Fiscal Nepal
First Business News Portal in English from Nepal
KATHMANDU: International credit rating agency Fitch Ratings has said the decisive parliamentary victory of Nepal’s Rastriya Swatantra Party (RSP) could significantly reduce near-term political uncertainty and create conditions for stronger policy stability, governance reform, and improved investor confidence in the Himalayan economy.
In a statement released from Hong Kong on March 11, 2026, the global rating agency said the clear parliamentary majority secured by the RSP offers Nepal a rare opportunity to move away from years of fragile coalition governments and political instability.
According to Fitch, the election outcome could lower the risk of prolonged coalition negotiations, reduce the likelihood of frequent government changes, and improve policy predictability—factors that have historically constrained Nepal’s economic reform agenda.
Fitch analysts said the scale of the RSP’s victory reflects a strong public mandate to break from Nepal’s traditional power-sharing politics dominated for decades by established parties such as the Nepali Congress and the Communist Party of Nepal (UML).
Both parties lost a significant number of parliamentary seats in the latest election.
The rating agency noted that a single-party majority government, once formally confirmed by the Election Commission Nepal, could enable a shorter political transition period and help sustain reform momentum in the country.
For investors and international lenders, political stability is a crucial factor in assessing sovereign creditworthiness.
Frequent changes of government in Nepal over the past decade have often slowed policy implementation, delayed infrastructure projects, and complicated economic reforms.
Fitch believes the current electoral outcome could reduce those risks if the incoming administration maintains policy continuity.
The rating agency said a stable government could improve Nepal’s ability to convert hydropower-driven investment into wider economic growth.
Nepal possesses one of the world’s largest untapped hydropower resources, and energy infrastructure development has been central to the country’s medium-term economic strategy.
If political stability supports consistent policy execution, Fitch believes Nepal could better leverage hydropower expansion to stimulate industrial growth, export earnings, and broader economic diversification.
The RSP has outlined an ambitious economic vision, targeting average real GDP growth of about 7 percent over the next five years and raising Nepal’s per capita income above USD 3,000.
However, Fitch analysts say achieving such targets will depend heavily on the policy framework adopted by the incoming government.
The agency currently forecasts Nepal’s economic growth at 4.5 percent in the fiscal year ending July 15, 2027.
Bridging the gap between this forecast and the RSP’s growth ambitions will require a strong reform agenda and effective policy execution.
According to Fitch, the RSP’s election manifesto and policy signals suggest a focus on structural reforms aimed at boosting productivity and encouraging private-sector-led development.
Key areas highlighted include:
Nepal is one of the world’s largest sources of labor migration, with remittances accounting for a substantial portion of national income. Policies that generate domestic employment opportunities could significantly reshape the country’s economic structure.
Despite the positive outlook on political stability, Fitch cautioned that implementation capacity remains a key risk.
Nepal continues to score relatively low on global governance indicators, particularly in areas such as government effectiveness and regulatory quality.
Weak institutional capacity could slow the pace of reforms if the sequencing of policy initiatives is unclear or if governance improvements lag behind expectations created during the election campaign.
For foreign investors and multinational lenders, improvements in the business environment, transparency, and accountability frameworks will be critical.
Fitch noted that sustained enforcement of anti-corruption measures under the new administration could be particularly important in strengthening investor confidence.
In November 2025, Fitch Ratings affirmed Nepal’s sovereign credit rating at ‘BB-’ with a Stable Outlook.
The agency said several structural strengths support Nepal’s credit profile.
These include:
Nepal has also demonstrated resilience through the successful implementation of macroeconomic reform programs supported by the International Monetary Fund.
However, Fitch also highlighted several long-standing structural challenges facing Nepal’s economy.
These structural factors continue to weigh on Nepal’s sovereign rating within the ‘BB’ category of emerging economies.
For global investors monitoring Nepal’s political and economic developments, the RSP’s majority victory represents a potentially significant turning point.
Fitch said investor sentiment toward Nepal could improve if the new government demonstrates tangible progress in governance reforms, economic management, and private-sector development.
The rating agency emphasized that sustained reform momentum—combined with political stability—could gradually strengthen Nepal’s economic fundamentals and potentially improve its sovereign credit profile over time.
As the country prepares for the formation of a new government following the election, financial markets, development partners, and global investors will closely watch how the incoming administration translates its electoral mandate into policy action.
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