Remittances have been an important part of Nepal's economic and social development for more than two decades. Over time, their size, impact, and structural importance have also changed significantly.

Nepalis have a history of migrating abroad in search of opportunities for generations . Nepali migration in particular is believed to have begun with recruitment into the Gurkha army in the 19th century . Seasonal labor migration to India gained prominence in the 20th century . 

Initially, local and temporary migration has transformed into large-scale international labor migration since the early 2000s . Since then, remittances have also been a strong foundation of Nepal's economy . This has not only led to the economic progress of millions of households, but it is also making a positive contribution to the multidimensional sector of the country's economy .

As other sources of foreign exchange such as exports, tourism, foreign investment, and foreign aid/grants have not improved as expected, remittances have filled all these . Foreign exchange reserves have been continuously setting new records for the last three years, while the balance of payments and current account surplus are in a very strong position. Thus, remittances have now become a guide to national development.

The ratio of remittances to Nepal's gross domestic product (GDP) is about one-fourth. The continuous increase in remittances in recent months also shows that the importance of remittances will increase further in the coming days. In the first 6 months of the current fiscal year, remittances worth Rs. 1062 billion have entered the country. Remittances have increased by 39.1 percent this year compared to the same period last year. This shows the contribution and increasing structural importance of remittances in Nepal's economy. There are these and other innumerable benefits of remittances.

However, the main question now is how to manage remittances sustainably. The global labor market is constantly changing. Geopolitical fluctuations are increasing, and the nature of migration is also changing with the development of technology. Therefore, whether remittances can continue to be sustainable as they are today in the changing nature of the world economy and demographic structure is a burning question today.

Remittances have a significant contribution to poverty alleviation and increasing the income of citizens in Nepal. However, it is viewed as consumption-oriented income. The challenge of how to use remittances in productive sectors for the long-term development of the country remains . Remittances have a significant contribution to poverty alleviation and increasing the income of citizens in Nepal. Remittance inflows have not only increased the country's foreign exchange reserves, but have also played an important role in the economic, social and cultural upliftment of the common citizen. However, remittances are often viewed narrowly as consumption-oriented income. The challenge remains of how to use remittances in the productive sector for the long-term development and prosperity of the country.

The beginning of modern migration

The first decade of the 2000s is considered the beginning of the modern migration era in Nepal . With the political change of the 1990s, the country adopted a policy of open market economy and liberalization . This facilitated the access of the common citizen to many sectors . The government started issuing passports to the general public and even opened some countries for foreign employment .

During this time, due to the armed conflict within the country, political instability, lack of expected growth in the industrial sector, and the lack of sufficient employment opportunities within the country, Nepali youth were forced to go abroad for employment . At that time, infrastructure was being developed rapidly, especially in the Gulf countries and Malaysia . The rapid development of infrastructure created a huge demand for labor in those countries . That situation became an opportunity for Nepalis looking for employment, and thousands of Nepali workers began to go abroad every day .

During this period, migration was mainly driven by necessity. Many workers began to move to low-skilled jobs such as construction, manufacturing, security services, and domestic labor, which were considered risky. On the one hand, they had no access to banking, and on the other hand, they had low financial literacy. Due to this, they were forced to send remittances through informal channels.

However, despite the many problems faced by workers going for foreign employment, remittances brought about a great change in Nepal, especially in rural areas. It increased household consumption and expanded access to children's education. Citizens' ability to spend on health increased. The construction of old thatched houses with tin roofs and pucca houses accelerated. Many villages dependent on subsistence agriculture began to transform into a cash-based economy due to remittances.

Then the government also started making policies to facilitate foreign employment. Gradually, the legal framework for foreign employment was strengthened. Manpower companies were given licenses. Insurance for those going for foreign employment was started. Gradually, it was made mandatory. These and other measures formalized immigration. However, many challenges still remain. The contribution of remittances to reducing poverty in the country and increasing the income of citizens remained very important. However, since they could not create investment opportunities in the productive sector, the remittances they sent began to promote a consumption-oriented culture.

Between 2010 and 2020, remittances established themselves as a strong sector in the Nepalese economy. Due to the continuously increasing remittances, they made a positive contribution to foreign exchange reserves, balance of payments, and current account surplus. Remittances also made a major contribution to the development and expansion of sectors including retail trade, construction, banking, and education and health in the domestic market.

By this time, immigration management had improved significantly. New laws, bilateral labor agreements, and regulatory oversight increased the safety and dignity of workers who went for foreign employment. Immigration was made legal, safe, transparent, and institutionalized. Remittances through formal channels increased. The remittance system gradually became stronger. In 2000, especially after the IME Group started remittance services from Malaysia, this remittance system gradually became institutionalized. Later, banks and financial institutions also started remittance services, and the number of remittance companies also increased. Digital payment platforms were gradually established. There was a significant improvement in the development and expansion of the financial sector. Families receiving remittances also started opening bank accounts. Insurance and digital payment services began to be connected. Along with the Gulf and Malaysia, destination countries also increased. Nepali workers also reached South Korea, Japan, Australia and some European countries.

