Remittance money has made land unaffordable in Thimphu for most Bhutanese

Is Bhutan turning into a Remittance Economy like Nepal as Remittance overtakes Tourism, FDI, CIT and BIT

15,602 registered Bhutanese living abroad and many more leaving but actual numbers could be double

PM and OL not in favour of Bhutan becoming dependent on remittances

Bhutan’s remittance from Bhutanese abroad in 2020 at Nu 8.269 billion (bn) was larger than the total tariff paying tourism foreign exchange earnings of USD 88.63 million (mn) in 2019 at Nu 6.648 bn (1 USD = Nu 75) which includes the USD 27.23 mn SDF, TDS and Visa fee revenue to the government. 

This remittance was also much larger than the USD 22.98 mn or Nu 1.723 bn FDI inflow into Bhutan in 2019.

The 2020 remittance was comparable to the Nu 8 bn profit that the government gets from the 720 MW Mangdechu project after deducting around 4 bn for loan repayment.

The 2020 remittance is more in amount than the combined Nu 8.111 bn Corporate Tax and Business Income Tax anticipated in the 2021-22 financial year.

In 2021 a similar or even higher remittance figure is expected given that there was Nu 5.139 bn in remittances until August 2021 with four more months to go.

Growing numbers of Bhutanese abroad

This high level of remittance has been enabled by thousands of Bhutanese leaving for foreign countries especially over the last one decade that has accelerated in recent years.

The Ministry of Foreign Affair’s latest September 2021 data of registered Bhutanese living abroad is 15,602, but these are only the registered numbers as the real numbers are estimated to be well above 20,000 or even close to double.

For example, there are only 5,089 registered Bhutanese in Australia, but Perth alone was around 7,000 Bhutanese as per the figures sent by Bhutanese from there. The MFA estimates around 12,000 Bhutanese are there in Australia.

Officially, there are only around 1,265 registered Bhutanese in USA but the actual numbers are expected to be around 3,000 to 4,000.

Similarly, there are are 3,268 Bhutanese in the Middle East but the actual numbers are expected to be higher.  There are 3,247 Bhutanese in India, 439 in Japan, 393 in Canada, 83 in Africa and others.

Bhutanese are found in a total of 88 countries and territories around the world.

PM not in favour of Bhutan becoming a remittance economy

Lyonchhen Dasho (Dr) Lotay Tshering said, “As much as it gives comfort to see that figure on remittance it took away a few nights of my sleep.”

He said Bhutan should not turn into a remittance economy as it leads to brain drain.

“Right now the amount (remittance) sounds good but our fertility rate is decreasing. Bhutanese on this planet are decreasing. You don’t want to have Bhutan without Bhutanese and we don’t want the very little Bhutanese working elsewhere,” said the PM.

“As much as it excites us the figure it actually saddens you for a small, beautiful and one of the rare countries on the planet to be depending on remittance,” he added.

The Prime Minister said that a significant portion of all our neighboring countries economy is on remittance.

Lyonchhen said people are given free education and health in the country but are working for somebody else outside. He said the remittance is nothing compared to given all this value chain and the productivity of that person.

So while the Prime Minister is clear on the fact that Bhutan should not become a remittance economy the question is on what can be done to prevent it.

“It is not difficult to speak out or answer on this (prevention) but it is very difficult to do it,” said Lyonchhen.

The PM said that until now the government or the system could not keep pace with their expectation, and so they could not get what they wanted and they went out, so there is nothing wrong with that.

Lyonchhen said people going out cannot be stopped but from another end there must be a force of attraction where they feel that are better off here in Bhutan.

“The person may feel it is okay that they may earn 10 dollars there and only earn 1 dollar in Bhutan but 1 dollar earned in Bhutan is more valuable. We must give them that much confidence and so here I would say education whereby education must start on the principal that I must earn in Bhutan as I am a son of the soil,” said the PM.

He said that alone cannot do it as we are all human beings and we have our wants and needs.

“Instead of a warm pant from Dhaka sale I would definitely want to have warm pants from a branded store,” said the PM.

“Let us be practical. We want a happy and rich country and we just don’t want a happy and poor country. I think it is very simple,” said the PM.

