Answering questions raised by pressmen after a presentation of a report on ´Remittance in Nepal and South Asia´ on Sunday, head of IMF´s IV Consultation Team Laura Papi said that there is a need of some increment in lending rates in Nepal so that they are matched with the lending rates in India, with which Nepal maintains a fixed exchange rates. [break]
The presentation highlighted the contribution made by remittance to Nepal´s fragile economy but warned that it should be ready to face possible consequences that might appear if the remittance declines. It has helped economy to buoy, financed increased imports and built up healthy foreign exchange reserves, and fueled high credit growth. "However, going forward remittance growth is expected to slow down and the economy will need to adapt," the presentation stated.
It has also highlighted a number of possible effects that might surface in the economy if the remittance growth slows. Slow growth in remittance income can bring a direct impact on financial system, consumption and imports, warns the report and adds that slow tax revenue growth will be its indirect impact.
The report, however, painted a rosy picture on the growth prospects of remittance income and predicted that the overall remittance will cross $3.5 billion by fiscal year 2011/12. However, growth rate of remittance during the period might slow down to around 10 percent, said the report.
The report also reckoned that the volatility of remittance is higher than exports and aid but it is less than FDI. The report noted that the outflows of Nepali workers have declined to both Malaysia and Gulf countries in 2008/09. However, it found that outflows of Nepali workers to other countries have increased during the same period.
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