KATHMANDU, Aug 26: The government has started preparations for its ambitious plan to upgrade Nepal from its existing sovereign credit rating of ‘BB minus.’
Nepal received the aforementioned credit rating from the American credit rating agency Fitch Ratings Inc in November last year. The sovereign credit rating from the internationally recognized organization signifies moderate economic stability and growth potential, bolstered by strong foreign exchange reserves and hydropower prospects, though tempered by an underdeveloped economy and vulnerability to external shocks.
The rating was viewed as positive for attracting foreign investment, dispelling negative perceptions of the economy and boosting investor confidence. Although the positive outcomes are yet to be realized, the government however has come up with an ambitious plan to upgrade the country’s credit rating in less than a year of the first credit rating.
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A high-level government meeting held at the Ministry of Finance (MoF) on Monday decided to put forth the recently achieved progress by the country in order to upgrade it from the current status. The government vows to upgrade from the existing status citing an improvement in the country’s macroeconomic indicators in recent months.
The ‘Current Macroeconomic and Financial Situation Report of Nepal’ unveiled by Nepal Rastra Bank on Sunday shows that a majority of macroeconomic indicators related to both the domestic and foreign sectors have improved in the past one year. The country’s export earning grew 81.8 percent; foreign currency reserve stood at more than Rs 2.6 trillion and balance of payments remained at a surplus of Rs 594.54 billion. Likewise, the private sector lending of banks and financial institutions increased to 8.4 percent, while the annual inflation rate went down to 4.06 percent.
While assigning a rating, which can stretch from ‘AAA’ at the top (high quality) to D (defaulted), Fitch Ratings factors in various indicators like inflation rate, economic growth, foreign direct investment and external debt. According to the MoF, representatives from the Fitch Ratings Inc are scheduled to visit Nepal to reassess the status of the country in the aftermath of receiving the first credit rating last year.
Speaking at the meeting, Finance Minister Bishnu Prasad Paudel directed the concerned government officials to highlight the major achievements of the country over the stipulated time period. He underlined the outcomes seen in economic areas, improvements in policy and legal sectors and good governance along with the achievements made in political stability, road construction, tourism and hydropower generation, among others.
If the effort to upgrade the country in credit rating is materialized, Nepal will be able to receive foreign loans at a reasonable rate of interest, while the country can also showcase its economic strength in the international arena, according to the MoF.
