Remittance Dilemma in Nepal: Dependency, Economic Distortion and Challenges

One of the most significant financial flows to developing nations today is remittances, which stabilise economies and reduce poverty in areas with limited formal employment opportunities. In 2023, they will account for 26.6% of Nepal's GDP, placing the nation among the most remittance-dependent economies in the world. Although remittances have improved foreign exchange reserves and household welfare, there is ongoing debate regarding their wider influence on long-term growth. Despite their size, little is known about how a high reliance impacts Nepal's industrial transformation and sustainable growth. Using a qualitative, literature-based methodology, this study finds that only 2.4% of Nepal's remittance revenue goes toward capital formation, whereas 78.9% is spent on everyday consumption. This trend has strengthened growth driven by consumption, undermined manufacturing and agriculture due to the consequences of Dutch disease, and increased dependency by reducing the number of workers in the country. The results highlight the fact that remittances are not essentially developmental; rather, they gain significance through their utilisation. Remittances will continue to be a short-term lifeline but a long-term barrier to Nepal's economic development unless they are diverted into productive sectors through financial literacy, diaspora participation, and governmental incentives.