The Paradox of Prosperity: How Remittances Sustain Nepal while Masking Structural Crises

Remittance inflows increased exponentially over the last decade, nearly tripling from Rs 617.28 billion in 2014/15 to Rs 1,723.27 billion in 2024/25, driven by a surge of migrating Nepali youth seeking job opportunities in the Middle East and Malaysia. 

One in every three households in Nepal now receives remittances. Nepal’s Foreign Ministry reports that around 1.73 million Nepalis are working in Israel, Malaysia, and GCC countries, specifically Saudi Arabia, the UAE, Qatar, Kuwait, Oman and Bahrain while a large number also work in India as seasonal and full-time labourers.

Meanwhile, the outflow of Nepali students has gradually shot past 100,000 annually, exacerbating the country’s talent drain. This means Nepal’s demographic dividend is not being utilised for domestic development. Consequently, experts suggest that Nepal must rethink both its migration policies and how it utilises remittance funds.

Currently, remittance inflows are equivalent to 28% of the Gross Domestic Product (GDP), placing Nepal second only to Tajikistan as a major remittance recipient relative to GDP. The fundamental drivers behind this youth outmigration are a lack of decent domestic job creation, prolonged political instability and rising insecurity, including natural hazards, violence, anarchy and future unpredictability. Finally, a survey tracking the same households between the National Living Standard Surveys (NLSS) of 2010/11 and 2022/23 shows a substantive increase in both the number of remittance-receiving households and their overall income. (See Table 1)

The new government, formed after the Gen Z movement with a popular mandate is also seen facilitating outmigration. This comes despite the Rastriya Swatantra Party (RSP) underlining a commitment in its manifesto to create 1.2 million decent jobs within five years in formal sectors like IT, construction, tourism, agriculture, mining, industry and service trade. Decent jobs are primarily defined as positions within the formal sector. However, this ambitious announcement to end the compulsion of outmigration for job opportunities has lagged in implementation, with the shortcomings largely being considered a matter of ‘political vendetta’. 

Impact of Remittances on Social Development and Poverty Reduction 

Remittances have contributed heavily to Nepal’s staggering progress in social development indicators, its miraculous achievements in poverty alleviation, and its stable macroeconomic indicators and greater resilience. 

According to the World Bank’s Nepal Country Economic Memorandum, “In 1995, an estimated 55% of Nepalis lived in extreme poverty, defined by the $2.15 per day threshold. By 2023, this figure had plummeted by an astounding 54.8 percentage points, with just 0.37% of the population living below this line.” The report adds, “This large-scale outmigration led to a substantial increase in remittances and the number of households receiving them. By 2023, remittances accounted for around a quarter of Nepal’s GDP, playing a crucial role in sustaining the economy and lifting many out of poverty.”

Nepal’s social development progress, including poverty alleviation, remains outstanding despite its laggard economic growth. Although Nepal originally targeted halving poverty by 2015 at the conclusion of the Millennium Development Goals (MDGs), it achieved an even more exceptional result in poverty reduction, largely driven by remittances.

Since the 1990s, development debates have focused tightly on Human Development, a concept introduced by Nobel Laureate Amartya Sen and former United Nations Development Programme (UNDP) economist Mahbub ul Haq, which measures development based on income, literacy, life expectancy and gender disparity. In this regard, remittances have directly supported Nepal’s human development, as illustrated by its rising social development indicators. Ultimately, increased remittance inflows have helped minimise poverty and inequality to a large extent, shaping a more equitable society. (See Table 2)

While it is true that voluntary migration occurs in every part of the world, forced migration, on the flip side, brings immense plight, suffering and high social costs.  
Surging Inflow and Challenge of Channelling Remittances into Capital Formation 

Remittances represent the hard-earned money of Nepali migrant workers and those living abroad. Inflow has surged exponentially in recent months, climbing by 33% in US dollar terms.

According to Nepal Rastra Bank, remittance inflows stood at Rs 257.49 billion during mid-April to mid-May this year. 

Combined with a slowdown in imports and consumption, these high remittance inflows are actively contributing to the expansion of foreign currency reserves. In the first 10 months of FY 2025/26, foreign exchange reserves increased by 24% to $24.19 billion by mid-May 2026, which is sufficient to cover merchandise and service imports for 19.2 months, according to Nepal

Rastra Bank.

Because remittances are received directly by beneficiaries, family members decide whether to utilise or save this hard-earned money. Within this spectrum, the government can make remittance senders more aware of domestic investment opportunities, as well as financial and bond market products for long-term investment.

Due to a lack of investment policies geared toward capital formation, remittance-fuelled imports and consumption yielded a positive outcome for economic growth for several years prior to the pandemic. Thus, the Nepal government has not been able to generate the long-term benefits required to permanently uplift livelihoods. There have been multiple programmes designed to support remittance-receiving families in embracing entrepreneurship. However, there is still a lack of substantive achievements. Initially, Nepal Rastra Bank offered Foreign Employment Bonds specifically for migrant workers but a lack of awareness, low accessibility and limited saving capacity ultimately deterred investments in these bonds.

There has been a distinct lack of effort to design effective investment instruments. One mechanism introduced previously by the Hydropower Investment and Development Company Ltd was ‘remit hydro’, which issued Initial Public Offerings (IPOs) specifically to migrant workers. Studies show that for the first two to three years, households primarily use remittances to pay off loans, build concrete houses or replace roofing, educate their children and maintain marginal savings. However, they must be made aware of how to fetch better returns through small investments in bonds, IPOs, or other financial products, or by embracing entrepreneurship in potential areas of comparative advantage to sustain their income.

Delving into new investment avenues, Rajib Upadhya, in his book ‘Cabals and Cartels’ (2020), underlined key challenges associated with the use of remittances, which have manifested locally as the ‘Resource Curse’ and ‘Dutch Disease’. He writes, “Many forward-looking countries have successfully addressed the problem of the so-called ‘Resource Curse’ and the ‘Dutch Disease’ by managing sovereign funds that invest today’s revenue windfalls to finance tomorrow’s needs. Yet, it might seem counterintuitive for a ‘poor’ country like Nepal to set up a ‘wealth’ fund.”

He suggested, “Better still, our government might impose some self-discipline on itself through a statutory mandate to invest a good part of its consumption-induced import revenues into such a fund. Given the volumes that would be involved, such a fund seeded by remittances could quickly attain scale.

Policy Complacency and Missed Opportunity to Mobilise Banked Funds 

Policy makers appear entirely complacent when it comes to formulating policies that cater to investment requirements and ensure long-term benefits for migrant workers and their families. Instead, policymakers have simply enjoyed the economic autopilot cycle sustained by increasing remittance inflows. Because these inflows have consistently provided macroeconomic and external sector stability, widely considered the primary tasks of policymakers and government leadership, there has been no perceived urgency to develop out-of-the-box policies. Consequently, other key requirements for a growing economy have been widely ignored.

Critics often term this remittance reliance a ‘Resource Curse’, as these funds are fleeing the country to finance consumption and heavy imports of foreign goods, gradually distorting the domestic production base. Rather than utilising these resources to boost production and create added value, Nepal has channelled them into consumption for a long time, driven by complacent policymakers and highly insular beneficiaries.

However, alongside plummeting consumption in recent years, savings within banks and financial institutions have increased, with reports indicating that BFIs can now readily finance around Rs 1,200 billion. While policymakers are currently brainstorming this issue, they still lack concrete ideas on how to utilise the massive funds parked in the banking system.