He said Bhutan must bring in 21st century technologies, identify the industries that are going to be viable or take more prominence in the next 20 or 30 years including in Bhutan.

“We must educate our students and children to run those technologies,” said the PM.

“At one point and time our land size is not increasing anymore and our population is decreasing and so with the less population we have have we must make them more productive. What 10 can do now must be done by one in the future,” he added.

The PM said Bhutan should have industries here and investments here and in fact Europeans should come and work from Bhutan and send remittance back on the lines of a global village.

“If we embark on that I think we need to be together in it and we need to take bold decisions,” said the PM.

“Let us not have a very simple living with high expectations which will never be achieved. We don’t want children in a classroom where there is hardly anything and teachers are still teaching on not even a blackboard, but a black painted wall. Those things are too pathetic. Go around the country, visit our schools and see how our children are being educated with such minimal facilities, and then we talk about globally competent students. It does not work,” said the PM.

He said the COVID situation is improving and those who want to go out can go, but from the other side Bhutan must create enough avenues for them to stay back.

OL warns of a remittance economy risk

The Opposition Leader Dorji Wangdi, like the Prime Minister, said the negative impact of remittance on the domestic economy has to be put in the overall context of the right of the people to work anywhere in the world -which cannot be stopped.

The OL said that while he acknowledges the the useful benefits of remittances to the domestic economy, it also ends up creating a false economy of economic growth without productivity.

The OL said that remittances create, a higher living standard for some people and it inflates the price of land, real estate and others things and this impacts the widening gap between the rich and the poor.

The OL said this is where economies have gone wrong with examples of countries like Philippines, Bangladesh, Sri Lanka, Nepal and others. He said in the Philippines there is a huge gap between the rich and the poor with those living on remittances having a very high standard of living while the poor are very poor.

The OL said like land prices are becoming unaffordable in Thimphu as remittance money buys it up, similarly in the capital city of Philippines, which is Manila, most of the real estate is owned by those who send remittance or foreign corporations.

The OL said that the government must design policies and programs that encourage people to stay in the country through enabling conditions like jobs, access to finance etc. He also said while the government must not stop people going out it must also not encourage people to go out.

Advantages of remittances

There are a host of advantages of remittances like poverty alleviation, improving human capital at home, investments, macro-economic stability, foreign exchange, balance of payments and employment abroad.

Many international scholars have noted that the flow remittances dramatically go up when the home country goes through some natural or manmade disasters, economic crisis and other other upheavals.

In the case of Bhutan, it is not a matter of coincidence that the record breaking remittance is being seen in 2020 (more than three previous years combined) and 2021 when the pandemic has brought the local economy to a standstill with people in the tourism sector and also other sectors being hit.

Johanssen N Kaijage in his Master Thesis for Maastricht University points this and other issues out.

The thesis quoting Omer from a 2002 work on Somalia says the worse the problems that confront the Somali people the more monies are remitted, the better the conditions for the Somali people the less money is remitted.

Johanssen says while there is academic debate on whether remittance leads to a general fall in poverty emerging evidence from some countries suggests that remittances have reduced the incidences of poverty, but their impact overall is small and its magnitude also depends on the methodology used for poverty measurement.

Adams and Page (2005) using data from 71 developing countries found that on average, a 10 percent increase in per capita official international remittances leads to a 3.5 percent decline in the share of people living in poverty.

The World Bank says remittances have helped reduce poverty in Nepal, contributing between one-third and one-half of overall poverty reduction between 1996 and 2004

In Kenya, like in Bhutan, remittances have exceeded FDI flows and are an increasing part of its GDP.

In Nepal remittances are not only the largest source of foreign exchange income, accounting for over 80% of of total foreign exchange earnings, but they are crucial in maintaining a positive current account balance and balance of payments and help offset the widening trade deficit.

In Bangladesh too remittances also have a positive impact on the balance of payments and helped offset deficits in the balance of trade in goods and services

In 2020 Bhutan had a trade deficit of Nu 28.598 bn so the remittance for that year helped offset 29% of the trade deficit.

A National Statistical Bureau (NSB) Labour Force survey in done from November to December 2020 found that unemployment in Bhutan was at 5% with around 16,660 people without work.

In the absence of job opportunities at home, it cannot be argued that going abroad is often the only option for Bhutanese.

