Iran-Israel Tensions: Remittance Flows Show Resilience Despite Middle East Turmoil, Officials Say

Kathmandu. The Middle East (West Asia) is tense due to the military standoff between Iran and Israel. These countries, which are the main destinations for more than 1.7 million Nepali workers, are currently in a state of conflict.

As the conflict escalates in countries like the UAE, Qatar, Saudi Arabia, and Kuwait, many business establishments there are operating cautiously. Some have implemented 'work from home' policies. Those where this is not feasible and the risk is high have suspended their business activities.

It was feared that this situation would severely impact Nepal's remittance inflows. However, stakeholders suggest that even three weeks after the conflict began in the last week of February, there has not been a major impact on Nepal's external sector.

Ritesh Mittal, Chairman of the Nepal Remitters' Association, states that only a minor impact has been observed on remittance inflows so far. According to him, this impact is purely structural and technical. He notes that the decrease in inflows is due to the inability to send remittances, rather than a reduction in income.

'So far, a slight impact on remittances has been seen due to structural reasons,' says Chairman Mittal, 'Workers who do not know how to send remittances online and must physically visit exchange houses to avail the service are currently unable to send money. This shows an impact of about 10 to 12 percent on remittance inflows.'

Daily financial indicators show a positive status for remittances. Looking at the data up to the end of Falgun, the country's total reserves have shown an improvement of NPR 119 billion over a one-month period.

According to Mittal, since less than a month has passed since the conflict began, it is too early to see a decline in remittances due to reduced income or work stoppages. He adds that while some workers might be postponing sending money due to the psychological impact of the war, no major deviation has been observed in the overall flow.

However, Mittal warns that if the conflict drags on for a long time, it could reduce incomes, which could significantly affect remittances. He points out that since most Nepalis go to the region as unskilled laborers whose high earnings depend on overtime, work stoppages could lead to reduced income, and there is a risk that the contracts of outsourced workers may not be renewed.

Central Bank Data Shows External Sector Still Strong

Nepal Rastra Bank (NRB) is yet to publish the official remittance details. Remittance companies have until Chaitra 15 to submit data up to the end of Falgun. The central bank publishes monthly statistics incorporating this data.

Daily financial indicators show a positive status for remittances. Looking at the data up to the end of Falgun, the country's total reserves have shown an improvement of NPR 119 billion over a one-month period.

Of this, changes in the value of foreign assets contributed NPR 45 billion. The remaining NPR 74 billion is seen to be due to fluctuations in the current and capital accounts. Last month, in Magh, such reserve improvement was only NPR 58 billion.

Officials associated with the Economic Research Department at the central bank suggest that since remittances form the strongest component of Nepal's foreign exchange reserves, this situation implies that remittances have not been significantly affected.

Stakeholders say that due to the Iran-Israel tension, those countries are only conducting business activities cautiously. If this tension escalates further into a regional war and the oil economies of the Gulf nations slow down, Nepal could be affected.

'The main indicators affecting reserves are remittances, imports/exports, tourist spending, and foreign direct investment. Among these, remittances hold the largest share,' the official says, 'Looking at the Falgun data, reserves have actually increased. This means remittances have not taken a major hit.'

Guru Poudel, Spokesperson for the NRB, states that preliminary information received from banks and financial institutions indicates that remittance flow remains continuous. However, he notes that the definitive data is yet to arrive.

'We cannot say how much remittances have decreased or increased right now as we are yet to receive the final monthly data,' says Spokesperson Poudel, 'However, the liquidity data published daily by the central bank shows that remittances have not been significantly impacted.'

Remittance Share from Conflict-Affected Countries

According to government data, nearly 1.7 million Nepalis are employed in West Asia. Spokesperson Poudel of the NRB states that this population accounts for 38 to 39 percent of the remittances flowing into Nepal. Remittances from all Middle Eastern nations combined account for 42 to 43 percent.

Due to the Iran-Israel tension, those countries are only conducting business activities cautiously. Stakeholders suggest that if this tension escalates into a regional war and the oil economies of the Gulf nations slow down, Nepal could be affected.

According to Spokesperson Poudel, the current priority is the safety of Nepalis residing there. He adds that Nepal has sufficient foreign exchange reserves and liquidity, so a major impact on the financial situation is not immediately expected.