According to the findings of a latest report prepared by the South Asia Watch on Trade, Economics and Environment (SAW- TEE), a think-tank, higher inflow of remittance has not helped Nepalis save much, as people have cut down working hours, hitting labor supply and revenue of non-farm enterprises.
The report, which dissected data of the Nepal Living Standards Survey 2010-11, has found that Nepalis, who receive money from family members working abroad, work 2.4 hours less per week on an average.
“When the basics are not gotten right, analysis becomes wonky and the resulting policy misguided. We can then only pray for Lord Pashupatinath to come to the rescue. It is fashionable among the commentariat, the intelligentsia and the political class to sigh in despair over how little of the remittances sent home by Nepalis toiling abroad is saved. If you ask them how they know that remittance receivers do not save much, they are likely to point to either media reports or the survey such reports cite—the Third Nepal Living Standards Survey (NLSS)of 2010/11,” SAW-TEE said in its report.
The report further states that the belief that the savings rate is low is rooted in a widely cited figure regarding the uses to which remittances are put. It comes straight off the summary report of NLSS (Table 15.7, Volume II). The numbers in the report seem to tell us that 78.9 percent of remittances are used for consumption, 7.1 percent for repayment of loan, 3.5 percent for education and 4.5 percent for household property (though it is not clear what this actually entails), with only 2.4 spent on capital formation, 0.6 percent saved and 0.5 percent invested in business.
“A closer scrutiny of the underlying questionnaire that generated these numbers reveals that the survey provides information on the primary uses of remittances, not what portion of remittances actually went to different uses. Indeed, the survey’s summary report mentions “primary uses” when presenting the distribution of remittances, an aspect that is often ignored when quoting it, even by economists.”
According to the report, the key takeaway is that the savings rate is not as low as it appears at first blush. Much of the savings are in the financial system, which can channelize them into sustainable employment-generating economic activities or into real estate, construction of apartments and personal vehicles.
Even the bulk of remittances going into consumption would not be as bad as it is made out to be—over and above the fact that they have lifted living standards—if it could be vigorously met by domestic production, with the associated employment generation, instead of by imports.