Along with labor migration, education-based migration also increased rapidly. Many young people started leaving in search of higher and quality education. They also started working along with their studies. This contributed further and positively to the remittance inflow. The increasing remittances did not only have a positive impact. It also encouraged some negative aspects in society. The increasing remittances increased consumption. Its direct impact was to slow down domestic industrialization. As investment in luxury goods including real estate and cars increased, industry and other productive sectors were overshadowed. Thus, the migration of youth led to a situation of intellectual exodus (brain drain). Which is the main concern today.

The COVID-19 pandemic that started in Wuhan, China, and spread across the world in late 2019 also affected remittance inflows. In the first few months, the growth rate of remittance inflows was negative. The lockdowns created due to COVID reduced employment worldwide. Nepali workers were also affected. Many workers temporarily returned home. But this situation improved faster than expected. Global economies began to recover. Employment opportunities began to increase again in the global labor market. After COVID, the demand for labor increased, especially in the services, logistics, health, and information technology sectors. This gradually led to a continuous increase in remittance inflows.

On the positive side of the COVID-19 pandemic, digital payment systems took a big leap during this time. At this time, work was also done to digitize remittance services. Remittance service providers reached many countries and started providing workers with the facility to send remittances electronically. On the one hand, this reduced the cost of remittances, while due to the simple, accessible, fast and reliable services of remittance companies, the number of remittances sent through informal channels also decreased.

Nepali workers living abroad and those going for foreign employment also started focusing on earning good income in the long term by learning skills rather than short-term income. As a result, they started transforming from unskilled and low-skilled to skilled labor force. Nepali women started going for foreign employment. Especially, sectors including health, hospitality and domestic care were seen as good and safe work areas for women.

Social impact and challenges

Remittances have brought significant benefits to society, including poverty reduction, improvement in living standards, and expansion of access to education and health. However, remittances have also brought some social deviations. Family fragmentation, psychosocial impact on children, labor shortage in the agricultural sector, and economic disparity between immigrant and non-immigrant families are also seen to be caused by remittances. The biggest concern is the over-reliance on remittances.

Not only households and society receiving remittances, but also the state's dependence on remittances is increasing. The dependence on remittances has increased as other sources of foreign exchange, such as commodity exports, tourism, foreign investment assistance/grants, have not improved as expected. This situation is not in the long-term interest of the country. Because the risk of a recession in the global economy and labor market, changes in immigration policy, or technological development reducing labor demand remains high. Therefore, the country needs to gradually reduce its dependence on remittances.

Use in productive sectors

There is no alternative to diverting remittances from consumption to productive sectors to minimize the potential risks in the global market and labor market. For this, the state can introduce investment instruments such as remittance bonds (diaspora bonds). The capital collected from this can be invested in hydropower, large infrastructure, highways, digital infrastructure, and urban development. Some African countries, including India, have successfully invested in productive sectors by collecting capital through bonds. Along with this, local municipalities in Nepal can also collect capital from those who have gone for foreign employment by issuing bonds.

At a time when our villages are rapidly urbanizing, the capital collected through bonds can be used for drinking water, waste management, transportation, housing projects, infrastructure construction, etc. Remittances can also be invested in the capital market to support the country's economic development. For this, NRNA should create an environment for investing in the stock market, and remittances can also be used in productive sectors by issuing other long-term savings instruments.

Technology and the changing labor market

In recent years, transparency has been increasing with digital payment systems, blockchain, and artificial intelligence (AI)-based tools. This is reducing production and transaction costs. However, with the rapid development of AI, there is also a risk of reducing the demand for low-skilled labor. To reduce such risks, Nepal should now increase investment in skill development, technical training, and digital literacy of its workforce.

The world's economic power is rapidly expanding to the Asian region. The economies of East Asian countries including India, China, and Korea have grown rapidly. Therefore, the demand for our labor force in these markets will continue to increase. Especially in countries with large aging populations such as Japan and South Korea, the demand for healthcare workers, elderly and child care, and technical personnel in the service (technical) sector is increasing. नेपाललगायत श्रम निर्यात गर्ने देशहरूबीच पनि प्रतिस्पर्धा बढेको छ । यस्तो अवस्थामा नेपालले सीपयुक्त, दक्ष र प्राविधिक जनशक्ति उत्पादनमार्फत विश्व श्रम बजारमा आफ्नो दरिलो उपस्थिति जनाउनुपर्छ ।