Sunday, March 7, 2010

Remittance likely to slow down

The visiting International Monetary Fund (IMF) team has suggested adaptations in the economy as remittance rate is going to slow down.
Though remittance has buoyed the Nepali economy and reduced poverty, led to high credit growth, financed high imports while boosting forex reserves and played a major overall role in the economy, the current slowdown may give the government an opportunity to think about fixing the structural impediments, according to IMF's study on 'Remittance in Nepal and South Asia'.
The remittance inflow has seen a dramatic rise during the past couple of years. However, it has started slowing down since the begining of the current fiscal year. "Gross outflow of workers has helped remittance inflow to surge dramatically," said the report.
But the crisis in host countries like Malaysia and the Gulf -- where there is a major concentration of Nepali migrant workers -- has pulled down the number of migrant workers' outflow hitting remittance that has become an intregal part of Nepali economy.
"The remittance growth will continue but at a slower pace of around 10 per cent," said the study. "The slowdown of remittance will have an impact on the economy and it might also hit the financial system as it is more dependent on remittance."

Yet, it could be an opportunity to fix the domestic economic problems. "It may help focus minds on economy," said Laura Papi, IMF's Asia-Pacific region deputy director.
The drop in remittance growth will certainly have impact on consumption, imports and the financial system, according to the IMF study. "It will also have an indirect impact like drop in tax revenue due to low import," it said.
But, the drop in remittance inflow has helped push long overdue interest rates up, according to Papi -- the team leader of IMF Article IV Consultation team that is in Nepal since last week as part of its regular visits.
The successive IMF Article IV Consultation team has been suggesting the interest rates be raised to match the rates in India. However, financial institutions have never lent them an ear. They have started offering high interest rates in recent months due to liquidity crunch, partly fuelled by the drop in remittance.


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