Impact of COVID-19 on Remittance-Poverty Dynamics in Nepal

This paper estimates the potential short-term economic impact of remittance shocks created by the COVID-19 on poverty dynamics of Nepal. The estimates are based on a number of scenarios: contractions in remittance flows by 5 to 40 percent depending on the severity of the crisis. It has explored the geo-spatial differences in the impact of such shocks and estimated the impact of shocks in domestic as well as international remittances. The results show that decline in remittances could increase the poverty rate measured at national poverty line by 0.87 to 2.65 percentage points under moderate shocks and by 3.62 to 7.53 percentage points under the pessimistic scenario. In case the lower quintile groups face larger shocks in remittances, poverty rate could increase by an additional 0.8 to 2.35 percentage points. Such vulnerability warns that remittance shocks could reverse the progress made in poverty reduction in the past decade. Translating poverty rate into numbers, remittance shocks could push 1.2 to 2.5 million Nepali below the poverty line if further measures are not taken. The results also show that shocks in international remittances are more influential in poverty reduction as such any decline in such remittances could raise poverty rate far higher than the shocks in domestic remittances. These results points towards the challenge created by COVID-19 in alleviating absolute poverty by 2030 and indicate towards the need for increasing social security for the vulnerable groups.