Remittance inflow hits record high, Continues to guide Nepal’s economy

KATHMANDU – Nepal’s economy has solidified its status as a remittance-dependent nation, with new data revealing a staggering upward trajectory in money sent home by migrant workers.

As domestic industries struggle to gain traction, remittance inflows have not only become the primary stabilizing force for the country’s macroeconomy but are now fundamentally guiding its direction, painting a complex picture of reliance and resilience.

According to recent fiscal data, Nepal is projected to record an unprecedented remittance inflow of NPR 1,723.27 arab (NPR 1.72 trillion) for the fiscal year 2024/25.

This figure represents a massive surge and underscores the critical role migrant labor plays in keeping the Himalayan nation’s economy afloat.

A review of data over the past eight years shows a relentless upward trend. In the fiscal year 2017/18, remittance stood at NPR 755.06 arab. By 2020/21, despite global economic uncertainties, it climbed to NPR 961.05 arab.

The watershed moment arrived in the fiscal year 2021/22, when inflows crossed the crucial one-trillion mark, hitting NPR 1,007.31 arab.

Since then, the growth has accelerated. The inflow jumped to NPR 1,220.56 arab in 2022/23 and further to NPR 1,445.32 arab in 2023/24.

The leap to the current projected figure of over NPR 1.7 trillion indicates that the reliance on foreign employment is intensifying rather than plateauing.

Economists argue that Nepal’s economy is now effectively “guided” by remittance. This massive injection of liquidity is the primary driver of household consumption across the country.

From paying school fees and constructing homes to financing daily necessities, the money sent from the Gulf, Malaysia, South Korea, and Western nations is the lifeblood of millions of Nepali families.

More critically at a macroeconomic level, remittance is the only factor buoying Nepal’s foreign exchange reserves. With a massive trade deficit due to heavy reliance on imports for everything from petroleum products to food grains and machinery, export earnings are negligible in comparison.

Without the steady stream of hard currency provided by remittance, Nepal would face severe balance of payments crises, similar to those seen in neighboring South Asian nations.

The robust reserves, currently maintained by these inflows, provide the central bank with the necessary cushion to manage import financing and maintain currency stability.

However, this record-breaking growth highlights a structural weakness. The economy’s guidance by remittance indicates a stagnation in domestic job creation.

The exodus of the country’s most able-bodied workforce—often referred to as “muscle drain”—has left domestic sectors like agriculture and manufacturing facing labor shortages, further deepening the reliance on imports funded by the very people who left.

Experts warn of the “Dutch Disease” effect, where high remittance inflows make the domestic currency stronger relative to non-remittance dependent sectors, making agricultural and industrial exports less competitive.

There is a growing consensus that while remittance provides a crucial safety net, an economy steered almost entirely by external labor markets is vulnerable to global shocks, geopolitical tensions in host countries, and fluctuating oil prices.

As the data clearly shows, while the short-term financial health of the nation is being secured by its citizens abroad, the long-term challenge for Nepal remains translating this financial cushion into sustainable domestic economic foundations.