Fitch Ratings has affirmed Nepal's Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'BB-' with a stable outlook. The rating reflects the nation's low debt burdens, strong external liquidity, and solid medium-term growth prospects anchored by the hydropower sector.
However, the rating remains constrained by an underdeveloped economy, vulnerability to external shocks, and weaker structural features like GDP per capita and governance metrics compared to 'BB' category peers.
Key headwinds
Lingering political uncertainty following a period of youth-led unrest and the installation of an interim government in September 2025 poses a risk to economic and fiscal stability.
Fitch projects the federal deficit to widen to 3.5% of GDP in FY26 (ending July 15, 2026), up from an estimated 1.7% in FY25, due to subdued revenue and increased spending on reconstruction and upcoming elections (scheduled for March 5, 2026).
Real GDP growth is forecasted to slow to 2.5% in FY26 from 4.6% in FY25, primarily due to the unrest's disruption to economic activity, depressed sentiment, and poor agricultural output.
Resilience and strengths
Nepal's foreign-exchange reserve coverage remains robust at 13.5 months of current external payments in FY25, providing a substantial liquidity buffer and supporting the Indian rupee peg.
Government debt is moderate (forecasted to stabilize around 46% of GDP) and external debt is on highly concessional terms with long maturities and low interest rates.
Fitch notes that political stability and improvements in governance and economic growth remain key factors that could lead to a future rating upgrade.
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