Remittance payments to Nepal have fallen sharply as migrant workers suffer the impact of sluggish Gulf economies due to the sustained fall in oil prices.

According to one expert, a negative consequence of falling remittances will be a slowdown in Nepal's letter of credit (L/C) business.

Structural remittances

Remittances have been a structural feature in Nepal's economy since 2000 and to a substantial extent have paid for a surge in imports since then.

On the other hand, while Nepal has been able to depend on remittances to strengthen its foreign exchange reserves, it has not developed domestic economic activities to sustain these reserves.

Negative impacts

So Nepal is reliant on remittances for the import of goods and services, therefore imports are likely to contract according to Senior Economist Keshav Acharya, who served between 2009 and 2011 as chief economic advisor at Nepal's finance ministry.

Contraction in imports will in turn have an adverse impact in several areas of the domestic economy including the banking sector, which will be required to issue fewer L/Cs.

This will then impact on revenues due to the Nepalese government, which levies charges on L/Cs issued by Nepal's banks.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.