The clear parliamentary majority for Nepal’s Rastriya Swatantra Party (RSP) reduces near-term political uncertainty and provides an opportunity for enhanced policy predictability and implementation of governance and economic reforms, Fitch Ratings says.
The election result should lower the risk of a prolonged coalition negotiation after severe unrest last year, reduce the chance of a recurrence of recent years’ frequent government changes and potentially boost investor sentiment over time if signals point to tangible improvements in governance and economic reform delivery.
The scale of the RSP’s victory reflects a voter mandate to break with the status quo politics of power sharing, with Nepali Congress and CPN-UML losing seats. A single-party majority, subject to final certification by the Election Commission, should imply a short political transition and could improve Nepal’s ability to sustain reform momentum and translate hydropower-led investment into broader-based growth.
RSP targets average real GDP growth of about 7% over the next five years, raising per capita income above US$ 3,000, which we believe is ambitious.
The new government’s policy agenda will be key in determining the extent to which growth can be lifted from our current forecast of 4.5% in the fiscal year ending July 15, 2027. RSP’s manifesto and announcements indicate it is aiming for policies that would lead to productivity gains, formal job creation to curb emigration, and higher private-sector-led investment in infrastructure, agriculture, service, digital and innovative industries.
When Fitch affirmed Nepal’s ‘BB-’ rating with a Stable Outlook in November 2025, we stated that strong, sustainable growth, enabling substantial increases in GDP per capita - potentially supported by improved governance standards and regulations conducive to private and foreign investment - could improve Nepal’s credit profile.
However, implementation capacity could be a key risk down the road. Nepal’s weak government effectiveness and regulatory quality scores compared with its peers could constrain execution, for instance, if reform sequencing is unclear or governance outcomes lag behind campaign expectations. Private investment and foreign participation are likely to hinge on measurable improvements in the business environment and accountability frameworks, alongside sustained anti-corruption enforcement under the new government.
Nepal’s ‘BB-’ rating is supported by low and highly concessional government and external debt burdens, strong external liquidity, and solid medium-term growth prospects anchored by hydropower, with resilience reinforced by successful IMF program implementation. Constraints remain the underdeveloped economy’s exposure to external shocks and natural disasters, and weaker structural features - especially GDP per capita and governance metrics - than ‘BB’ category peers.
.
