Nepal has retained its 'BB-' sovereign credit rating from Fitch Ratings for the third consecutive year, the agency's latest report said on Friday, citing the country's low public and external debt, strong foreign exchange reserves and robust remittance inflows. Nepal received its first-ever sovereign rating in 2024, and the rating has remained unchanged since then.

Source: IANS via Hi India

Fitch said the rating was supported by low government and external debt, mostly on highly concessional terms, strong external liquidity and access to multilateral financing, along with solid medium-term growth prospects underpinned by investment in hydropower. The agency noted that this structure preserved financing flexibility after the shocks of the youth-led protest and the August 2026 floods, and was reinforced by the successful completion of Nepal's IMF programme in June 2026. Xinhua also reported the affirmation on Friday, citing the same supports of low debt, strong reserves and robust remittances.

Source: Xinhua via EIN Presswire Nepal Newswire

The affirmation came even as Nepal's public debt surpassed NPR 3 trillion for the first time in the first quarter of the current fiscal year 2026-27, which began in mid-July, according to the Public Debt Management Office (PDMO). Total outstanding debt reached NPR 3,009 billion, equivalent to 45.59 per cent of GDP, compared with NPR 697.68 billion, or 26.84 per cent of GDP, in fiscal year 2016-17. Despite the rise, the World Bank and the IMF have continued to classify Nepal's debt distress risk as low, Fitch noted.

Fitch projected economic growth to slow to 3.4 per cent in FY2026-27, down from 3.9 per cent in FY2025-26, because 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, and caused physical damage estimated at 1.66 billion US dollars, according to the World Bank. The disaster affected more than 10 per cent of the country's installed power capacity and disrupted electricity generation and transmission, transport, tourism and industrial activity. The agency expects growth to rebound to 5.2 per cent in FY2027-28, supported by reconstruction and the restoration of hydropower projects and the electricity grid.

At the same time, Fitch said the ratings are constrained by an underdeveloped economy that is vulnerable to external shocks and natural disasters, and by structural features such as GDP per capita and governance metrics that are weaker than those of 'BB' category peers. It said Nepal had an opportunity to improve policy predictability and advance reforms after the ruling Rastriya Swatantra Party's clear parliamentary majority in the March elections, but warned that political instability could re-emerge if the government fails to deliver credible reforms, and that delays in reconstruction or a prolonged conflict involving Iran could further undermine growth by disrupting energy and fertiliser imports and tourism receipts.