Half of Nepal’s remittances at risk as Gulf War escalates, Threatening foreign exchange stability

KATHMANDU: Nepal’s remittance-driven economy faces a growing risk as escalating conflict in the Middle East threatens employment opportunities for Nepali migrant workers in the Gulf region—currently the largest source of the country’s foreign earnings.

Officials at the Nepal Rastra Bank (NRB) say that roughly 40–41 percent of Nepal’s total remittance inflow originates from Middle Eastern countries, while industry insiders estimate the share could be close to 50 percent, making the country highly vulnerable to prolonged geopolitical tensions in the region.

The warning comes as hostilities intensify following joint military strikes by the United States and Israel against Iran, and retaliatory attacks by Tehran targeting military installations and diplomatic facilities across the Gulf. The conflict has heightened security concerns in countries where millions of migrant workers—including a large Nepali population—are employed.

Remittance Backbone Under Threat

According to NRB spokesperson Guru Prasad Paudel, Nepal receives nearly Rs 200 billion (around $1.5 billion) in remittances every month, making it the backbone of the country’s external sector.

In mid-fiscal year data for FY 2025/26, remittance inflow reached Rs 1.92 trillion in the month of Poush alone, while cumulative remittance inflow stood at Rs 10.62 trillion during the period under review.

Of that total, approximately 40 percent originates from the Middle East, primarily from countries such as:

• Saudi Arabia – around 11–12% share
• Qatar – about 11–12% share
• United Arab Emirates – roughly 7–8% share
• Kuwait – about 4–5% share

“These countries remain Nepal’s largest labor destinations and a major source of foreign currency,” Paudel said, noting that although labor migration is gradually diversifying toward Asia and Europe, the Gulf still dominates Nepal’s remittance economy.

Over 1.7 Million Nepalis Working in the Gulf

Government statistics show that more than 1.7 million Nepali migrant workers are officially employed in Gulf nations:

• 915,000 in the United Arab Emirates
• 385,000 in Saudi Arabia
• 358,000 in Qatar
• 175,000 in Kuwait
• 28,000 in Bahrain
• 30,000 in Iraq
• 17,000 in Cyprus
• 25,000 in Oman

However, industry estimates suggest the real figure could exceed two million, including undocumented workers.

Chandra Tandon, former president of the Nepal Money Transfer Association, said the Gulf alone contributes about half of Nepal’s remittance inflow.

“At present, remittances are still arriving regularly,” Tandon said. “But if the war drags on, new labor migration could stop and many Nepalis already working there may return home. That would immediately impact remittance inflow.”

Conflict Already Affecting Nepali Workers

The conflict has already begun affecting Nepali nationals in the region. Reports confirm that one Nepali worker was killed in an attack in the United Arab Emirates, highlighting the rising risks facing migrant workers.

Authorities in several Gulf states have also issued advisories urging residents to remain indoors as security concerns intensify across the region.

Experts warn that if the conflict spreads or persists, labor recruitment from Nepal to the Gulf could be halted, while workers currently stationed there may be forced to return home.

Such a scenario could cut remittance inflows by nearly half, a severe shock for Nepal’s economy.

Impact on Nepal’s Economy

Remittances play a critical role in stabilizing Nepal’s external sector, supporting:

• Foreign exchange reserves
• Balance of payments surplus
• Import financing
• Household consumption and poverty reduction

Paudel emphasized that the recent improvement in Nepal’s external sector indicators is largely driven by remittance inflows.

“These inflows have helped strengthen foreign exchange reserves, reduce the trade deficit, and maintain a comfortable balance of payments position,” he said.

Nepal’s economy remains heavily dependent on imports and remittances, with domestic production and exports still relatively weak. A sharp decline in remittance inflow could therefore disrupt multiple sectors.

Foreign Exchange Buffer—but Not Permanent

Former NRB Executive Director Nar Bahadur Thapa said the immediate economic shock may remain limited because Nepal’s foreign exchange reserves are currently sufficient to cover about 18 months of imports of goods and services.

However, he warned that the suspension of labor migration could gradually reduce inflows.

“Every day thousands of workers used to leave Nepal for foreign employment. That flow has now slowed significantly,” Thapa said. “A worker who goes abroad usually starts sending money within a month. If new migration stops, remittance growth will weaken.”

He added that structural changes in migration patterns—particularly increasing migration to Europe, Japan, and South Korea—may somewhat cushion the long-term impact.

Countries such as Japan, South Korea, and several European destinations have recently seen a rise in Nepali migrant workers.

Labor Market Shock Possible

Industry experts warn that if millions of Nepali workers return from the Gulf simultaneously, Nepal’s domestic labor market would struggle to absorb them.

“Our labor market simply cannot accommodate that many returning workers,” Tandon said.

He also stressed that the crisis is not only an economic issue but primarily a human security concern for Nepali citizens working abroad.

“The immediate priority should be ensuring the safety of Nepali workers in the region,” he said.

Regional Pressure Could Limit Escalation

Despite the risks, analysts believe the conflict may face strong international pressure to de-escalate due to the massive migrant workforce in the Gulf.

The region hosts millions of workers from South Asia, including citizens of India, Pakistan, and Bangladesh, alongside Nepalis.

If instability continues, it could disrupt not only remittance-dependent economies like Nepal but also global labor markets and energy supply chains.

For Nepal, however, the stakes are particularly high: remittances account for nearly one-quarter of the country’s GDP, making the nation among the world’s most remittance-dependent economies.

Economists say the unfolding Middle East crisis has once again exposed a structural vulnerability in Nepal’s economic model—heavy reliance on migrant labor and foreign remittances to sustain growth and macroeconomic stability.