KATHMANDU, Nov 23: The American credit rating agency Fitch Ratings Inc has evaluated the economic situation of Nepal with a promising rating at 'BB minus'. Only India, with a rating of BBB-, has a higher credit rating than Nepal in the south Asia region. The current sovereign credit rating of Bangladesh is B+, Pakistan is CCC+, and Sri Lanka is RD.
Publishing a brief report to describe the country’s first ever sovereign credit rating by an international credit rating agency on Thursday, Fitch noted that Nepal has taken important steps for economic reform amid political instability and structural challenges.
The report indicated positive signs of economic growth in the coming years, estimating the country's economic growth, currently at 3.9 percent as per economic indicators of fiscal year 2023/24, to reach five percent in the medium term. As per the report, growth in the hydropower sector and export deals with India will further strengthen this growth.
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Economists have welcomed the sovereign credit rating as a positive factor that will attract foreign investors to Nepal as well as enable the government to borrow loans from foreign investors at an interest rate lower than the international average.
According to Economist Ram Prasad Gyawali, with the rating of BB-, Nepal will be able to borrow from foreign investors at an interest rate 1.5 percentage point lower than the average interest rate. “The sovereign credit rating for Nepal paints a positive picture of the country’s economy,” he said, “The rating also enables us to seek loans at an interest rate around 1.5 percentage point lower than the average international interest rate on sovereign borrowing.”
Economist Keshav Acharya claimed that the sovereign credit rating has created a positive outlook of Nepal for foreign investors. “Since Nepal’s credit rating is higher than larger economies in south Asia such as Bangladesh and Pakistan, foreign investors will know that Nepal has better capability to pay back to the foreign lenders,” Acharya told Republica, “The positive credit rating also enables Nepal to issue bonds to foreign investors with promise of higher security.”
The Fitch report pointed out two major challenges for Nepal: the increase in public finances and the reduction in external financial assistance. Economist Acharya added that the government needs to implement positive economic actions in order to improve the rating. The Fitch report has also stated that political instability is still challenging the country's economic development.
“Steps such as the formation of the Economic Sector Reform Commission and facilitation of foreign investment of less than Rs 100 million in the ICT sector are laudable but the government also needs to focus on strengthening its financial regulatory bodies,” Acharya told Republica, “Improvement in economic sector and good governance can further boost the credit rating.”
As per the Fitch Ratings Inc, Primary Rating Analyst Krisjanis Krustins, CFA, and Secondary Rating Analyst Thomas Rookmaaker from the Hong Kong office of the agency rated the country with Long Term Issuer Default Rating of BB-, Short Term Issuer Default Rating of B, Local Currency Short Term Issuer Default Rating of B, Country Ceiling of B, and Local Currency Long Term Issuer Default Rating of BB-.
