Nepal Secures BB- Rating in First Sovereign Credit Assessment by Fitch
Nepal has received its first-ever country rating, securing a BB- grade, which is considered better than a B+ rating. The global credit rating agency Fitch Ratings recently released this report, presenting Nepal's comparative economic standing as favorable.
According to the brief details published on Thursday, Nepal's rating exceeded expectations, as acknowledged by government officials. One official stated, “This was our first attempt at country rating, and the results are better than anticipated.”
The report highlights that while the rating acknowledges Nepal's capacity to repay debts, it also indicates certain economic risks. Fitch has examined Nepal's weak revenue position, political instability, and the need for structural economic reforms. However, some economic indicators were assessed positively.
Nepal's debt-to-GDP ratio, at 44%, was recognized as a strength. The relatively low-interest burden on external debt was also considered favorable, with concessional loans protecting the country from significant financial pressure. Nepal's foreign exchange reserves, amounting to over $13 billion, were noted as sufficient to cover approximately ten months of imports. Additionally, the stable exchange rate with India was highlighted as a contributing factor to economic stability.
Sustainable economic growth was another positive aspect emphasized in the report, with rising per capita income attributed to consistent policy implementation. The government's efforts toward sustainable revenue mobilization were also acknowledged as factors that could lead to future improvements in Nepal's credit rating.
Despite these strengths, the report identified several challenges. Nepal's structural economic weaknesses and the lack of a long-term financial strategy pose significant obstacles. While debt levels remain low, economic management remains complex. Limited access to multilateral and bilateral loans could eventually pressure foreign exchange reserves. Additionally, heavy reliance on remittance inflows raises concerns about long-term sustainability.
Implementation delays in development projects and potential political instability were identified as critical challenges for Nepal. To improve its rating, Fitch has recommended addressing these issues by ensuring political stability, reducing import dependence, focusing on domestic production, reforming the tax structure, and exploring new revenue sources.
Fitch’s report underscores that while Nepal’s economic stability has improved, further reforms are necessary to address structural and financial challenges. Among South Asian nations, Nepal stands out as relatively strong, second only to India in sovereign credit assessment.
Fitch’s assessment provides a roadmap for Nepal to strengthen its economic policies and achieve a better credit rating in the future.
