Nepal | June 20, 2019

Country’s sovereign credit rating in offing

Private sector believes such a rating is important for business predictability and foreign direct investment

Sujan Dhungana

Kathmandu, November 13

With a view to easing the process of attracting foreign investment to bridge the funding and investment gap, the government is preparing to rope in renowned international rating agencies to confirm the country’s sovereign credit rating, which will determine the risk of doing business in Nepal.

The Ministry of Finance has sought support from donor agencies, especially the Department for International Development, to evaluate the credit risk in Nepal or the sovereign credit risk.

Sovereign credit rating determines the trustworthiness of business environment and credit risk of a potential debtor, an individual, company, business, government or any other sovereign entity. 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. Risk ranking of a country is the primary factor that potential investors look at before investing in any country.

Revenue Secretary Sishir Kumar Dhungana said DFID was helping the government determine the modality of the planned credit rating of Nepal and finding an appropriate credit rating agency to take up the job.

According to him, Moody’s — a US-based credit rating agency — recently suggested to the government its modality for measuring the creditworthiness of Nepal.

Moody’s, Standard & Poor’s and Fitch Group are considered the three largest credit rating agencies in the world. “We’ll wait for a few more suggestions to the government from donor agencies and rating companies in this regard. However, the process of credit rating of Nepal will begin in a few months,” Dhungana told THT.

Dhungana said the primary motive behind carrying Nepal’s credit rating was to give insight to foreign investors into the level of business risk in Nepal. Besides this, the credit rating is also essential for a country to gain access to the international bond markets to raise funds.

Sovereign credit ratings are also sought by international financial institutions that intend to lend money to domestic financial institutions and firms that hedge foreign exchange risk of mega projects such as hydropower that have attracted foreign investment. With anticipation that the level of risk in
doing business in Nepal has reduced in recent years, the government expects the country’s credit rating to be crucial bringing foreign investment.

Meanwhile, the private sector believes that the country’s credit rating is necessary as it increases predictability of investment and doing business, which investors seek prior to starting a business.

“Unrated countries are generally taken as high-risk zones by investors. Though Nepal might secure poor ranking in the credit rating, it will help identify existing drawbacks in the business environment of Nepal and alert the government to adopt proper precautions,” said Hari Bhakta Sharma, president of the Confederation of Nepalese Industries.

 


A version of this article appears in print on November 14, 2018 of The Himalayan Times.


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