Kathmandu, Nov 13 (IANS) Nepal has retained a 'BB-' sovereign credit rating from Fitch Ratings, with the agency citing the country's low public and external debt, strong foreign exchange reserves and robust remittance inflows. This is the third consecutive year Nepal's sovereign credit rating has remained unchanged since it received its first-ever sovereign rating in 2024.

In its latest rating report, the international credit rating agency said Nepal's rating was supported by low government and external debt, mostly on highly concessional terms, strong external liquidity and access to multilateral financing.

Nepal's solid medium-term growth prospects, underpinned by investment in hydropower development, were also cited as supporting factors.

"The ratings are constrained by an underdeveloped economy that is vulnerable to external shocks and natural disasters," Fitch said. "Structural features, such as GDP per capita and governance metrics, are also weaker than those of 'BB' category peers."

Despite a substantial increase in Nepal's public debt, both domestic and external, over the past decade since the devastating earthquake of 2015, the World Bank and the International Monetary Fund have continued to classify the country's debt distress risk as low.

As of the first quarter of the current fiscal year 2026-27, which began in mid-July, Nepal's public debt surpassed NPR 3 trillion for the first time, reflecting a rapid increase in the Himalayan country's debt burden over the past decade, the Public Debt Management Office (PDMO) of Nepal said.

The government's total outstanding debt reached NPR 3,009 billion, equivalent to 45.59 percent of GDP, compared with NPR 697.68 billion, or 26.84 percent of GDP, in fiscal year 2016-17.

Fitch said Nepal's external debt was highly concessional, with solid prospects for official creditor support.

"This structure preserved financing flexibility amid the shocks from the September 2025 youth-led protest and the August 2026 floods and is further reinforced by the successful completion of Nepal's IMF programme in June 2026," it said.

Fitch said Nepal's economic growth was projected to slow in the current fiscal year 2026-27 due to the impact of the devastating floods of August 26.

The floods killed more than 1,400 people and left over 5,000 missing, according to the National Disaster Risk Reduction and Management Authority. The disaster also caused substantial economic losses, with physical damage estimated at 1.66 billion U.S. dollars, according to the World Bank.

"The August 2026 flash floods, which caused substantial human and economic losses, will weigh on near-term growth," Fitch said. "The floods affected more than 10 percent of the country's installed power capacity and disrupted electricity generation and transmission, transport connectivity, tourism and industrial activity. Restoration and reconstruction efforts will support the economic recovery."

Fitch projected Nepal's economic growth to slow to 3.4 percent in FY2026-27, down from 3.9 percent in FY2025-26, citing the impact of the August floods.

The international rating agency also expects economic growth to rebound to 5.2 percent in FY2027-28, supported by accelerated reconstruction activities and the restoration of hydropower projects and electricity-grid infrastructure.

"However, delays in reconstruction and a prolonged conflict involving Iran could further undermine growth prospects by disrupting energy and fertiliser imports, increasing supply risks and affecting tourism receipts," it said.

The rating agency also noted that Nepal had an opportunity to improve policy predictability and advance economic reforms following the ruling Rastriya Swatantra Party's clear parliamentary majority in the March elections.

"The party has set out a near-term reform agenda to improve governance and the business climate, although the floods could complicate the balance between reform priorities and immediate emergency relief," Fitch said. "Political instability could re-emerge if the ruling party fails to deliver credible reforms or relies excessively on ordinances to implement policy."

--IANS

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