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Foreign Employment and its Impact on the Nepali Economy

Foreign Employment and its Impact on the Nepali Economy. NRN Conference October 7 th , 2005 Radhesh Pant Nepal Bankers’ Association. Foreign Employment plays a dominant role in global economy.

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Foreign Employment and its Impact on the Nepali Economy

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  1. Foreign Employment and its Impact on the Nepali Economy NRN Conference October 7th, 2005 Radhesh Pant Nepal Bankers’ Association

  2. Foreign Employment plays a dominant role in global economy • The remittance to developing countries have reached over USD 126 billion in 2004,up by nearly 50 percent received in 2001. Accounts for 150% of aid flows • It has an impact on socio-economic conditions of both the labor receiving and labor sending countries.

  3. Remittance has positive impact in domestic economy • Micro Implication • Remittances are used for basic subsistence needs such as food, clothing and health care • Funds are also spent on building or improving housing, buying land and cattle, and buying durable consumer goods • It also funds development projects • Macro Implication • Provides foreign currency to national reserve • Increase national income, finance imports and contribute to balance of payments • Other Implications • Transfer of technology, knowledge, entrepreneurship, business links. An average 10% increase in the share of remittance in a country’s GDP could allow for 1.6% reduction in the no. of people living on less than US$ 1 per day

  4. Remittance growth has been significant in South Asia • In India alone remittances aggregated USD 23 billion in 2004 much ahead of other developing countries such as China, Brazil and Mexico. • The Governments of Bangladesh ,India, Pakistan and Srilanka have introduced legal frame work to facilitate the flow of remittance. • South Asian countries have encouraged exports in most countries and in investment in home countries • South Asian countries have also provided welfare officer/attache’ at receiving countries to protect and promote the interest of migrant workers.

  5. Historical trends of migration in Nepal • There has been constant mobility of people across boundaries since 1768 • More formal and temporary migration began after Sugauli Treaty • First and Second World War created demand for young Nepali soldiers • In recent times Nepalis are engaged in occupation other than armed forces. • 85 % are working as labor • 13% armed forces and 2 % are involved in other services.

  6. In FY 2004/05, Nepalese migrants to Malaysia comprised 46% of total By 2001/02 total migrants going abroad were 242,004. This no. increased more than 2.5 times to 608,525 by 2004/2005

  7. The economic impact of remittance has been considerable and noteworthy for Nepal Total Remittance Share of Exports In total FX Receipts Share of Remittance In total FX Receipts NRs Bil. % It has surpassed contribution of exports to GDP

  8. Currently, it is estimated that about 60% of the remitted money to Nepal enters through formal channels • Formal Channels • Financial Institutions, Money exchanges • Informal Channels • Hundi, Hawala • Self Carry, Friends and family • Courier etc. • In kind • Choices are usually made based upon: • Socio-economic characteristics • Differential interest rates, exchange rates, commissions • Level and type of economic activity involved • Efficiency of banking system compared to informal channels • Status of migrant workers in the host country ( Legal/illegal)

  9. Current policies of HMG and NRB is encouraging but more needs to be done • Beginning March 29, 2002, NRB has granted 26 firms in remittance transfer business year to date • Loan up to Rs. 100,000 for foreign employment has been categorized as deprived sector loan • Manpower agencies are being permitted to open fx accounts in local banks • Bank guarantees can be availed from commercial banks • Government has opened 107 countries for foreign employment

  10. The Way Forward • Promote favorable legal & regulatory environment • Formalize cooperation through bilateral and multilateral • Foster channelizing remittances through financial institutions (bancarization) • Expand Financial Services • Promote agreements between financial institutions of Nepal and host countries

  11. The Way Forward • Protect Consumer Rights • Promote Financial Innovation • Promote Credit and Savings Institutions • Improve Statistics

  12. Nepal Bankers’ Association (NBA) • The association was established in Nov 1986 with eight member banks. • Existing members are: Commercial Banks - 17 Development Banks - 5 Foreign Banks Reps - 2 Total - 24 Major objective: To develop and promote efficient, strong and creative banking sector in Nepal based on the most recent and modern principles & practices.

  13. Thank You!

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