Himal Press 
KATHMANDU: Rating agency, Fitch, has reaffirmed Nepal’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘BB-’ with a Stable Outlook, citing the country’s low and largely concessional debt burden, strong external liquidity, and medium-term growth prospects supported by hydropower development.
In its latest rating action, Fitch said Nepal’s credit profile benefits from robust foreign-exchange reserves, resilient remittance inflows, and continued access to multilateral financing. However, it warned that structural weaknesses—such as low GDP per capita, governance constraints and vulnerability to natural disasters—continue to weigh on the rating.
The agency has said that Nepal’s political environment remains fragile despite the rapid de-escalation of youth-led unrest in early September, triggered by a social media ban amid wider public frustration over corruption, inequality, and job scarcity. “The interim government installed on September 12 has restored calm and announced elections for March 5 2026, but delays in the political transition and a more fragmented party landscape could undermine policymaking effectiveness and further weaken governance standards,” Fitch said in its latest rating action commentary.
Fitch projects Nepal’s federal budget deficit to widen to 3.5% of GDP in 2025/26, up from an estimated 1.7% in 2024/25, due to weaker revenues and higher spending linked to reconstruction and election preparations. Government debt is forecast to rise moderately to 46.1% of GDP, still below the ‘BB’ category median.
The agency expects the current account surplus to narrow sharply to 2.4% of GDP in the current fiscal year, before slipping into a modest deficit the following year as imports pick up. Despite these pressures, the foreign-exchange reserves remain comparatively strong, covering 13.5 months of external payments—far above the ‘BB’ peer median of 4.8 months. “We expect the reserves to continue providing a substantial liquidity buffer against external vulnerabilities and support the longstanding Indian rupee peg,” it said.
According to the agency, Nepal maintained a net external creditor position of 13.5% of GDP in 2024/25, in contrast to the ‘BB’ median debtor position of about 12%.
Fitch expects growth to slow to 2.5% in the current fsical year following the recent unrest, weaker sentiment, and weather-related disruptions to agriculture.
The rating agency has said that Nepal’s rating could come under pressure if political instability deepens, governance standards deteriorate or external financing weakens. On the other hand, sustained strong growth, improved governance and successful revenue mobilisation could support an upgrade, it added.