Cox and Ureta (2003) looking at data for El Salvador found that remittances increased schooling and have a larger impact on reducing the chances of dropping out of school.

A study by Frank and Hammer (2002) of Mexican households, found that the risks of low weight infant was reduced for pregnant women living in households that receives remittances from abroad.

On investment, findings from the studies by Adams (1991) in Egypt and (1998) in Pakistan indicates that a larger share of earnings from international remittances is used for investment purposes.

In the case of Bhutan, remittance income is used to purchase land which is a form of investment while a lot of its is also kept in fixed deposits in the banks.

Negative Effects

However, while there are a lot of positives to remittance there are also a lot of negatives especially for a small country like Bhutan with a limited population.

Fankhouser (1992) using data on migrants from El Salvador in the 80s, finds that remittances have strong negative effects on labour force participation among males and females.

Similar evidence is provided by Zakaria et al. (2001) who show that labour participation rate in Kerala, India is higher for non-migrants’ households by 55 percent compared to migrant households at 31percent.

Raju Tuladhar, Chandan Sapkota, and Naveen Adhikari in the study titled ‘Effects of Migration and Remittance Income on Nepal’s Agriculture Yield’ found one additional migrant labor in the agriculture household is associated with a loss of about 163 kg per hectare of paddy. Ironically, Agriculture is one of the main two areas of the Nepal government to reduce poverty and graduate from a LDC status in 2022.

In terms of inflation, Gosh (2006) reviewed several studies and concluded that the increase in prices of land and construction costs in remittances receiving communities is quite common as found in Egypt, Greece, Pakistan, Yemen and several Caribbean countries.

Elbadawi and Rocha (1992) analyzed the flows of workers’ remittances in six labor exporting countries of North Africa and Europe and conclude that remittances have a significant effect on inflation.

On the issue of inequality Lipton (1980) says only the better off can afford to incur the costs of future benefits from migration and those left behind loose from this process.

The studies by Adams (1991) in rural Egypt and (1998) in rural Pakistan show that international remittances have a negative effect on income distribution.

In Pakistan, external remittances mainly go to upper income households because the poorer households cannot afford the high costs of entry to external migration.

However, McKenzie and Rapoport (2004) using data from Mexico found that migration increases assets and income inequality when new migration starts taking place and then as the number of migration increases the lower income groups also start to migrate which results to decrease in inequality in the community.

 Maruja M.B. Asis in her paper ‘The Philippines: Beyond Labor Migration, Toward Development and (Possibly) Return,’ says that in the case of Philippines the foray into organized international labor migration was supposed to be temporary, lasting only until the country recovered from its economic problems, but the push factors did not abate. Lack of sustained economic development, political instability, unabated population growth, persistent unemployment, and low wages continued to compel people to head abroad.

Limited employment opportunities also affect higher skilled Filipinos. A study assessing the country’s innovation found that the supply of STEM (science, technology, engineering, and mathematics) workers outpaces local demand, which leads to emigration and underemployment of skilled scientists and engineers. And their emigration results in brain drain, which deprives the country of human capital important for development.

While a remittance economy makes sense for hugely labour surplus countries like Bangladesh and Nepal with limited landmass, for a small country like Bhutan a comparison to another small country of EL Salvador of around 6 mn people may be more apt.

Here Catherine Elton in ‘Remittances: Latin America’s Faulty Lifeline,’ said in El Salvador, studies show that any- where from 10 to 40 percent of the population has emigrated,

According to some Salvadoran economists, remittances are not spurring growth and development because they are spent overwhelmingly on consumption. El Salvador’s level of private consumption as a percentage of GDP is the seventh highest in the world.

In a small and very open economy like that of El Salvador, however, remittances aren’t multiplying, some complain, because they leave the country as fast as they come in.

And when they don’t produce new jobs in the home country, remittances actually cause migration, as people try to keep up with remittance-receiving neighbors.

In El Salvador, remittances are also said to have distorted the labor market, increasing wages in relation to neighboring countries, even while they have declined in real terms. High wages in El Salvador make neighboring countries more attractive for investment.

Another major issue is that in many remittance dependent countries the pressure on the government to perform and carry out structural reforms is not there as the pressure is taken away by remittance resulting in almost a Dutch Diseases.

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