Nepal | August 04, 2020

Coronavirus pandemic affects Nepal’s sovereign credit rating process

Fitch’s assessment expected to be completed by January next year

Himalayan News Service
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The country’s sovereign rating assessment is likely to be delayed due to the coronavirus pandemic.

Though the government had awarded Fitch Ratings, a United States-based international credit rating agency, to study and confirm Nepal’s sovereign credit rating in December last year, the process has been halted following difficulty in collecting and assessing necessary data amid COVID-19.

Two other agencies — Moody’s and Standard & Poor’s — had expressed interest to gauge Nepal’s credit worthiness, while Fitch had bagged the contract.

Sources at Ministry of Finance (MoF) informed that though Fitch is in the process of assessing Nepal’s rating, it is facing difficulty in collecting data amid the crisis, which might delay the entire process.

The sovereign rating is carried out based on different economic indicators, including governance, growth, inflation, investment, trade position, business policies, etcetera.

“Though the sovereign credit rating process has been a bit affected, Fitch has developed a work plan to complete the assessment within next six months,” informed Uttar Kumar Khatri, spokesperson for MoF.

Earlier, the government had also formed a Rating Oversight Committee under coordination of revenue secretary. As the lockdown has been eased and government offices are open, MoF believes Fitch will not face any problem in acquiring the necessary data.

The finance minister, through budget for 2020-21, had also stated that the sovereign credit rating process of the country will be completed within six months of the new fiscal year.

Sovereign credit rating determines trustworthiness of business environment and credit risk of a potential debtor, an individual, company, business, government or any other sovereign entity.

Risk ranking is the primary factor that the potential investors look at before investing in any country.

Such rating gives potential investors an insight into the level of risk while investing in a country and takes into account political, social and financial risks.

Talking to The Himalayan Times during his visit to Nepal in April 2019, Stephen Schwartz, head of Sovereign Ratings Asia Pacific of Fitch Ratings, had said that Nepal is relatively better positioned compared to its peers on macroeconomic indicators like growth and inflation. Where Nepal lags behind is in structural indicators, meaning low level of per capita income, which will take a very long time to improve. He mentioned that Nepal also lags behind in governance indicators.

A version of this article appears in e-paper on July 9, 2020, of The Himalayan Times.

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