Wednesday, 28 February, 2024

Revamping National Economy

Uttam Maharjan

Nepal’s economy is based, inter alia, on remittances sent home by migrant Nepali workers working in various destination countries. For lack of job opportunities in the country, people, especially youths, are compelled to go abroad for employment. Youths are considered the most energetic force. They have vast potential for development. But the exodus of youths should be taken as a compulsion rather than anything else.
Remittances are a main source of income in Nepal that has contributed to mitigating poverty. Those going abroad for employment are usually from rural areas. The remittances sent back home from abroad are used for repayment of loans, construction or repairs of houses, celebration of social events or household support. As per the data released by the Central Bureau of Statistics, the country’s final consumption expenditure was Rs. 3.98 trillion last fiscal year, which was 93.38 per cent of the gross domestic product.

Plummeting remittances
It is a matter of concern that remittances are plummeting in recent months. As per the data published by Nepal Rastra Bank, the country received Rs. 312.42 billion in the first four months of this fiscal year (2021/22), which was lower than during the corresponding period of last fiscal year by 7.5 per cent. The corresponding period of last fiscal year witnessed an increase of 11.2 per cent. In the very first month of the current fiscal year, remittances decreased by 18.1 per cent to Rs. 75.96 billion. In the first month of last fiscal year, remittances soared by 23 per cent. There were record-high remittances last fiscal year, when the country received remittances to the tune of Rs. 961.05 billion. The trend of going abroad for employment started in the country over two decades ago.

The COVID-19 pandemic has affected Nepali migrant workers. However, they have not lost interest in going abroad for employment. In the four months of the current fiscal year, as many as 96,382 people obtained labour permits. In the corresponding period of last year, the number of people obtaining labour permits decreased by 95.7 per cent. Likewise, the number of people renewing labour permits shot up to 59,723, an increase of 249.1 per cent over the corresponding period of last year. During the corresponding period of last year, such a figure decreased by 78.9 per cent.
There is, however, a ray of hope that remittances may rise in the months ahead as more and more people are trying to go abroad for employment with the re-opening of destination countries. However, the COVID-19 pandemic has not come to an end. The emergence of one new variant after the other has aggravated the situation.

On the trade front, it is a matter of disappointment that the country had a trade deficit of Rs. 568.17 billion in the first four months of the current fiscal year, which represented an increase of 56.8 per cent vis-à-vis the corresponding period of last fiscal year. During the period, imports were to the tune of Rs. 650.29 billion against exports of Rs. 82.12 billion. Banks and financial institutions had to face a liquidity crunch during the period as they could not meet the surging demands for loans. There is still a shortage of loanable funds in banks and financial institutions.

In the balance of payments (BOP) sector, Nepal is experiencing a BOP deficit. In the first four months of the current fiscal year, the BOP deficit amounted to Rs. 150.38 billion vis-à-vis a surplus of Rs. 110 billion during the corresponding period of last fiscal year. The BOP scenario is influenced by imports and export to a large extent. In the country, imports always preponderate over exports, resulting in a trade deficit. Foreign currency reserves are also dwindling in the country. At the end of Kartik, the forex reserves were to the tune of Rs. 1,244.85 billion as against Rs. 1,399.02 at the end of Asadh. In the first four months of the current fiscal year, forex reserved decreased by Rs. 154.17 billion. The available forex reserves were enough for the procurement of goods and services for 7.2 months.

Falling remittances, a trade deficit, a BOP deficit and plunging forex reserves do not bode well for the economy. Finance experts have expressed concern over the situation. If the existing forex reserves are not enough to pay for imports of goods and services, loans will have to be taken from the International Monetary Fund. It is natural for development projects to be financed with loans. But financing imports of goods and services with loans is not good. In 2041 BS, the then government took loans from the International Monetary Fund owing to a shortfall in forex reserves.

Liquidity crisis
To improve the situation, remittances have to be increased. It is, however, expected that with more and more people going abroad for employment, the remittance sector will be improved in the coming months. However, certain measures should be taken. Imports should be tightened. Only essential goods should be imported. At the same time, exports should be prioritised. Import substitution should also be emphasised.

On the other hand, the condition of capital expenditure is dreary. There is no use keeping budgeted amounts in state coffers. The release of such amounts will help banks and financial institutions cope with the liquidity crisis to a great extent. There is a tendency to spend money on development projects after six or seven months, which is not a healthy trend. This trend should be reversed. Funds should be injected into development projects from the first month of a fiscal year itself. Till now, around 6.5 per cent of the capital budget has been spent. The Finance Minister has recently directed all the ministries to spend up to 30 per cent of the capital budget allotted to them by the end of Poush. It is high time the government initiated reforms so as to improve the economy.

(Maharjan has been regularly writing on contemporary issues for this daily since 2000.