise goods fell by 4.8 per cent to Rs 14.28 billion in the first two months of the current fiscal, show NRB data. At the same time, imports of merchandise goods surged by 20.9 per cent to Rs 126.36 billion. Because of this discrepancy in exports and imports, trade deficit widened by 25.2 per cent to Rs 111.93 billion in the two-month period of this fiscal. While the trade deficit widened, the income from foreign tourists also dipped, exerting pressure on current account and subsequently on BoP.

The country’s tourism income fell by 14.6 per cent to Rs 5.59 billion in the first two months of this fiscal. “This is also because of greater demand for dollar in the informal sector. Because of this, the money spent by tourists did not flow into the formal sector,” Shrestha said.

While income from foreign tourists fell, expenditure made by Nepalis travelling abroad went up by a whopping 36.9 per cent to Rs 9.58 billion, putting more pressure on current account and BoP

Published on: 28 October 2014 | The Himalayan Times