Against remittance

Banks charge excessive rates for transferring money, and most money-transfer companies
require minimum fees of 20 percent of the amount sent, even for small sums.
According to rights groups, many companies see migrants as something of a 'cash cow' in the
400-bilion-dollar remittances marke

Official studies show that several regions of Mali, for instance, depend almost entirely on
remittances, including funds from 'sans papiers', as undocumented migrants are called here.

2010/11. The recent remittance utilization pattern reflects that 78.9 percent of
total remittances are spent in daily consumption whereas 7.1 percent in repaying
loans, 4.5 percent in household property, 3.5 percent in education and 2.4
percent in capital formation. The result shows that mere increasing remittance
income does not support for the economic growth and development of the nation
unless it is extensively used into the productive sectors.

Generates dependencies among the recipients, encouraging continued

migration of the available labour force, reducing the likelihood of national or
foreign investment due to an unstable or untrustworthy workforce and
motivating greater inequity among rural communities.

Moreover, some emigrants may be educated or highly skilled causing what

commonly known as brain drain and this is not a good sign in the context of
economic development for developing countries because home country
invested time, efforts and money on their education. International migration
paralyzes home countries making them dependent on remittances. Reliance
on remittances distorts development and creates inequalities and disparities
among the people within the country.

Statistics for the last three years shows on average 250,000 people leaving
the country annually for foreign employment and the number is on rise.
Although foreign employment remains a major source of foreign currency for
the country, in the long-run it could fall in the remittance trap. It is another
challenge of engaging the youths in the nations development by creating

employment opportunity within the country itself (Economic Survey,

2010/11).

Nepal has been experiencing continuous growth in remittance inflow since

last few years and as a result its disposable income has continued to rise as
well. The countrys economy is gradually becoming consumption oriented
due to remittance income and other factors thereby causing hopeless plunge
in savings and investment rates.

Consumption to GDP that stood at 88.3 percent in FY 2000/01 has gone up to

93.3 percent by FY 2010/11. As a result, the rate of domestic savings has
come down to 6.7 percent from 11.7 percent during this period. Consumption
oriented economy naturally leads to dependency resulting in the dearth of
resource for investment. Hence, it is another challenge of creating the
foundation for economic growth through enhancement of saving and
investment levels by discouraging unnecessary consumption (Economic
Survey, 2010/11).

In a study conducted by IMF (2005) regarding the impact of remittances on

growth over an extended period (1970-2003) for 101 developing countries
found no statistical link between remittances and per capita output growth,
or between remittances and other variables such as education or investment
rates. However, this inconclusive result attributed to measurement difficulties
arising from the fact that remittances may behave countercyclical with
respect to growth.

However, the downside of remittances reflects the view that remaining young
generation for long time outside without family may increase their
vulnerability and ultimately they will have a tendency to leave their
homeland. Thus, in order to recover the loss of economically active labour
force to the domestic economy, they should be encouraged to come back
again

Double-edged sword

A 2011 World Bank report called this cushion the vicious policy cycle of large remittance
in Nepal, and warned that no country has ever succeeded in sustaining growth and job
creation on remittance alone

Yurendra Basnett, a research fellow at the London-based Overseas Development Institute

(ODI), said The current state of mass migrant out-flow is a reflection of the complete
collapse of Nepals economy.

While watchdogs such as Amnesty International and Human Rights Watch have
highlighted abhorrent working conditions there, other observers say the roots of
abuse lie at home in Nepal. The underbelly of the remittance success story is that
there are few people drawing lines between the horrible conditions these workers
can face in their destinations and the conditions at home, said Basnett

The money coming in from work being done outside the country has led to an
explosion in consumer demand - so much so that the domestic markets cannot
provide everything the buyers want. So we see imports increasing, said Sapkota.

Sapkota has warned of the potential onset of Dutch disease as a result of remittances in Nepal, a situation
where a substantial spike in revenue from a single industry can have adverse impacts on the rest of the economy

A lot of this money coming into the country is being earned outside the country, and
being spent on products that were manufactured outside the country - not really
contributing to Nepal, per se, much at all, he said.

