In Nepal’s remittance-dependent economy, why the social media ban ended up having an outsized impact

These were also a channel for routing some of the remittance money, a big source of Nepal’s national income. The collapse of the domestic economy, the bristling anger over corruption, unemployment, and the fact that a lot of Nepalese politicians had become really rich and their children were posting snapshots of their lavish lives on social media – all these reasons could have played a part. Young activists were picking these pictures and sharing them on social media, which led to these apps becoming even more relevant for young Nepalese. And finally, a rumour that the two largest parties are getting together to form a grand coalition because leaders of both the parties were under investigation for corruption by the previous government, stoked the simmering unrest. This also played out on social media. The ban was read as a signal to brush these under the carpet, triggering an uproar.

Nepal’s overseas workers, the remittance cycle

Nepal has over eight per cent of its population living and working overseas and the remittances that they send back to that country amounts to over 33 per cent of Nepal’s Gross Domestic Product, the fourth highest in the world after Tonga, Tajikistan and Lebanon. To that extent, apps such as Facebook and WhatsApp were vital for families to keep in touch with their relatives abroad. And the reason why they were working abroad was because of dwindling opportunities back home, all of which contributed to stoking unrest. The social media ban was akin to rubbing the proverbial salt in festering wounds.

With a population of over 30 million, Nepal was anyway undergoing a significant demographic shift, with young individuals aged 16–25 years constituting over 20 per cent of the total population, while those between 16–40 years accounting for over 40 per cent. According to Aashiyana Adhikari, a Research Officer at the Centre for South Asian Studies in Kathmandu, the shift in the demographic profile, while highlighting Nepal’s “youth bulge” or “population dividend”, also comes at a time when there was a marked increase in the number of young Nepalese workers migrating abroad in search of better educational and employment opportunities, especially over the last decade. This trend has a dual economic impact: while it significantly boosts the GDP through remittances sent home, it simultaneously resulted in brain drain in most upcoming sectors. “This drain, in turn, potentially undermines the full realisation of the benefits that the demographic dividend could otherwise offer Nepal,” according to Adhikari. In many rural areas of Nepal, for instance, remittances had led to a noticeable decline in engagement with agriculture, with young, able-bodied individuals preferring to migrate abroad rather than engage in farming, leaving many agricultural fields fallow. This resulted in a decline in local food production and an increased reliance on imported goods. The influx of remittance money also created an environment where those remaining in Nepal were less inclined to seek employment or engage actively in the economy, choosing instead to rely on foreign remittance for their everyday living, making the problem more cyclical.

According to World Bank estimates, there has been a “broad-based and deep reduction” in poverty levels as evidenced by the poverty headcount ratio measured at US$ 6.85 per day, which fell from 90 per cent in 1995 to below 50 per cent in 2023. Despite this achievement, the sobering reality is that Nepal’s economy has struggled to keep pace regionally and globally and has not generated enough quality jobs in the non-agricultural sector, it said. Between 1996-2023, the economy grew at an average real annual rate of 4.2 per cent, respectable given the challenges of domestic conflict and multiple external shocks, according to the Bank. However, this rate lagged that of peer countries. Within South Asia, Nepal’s growth rate ranked just sixth out of eight countries. The key factor behind the poverty reduction and resilience in the wake of shocks has been migration and the inflow of remittances, which was becoming increasingly important for the economy.

Economic stagnation, structural problems

Meanwhile, overall labour productivity remained low, with weak competition in logistics and transport, as well as subpar infrastructure and limited exports, which had not contributed to real economic growth over the past decades. Appreciating real exchange rates and domestic trade policies, including high tariffs and excise taxes, further constrained exports. The manufacturing sector has been in steady decline from an already low base, while the tourism sector, a key growth and job opportunity, remained underdeveloped. The development of hydropower has progressed slowly, restricting its potential to shape the economy and facilitate stronger growth.

According to a study on ‘The Role of Remittances in Household Spending in Rural Nepal’ led by Resham Thapa-Parajuli of the Central Department of Economics, Tribhuvan University that employed ‘two-stage least squares’ regression – a statistical technique that is used in the analysis of structural equations – to analyse the impact of foreign remittances on total household consumption expenditures in rural Nepal, showed that foreign remittances “significantly and positively affect total household consumption”. It found that the presence of elderly members tended “to reduce total consumption, potentially due to their lower consumption needs or their contributions to household income”.

Bhubanesh Pant, former Deputy Director, Research Department, Nepal Rastra Bank, in a paper said that despite the lack of accurate data on the real volume of funds transferred, there was ample evidence that remittance flows were substantial, stable relative to other forms of development finance, and well-targeted to vulnerable families, both as “support during a crisis” and as “an income-smoothing mechanism”.

“As the number of workers going abroad for employment continues to rise, the corresponding growth of remittances has become a critical flow of foreign currency into Nepal. This has been partly the result of measures undertaken by the concerned officials to streamline financial systems, dismantling controls and creating incentives, with the aim of attracting remittances particularly through the official channels, Pant noted.

In order to further encourage the inflow of remittances to the country through official channels, and to promote the tendency to exchange these remittances of foreign exchange into local currency, Pant said it was imperative that government policies “be conducive to the inflow of remittances”. The social media ban ended up sending exactly the opposite signal, and ended up precipitating the crisis.