Experts recommend that incentives be provided to remittance senders to encourage them to use banks.

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In order to encourage Nepali migrant workers to send remittances back home through proper channels, a senior central bank official has estimated that the government may need to set aside as much as Rs30 billion.

 

 

Since the beginning of the current fiscal year, remittance inflows have declined precipitously, prompting concerned parties to urge incentives to provided to migrant workers who send money home to utilize legitimate banking systems.

Remittances are the country’s most important source of foreign exchange, and officials believe that substantial sums of money are being diverted through informal channels, primarily through the use of cash incentives.

The Governor of the Nepal Rastra Bank, Maha Prasad Adhikari, stated that the central bank had received information from several stakeholders that migrant workers were being offered incentives of up to Rs3 per dollar in order to attract them away from their jobs in the country.

Inflows of remittances to Nepal decreased by 7.5 percent in the first four months of the current fiscal year, to the Nepal Rastra Bank, reaching Rs312.42 billion. According to the central bank, a decline in the inflow of remittances, along with an increase in imports, has resulted in a significant depletion of foreign exchange reserves.

Gov. Adhikari said that the government and Nepal Rastra Bank may need to set aside between Rs27 billion and Rs30 billion compensation alone in the last fiscal year 2020-21, to the IME Migration and Remit Summit 2021, which was organized by the Kantipur Media Group. “Given that the country received remittances totaling more than Rs900 billion in the last fiscal year 2020-21,” Governor Adhikari said.

to a World Bank research, when confronted with the same situation, the governments of Bangladesh and Pakistan enacted remittance tax incentives in 2019 and 2020, respectively.

Adhikari inquired whether a move to incentivize the inflow of remittances through formal channels would be sustainable and whether it would be successful in redirecting remittance inflows to formal channels after the central bank stated that it was investigating the potential of doing so. “In addition to specific incentives, it is possible that administrative measures will be required,” he stated.

It is believed that remittances are being used to unlawfully import gold, to the central bank and government officials. The government has been taking gold that has been brought into the country as jewelry and weighs more than 50 grams in recent weeks.

Compared to other regions, South Asia has the lowest cost of sending remittances back home, to a recent World Bank analysis. 4.6 percent on average in South Asia, as compared to the global average of 6.4 percent, according to the World Bank.

One of the Sustainable Development Goals aims to get this cost down to 3% of GDP by the year 2030. However, money is being sent through informal means such as hundi.

When it comes to remittances, Chandra Dhakal, senior vice-president of the Federation of Nepalese Chambers of Commerce and Industry, emphasized that the government and central bank must incentivize the Nepali diaspora to send money through formal channels because the inflow of money has been slowing recently.

The president explained that in the past, remittances were increasing year after year and that no consideration was given to offering incentives; but, the situation has changed now.

He emphasized the importance of sending talented workers to the destination nations in order to increase remittances, in addition to boosting money transfers through legitimate channels.

Remittances are significant the Nepali economy, not only in terms of foreign exchange reserves, but also because they provide a source of income for many people in the country.

to a World Bank report entitled “Migration and Development Brief,” which was published in November, Nepal received remittances equivalent to approximately 25 percent of the country’s gross domestic product (GDP) in the fiscal year 2020-21, making it the highest recipient in South Asia at the time.

Additionally, the panelists emphasized the importance of channeling remittances through the formal channel as well as investing the money that comes into the country in income-generating enterprises and infrastructure development.

In order to mobilize remittances towards the development endeavor, the government has implemented programs such as foreign employment bonds and remit hydroelectricity. These ideas, on the other hand, have generated little interest.

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