US–Iran War Raises Alarm Over Nepal’s Remittance-Driven Economy

The escalating conflict between the United States and Iran has heightened concerns over its potential impact on Nepal’s remittance-dependent economy, as the Gulf region remains the primary source of the country’s foreign earnings.

According to the Ministry of Foreign Affairs, more than 1.7 million Nepalis are currently working in 12 countries in West Asia. Remittances sent by these migrant workers have long served as the lifeline of Nepal’s economy, supporting household consumption and forming the backbone of foreign exchange reserves. These reserves enable the country to import essential goods and services.

Nepal Rastra Bank (NRB) said remittances flow into Nepal from around 150 countries. “Middle Eastern countries account for around 40–45 percent of total remittance inflows,” NRB spokesperson Guru Prasad Paudel said. He suggested that the government should diversify labour destinations to reduce risks stemming from heavy concentration in the Gulf region.

“An economy heavily reliant on remittances is never fully sustainable and always remains vulnerable,” Paudel said. “The government should work to expand access to international labour markets to minimise country-specific risks.”

Major labour destinations for Nepali workers include Qatar, Saudi Arabia, the United Arab Emirates, Kuwait and Oman. Nepalis employed in construction and services sectors as well as domestic work send a significant portion of their monthly earnings home. These funds sustain rural consumption, real estate transactions, bank deposits and imports.

According to NRB data, Nepal received Rs 1062 billion in remittances in the first six months of the current fiscal year 2025/26 (mid-July to mid-January), marking a 39.1 percent increase compared to the same period last fiscal year. In fiscal year 2024/25, total remittance inflows stood at Rs 1723 billion.

Supported by strong remittance growth, Nepal’s foreign exchange reserves reached Rs 3242 billion (USD 22.47 billion) as of mid-January, sufficient to cover 18.1 months of goods and services imports, the central bank said.

However, government officials have expressed concern that the ongoing conflict in a region that accounts for a large share of Nepal’s remittance inflows could affect both the safety of Nepali nationals and the national economy. One Nepali national has already been confirmed dead in the conflict.

“Even during the Covid-19 pandemic, remittance inflows were not significantly affected,” Paudel said. “But this time, tensions are centred in the very region from where we receive the bulk of remittances, so the impact could be more direct.”

Despite sluggish domestic economic activity following the pandemic, high remittance inflows have helped keep Nepal’s external sector indicators—such as the current account balance, foreign exchange reserves and import cover—relatively strong.

Yet signs of external risk are beginning to emerge. Rising geopolitical tensions in the Middle East, uncertainty in the oil market and security concerns could jeopardise the employment of hundreds of thousands of Nepali workers in the Gulf. Any disruption to labour markets could, in turn, affect remittance flows.

A 2025 study report published by the Centre for the Study of Labour and Mobility (CESLAM) showed that after India, Saudi Arabia, Qatar and the United Arab Emirates are the largest contributors to Nepal’s remittance inflows. India accounts for 13.9 percent of total remittances, Saudi Arabia 13.7 percent, Qatar 12.5 percent, and Malaysia and the UAE 10.5 percent each.

According to the Ministry of Foreign Affairs, 1,729,288 Nepalis are currently residing in the UAE, Saudi Arabia, Qatar, Kuwait, Iraq, Bahrain, Oman, Cyprus, Israel, Egypt and Iran.

From Household Kitchens to the National Economy

International migration expert Dr Meena Paudel said that remittances have become Nepal’s primary source of income and warned that any job losses among migrant workers due to war could have multi-dimensional impacts—from household kitchens to the broader economy.

“As the conflict in the Middle East has just begun and its duration remains uncertain, it is too early to fully assess its impact on Nepal,” she said. “However, given the concentration of Nepali workers in the region, the effects are likely to be felt from individual households to the national economy.”

She noted that remittance inflows might temporarily rise due to precautionary transfers amid security concerns, but the long-term impact could be adverse if employment is disrupted.

An NRB study conducted two years ago found that of the income earned from foreign employment, 58.78 percent is spent on daily consumption, 22.48 percent on education and health, 10.07 percent on loan repayment, and 8.67 percent on entertainment. The study also showed that a large portion of remittance income is invested in trade and business, land and housing, and jewellery.

Experts say that as remittances boost household income and spending, they help drive overall economic activity. Conversely, any disruption in foreign employment could have wide-ranging consequences. Paudel suggested that the government assess the evolving situation in the Middle East and proactively seek alternative labour destinations to reduce vulnerability.