Finance Minister Bishnu Paudel said on Friday, November 22, that the outcome of Nepal’s first-ever sovereign credit rating has come in the country’s favour.
Paudel made the remark during a press conference a day after Fitch Ratings released the credit rating for Nepal, assigning a Long-Term Foreign-Currency Issuer Default Rating (IDR) of ‘BB-’ with a stable outlook.
This reflects no material constraints and incentives, relative to the IDR, against capital or exchange controls being imposed that would prevent or significantly impede the private sector from converting local currency into foreign currency and transferring the proceeds to non-resident creditors to service debt payments, Fitch Ratings said in a statement.
“The rating has sent a message that Nepal is secure in terms of investment,” said Paudel, calling on investors across the world to consider investing in Nepal.
Earlier this year, the government had handed over the responsibility of the sovereign credit rating of Nepal to American credit company Fitch Ratings.
Similarly, Finance Secretary Ram Prasad Ghimire added that Fitch's assessment would help reduce the ‘risk premium’ on loans for the country. “The rating has provided clarity on our position; it will boost the confidence of investors,” said Ghimire, “We will work in the areas it has identified for improvement.”
Read: Fitch Assigns Nepal ‘BB-’ IDR; Outlook Stable
The report says that strong and stable economic growth enabling substantial increases in GDP per capita, potentially supported by improved governance standards and regulations conducive to private and foreign investment; and, a material reduction in government debt could individually or collectively, lead to an upgrade on rating.
On the contrary, the statement mentions that factors such as substantial increase in the government debt/GDP ratio, weakening of bilateral and multilateral creditor support that strains external financing and pressures foreign-exchange reserves, and weakening of medium-term growth prospects could, individually or collectively, lead to downgrade of the rating.
Fitch’s credit rating scale for issuers and issues is expressed using the categories ‘AAA’ to ‘BBB’ (investment grade) and ‘BB’ to ‘D’ (speculative grade) with an additional +/- for AA through CCC levels indicating relative differences of probability of default or recovery for issues.
The terms “investment grade” and “speculative grade” are market conventions and do not imply any recommendation or endorsement of a specific security for investment purposes, according to Fitch Ratings. Investment grade categories indicate relatively low to moderate credit risk, while ratings in the speculative categories signal either a higher level of credit risk or that a default has already occurred.
Former Finance Secretary Rameshore Khanal had told NBA on Thursday that it would now be easier for the government to borrow from the international financial market and issue sovereign bonds, and it would assure foreign investors that there would not be, at least, foreign exchange reserves-related hurdles during repatriation–which would ultimately boost their confidence.
Finance Minister Paudel added that it was just the beginning. “We will continue with the credit rating process and share the status of the country's economic health periodically,” Paudel said.
