NEPAL'S REMITTANCES GROW AMIDST DETERIORATING

UNCLAS SECTION 01 OF 02 KATHMANDU 000201

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON ELAB ETRD PGOV NP
SUBJECT: NEPAL'S REMITTANCES GROW AMIDST DETERIORATING
WORLD ECONOMY

Summary
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1. (SBU) Nepal's level of remittances grew 65.3 percent in
the July 15-January 15 period, defying numerous local press
reports that remittance growth would be severely affected by
the deteriorating world economy. Excluding India, record
numbers of Nepalis continue to leave the country and seek
employment primarily in Malaysia, Qatar, United Arab
Emirates, and Saudi Arabia. The Government of Nepal is
offering a partial worker permit reimbursement scheme in case
overseas Nepalis lose their jobs and are sent home and is
placing employment creation as a priority in its fiscal year
2010 budget process. Declining economic conditions in
Malaysia and Gulf countries will likely challenge Nepali
employment prospects in mid-late 2009.

Remittances Grow in 2009
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2. (U) While local press reports a dismal outlook for
Nepali overseas workers, remittances continue to flow back to
Nepal at record levels. Nepal Rastra Bank (NRB),Nepal's
central bank, reported in early March that worker remittances
to Nepal increased 65.3 percent in the first six months of
Fiscal Year (FY)09 (July 15-January 15) compared to FY08. In
2008, remittances to Nepal totaled $2.2 billion and 15.5
percent of GDP, according to the International Labour
Organization (ILO). The current depreciation of the Nepali
Rupee (NR) against the dollar increases the value in Nepali
terms of remittances from foreign workers in the Gulf. The
Qatari Riyal, United Arab Emirates (UAE) Dirham, and Saudi
Riyal are all pegged to the dollar; remittances sent back to
Nepal are worth increasingly more the more the rupee
depreciates. The Nepali Rupee continues to slide against the
U.S. dollar due to the weakening Indian Rupee (the Nepali
Rupee is pegged at NRs 1.6 to the Indian Rupee). From
mid-July through mid-January, the Nepali Rupee depreciated
11.9 percent compared to a 3.1 percent appreciation during
the same period a year earlier. NRB set a record low
exchange rate of NRs 82.8 to the dollar on March 4 (the July
15 exchange rate was NRs 68.5 to the dollar).

Nepalis Working Abroad: The Numbers
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3. (U) The Department of Foreign Employment on February 23
contradicted projections of fewer Nepalis leaving for work
when it reported an eight percent rise of laborers leaving
Nepal from mid-January to mid-February compared to the
previous month (18,715 against 17,300). The Ministry for
Labour and Transport Management reported that 239,637 Nepalis
left for overseas work in FY08 (656 per day average from July
16, 2007-July 15, 2008) compared to 199,191 in FY07 and
136,131 in FY06. Excluding India, 93 percent of Nepalis
leaving for overseas work travel to Qatar, Malaysia, Saudi
Arabia, and the United Arab Emirates (UAE),although the
Government of Nepal has negotiated permission to send workers
to 107 countries. Malaysia hosts the largest number of
Nepalis (approximately 400,000),but Qatar absorbed the most
Nepalis in FY08 (85,441) due to a favorable labor agreement
and construction boom. More than 1.3 million people traveled
abroad for jobs through registered manpower companies alone
by mid-January 2009, according to the Minister for Labour and
Transport Management Lekh Raj Bhatta. In addition to
documented workers leaving Nepal on work permits, an
estimated two million Nepalis work in India at any given
time; most are seasonal migrants who take advantage of the
lack of border and employment restrictions to find extra work
and reduce family income deficiencies.

Government of Nepal Reactions and Actions
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4. (U) To alleviate the impact of potential overseas job
cuts, the Government of Nepal announced in January that it

KATHMANDU 00000201 002 OF 002


will reimburse 40 percent of manpower fees (fees average
between $1,000-$3,000 per worker) if workers return within
six months and 25 percent of fees if workers return within a
year and carry certification from the Nepal consular office
or embassy abroad that the job loss was due to economic
conditions. However, the Foreign Employment Promotion Board
claimed that the relief fund would run out of money if the
number of workers returning to Nepal kept increasing. NRs
24.5 million (approximately $299,000 at the exchange rate of
NRs 82 to the dollar) has been set aside for the relief fund
in FY09, according to a January 29 Himalayan Times report.


5. (SBU) In a preliminary FY10 budget discussion on March
2, the Ministry of Finance announced it will address the
potential impacts of the global economic crisis by requiring
employment creation programs in every ministry. In the
current policy arena, government officials have been
providing press a variety of comments on how to prepare for
potential negative economic impacts. On February 11,
Minister for Labour and Transport Management Lekh Raj Bhatta
accused the Finance and Foreign Ministries of performing
below expectations in regards to the potential crisis and
singled out the Foreign Ministry in particular as not making
diplomatic efforts to enlarge job opportunities overseas.
Additionally, the local press reports that the government is
in labor discussions with new employment destinations
including Oman, Libya, Papua New Guinea, and Lebanon.

Global Economic Crisis: Predictions of Nepal's Remittances
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6. (U) The World Bank predicted in its November 2008
"Outlook for Remittance Flows: 2008-2010" that remittances
from South Asians in the Gulf could decline by nine percent
in dollar terms in 2009, compared to a 38 percent increase in
the previous year. World Bank Country Director Susan
Goldmark has encouraged donors to begin to consider
employment schemes anticipating a major return flow of
migrant labor. Oil-funded construction projects are being
shelved in Bahrain, Kuwait, Qatar, Saudi Arabia, and the UAE,
which employ roughly 11 million workers from Asia, according
to a variety of international press reports. According to
the local Nepali press, remittance contractions of up to 40
percent are pending, as well as fewer worker departures, and
an influx of workers returning home after losing jobs abroad.
Additionally, Manolo Abella, ILO's Chief Technical Advisor
on Labour Migration, issued a February report claiming worker
safety issues could be exasperated during the global
recessionary period. Abella stated that due to the large
investment required to secure an overseas work permit, many
laid-off foreigners residing overseas may attempt to stay in
the country to try and earn income to pay off their
investment and thus become illegal and vulnerable to abuse.

Comment
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7. (U) Local press in Nepal issue claims almost every day
forecasting impending worker returns and domestic economic
problems. Remittance growth reported in January 2009 in
Nepal and neighboring Bangladesh and Pakistan (with a
majority of its workers in Gulf States) strongly suggest the
"looming crisis" as repeatedly reported may not be as bad as
assumed for South Asian economies. Strong December/January
remittance data and growing worker departures place Nepal in
position to maintain remittance growth in the short term, but
long-term growth (beyond FY09) amidst a faltering global
economy will be dependent on the continued ability of Nepalis
to secure and take up jobs overseas. In the meantime, each
month this developing country experiences remittance growth
and more workers leave the country than come home is welcome
news. Remittances are driving consumer purchases and
construction projects, usually securing credit from poorly
regulated banks. A major downturn could lead to bank
failures.
POWELL