Remittances have driven up tax revenue to the point where the government has
operated at a surplus despite lagging behind in the basic infrastructure
developments - such as roads and electricity - that would encourage investment in

Nepal in the first place, he said, pointing to increased tax revenues from imported
goods, which are purchased with remittance income

"Dependence on remittances and confidence that the in-flow will remain so high
means that if there is a shock in terms of decline in that money, the countrys
economy will have no way to cope," he explained, also pointing to productive labour
Nepal lost with so many people working abroad

But her husbands visits home soon became marked by stress and loneliness. Hes like a stranger
in our home, she said. Our children dont listen to him when he tries to discipline them. He
disappears with his friends as soon as he gets here after a year away. Obiedo now says the money
wasnt worth the separation. It ruined her marriage. She despairs that the Philippines remains
the worlds only country where divorce is outlawed

Daily life is unhurried. Its a city of retirees, teens and children. With so many parents away for
long stretches one 11-year-old girl said her seafaring father was gone for seven years at one
point children struggle. In February, two of my former students were arrested for drugs
and, I hate to say it, in both cases their parents are overseas, said Fatimah Mae Tito, a teacher at
Lady Fatima Montessori School.

The only way for a country and its people to prosper is by producing more goods and
services that can be consumed domestically and exported to finance imports. But by
systematically exporting its youth (for the most unskilled work) to finance imports and
favouring policies that divert remittance to non-productive sectors, Nepal is headed in a
wrong, and potentially irreversible, direction. If policies are not corrected urgently,
Nepal will soon be devoid of both youth and industrial production.

Through built-in dynamics, remittance expands the non-traded sector (education, health
and homestead, land, transport, banking) at the cost of the internationally-traded sector
(agriculture and industry). With remittance, consumption of both traded and non-traded
goods and services increases. The demand for traded goods is fulfilled by imports but
their prices, determined internationally, do not change. However, as the demand for
non-traded goods has to be fulfilled domestically, their prices rise, leading to higher
wages and the expansion of this sector. The traded sector can retain labour only by

raising its wages on par. Besides, the price rise of non-traded goods raises the production
cost of the traded sector. Hence, remittances make the traded sector less competitive and
divert resources towards the non-traded sector

It is pity that Nepals real export (inflation adjusted) in 2013 was only 80 percent of that
in 2001, whereas real imports doubled during this period. Exports from a year can
finance imports for only 45 days (for the remaining 10 and half months, they are
financed mainly by remittances)

For every rupee of remittance, the government raises 12 paisas through consumption tax
(not counting its direct tax contribution). By taking a free ride on remittance and not
correcting its negative effects, both fiscal and monetary policies have exacerbated the
human exodus and the hollowing-out process.

These sectors are land, homesteads, private schools, health services and transport. Besides being protected from
international competition, and intrinsically favoured by remittances, they also have the favour of other policies. First, as
investors in these sectors do not have to deal with government officials, labour groups and street gangs on a regular
basis, the incidence of bribery, strikes and other rent-seeking activities are lower compared to businesses (such as
restaurants, retail shops and industries). Second, effective tax rates in these sectors are lower. Third, these sectors are
devoid of any regulation, leaving investors to their own terms. With remittance, even more investments fly into these
sectors, expanding rent extraction at the cost of productive sectors and growth

Although remittance has pulled some families out of poverty, it has not done so in a
sustained manner. It is good only as long as workers remain employed in a foreign
country. Remittance has increased inequality. As prices of non-traded goods have risen
with remittance, those who are in foreign countries have to stay longer to purchase the
same service back home. The poorest of the poor, who cannot go to foreign countries,
have turned even more destitute as the cost of living has skyrocketed due to remittance

Nepal will turn into a mere consumption location for the children and elderly

In sum, migrants fulfill their economic role in society through

remittances, but they become acutely disconnected from their social
roles, creating a great degree of social tension in remittancedependent communities

the social welfare function of the state shrunk, and NGOs became increasingly responsible
for providing social services in rural Honduras. In addition, poor people were encouraged to
relocate to fast-growing urban centers to work in maquilas, and social expenditures were
reduced to control infla

Remittances may be a stop-gap solution for a weak Honduran

economy, but this does not mean that a "migration economy"
especially one that depends so heavily on dangerous, illicit channels of
migrationis sustainable in the long term. In the short term,
meanwhile, any significant decrease in remittance flows would shock
the economy.