Nepal | July 05, 2020

Govt starts work for sovereign credit rating

Umesh Poudel
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Kathmandu, August 20

To facilitate the process of attracting foreign investment to bridge the funding and investment gaps, the government has initiated the process to acquire a sovereign credit rating from renowned international rating agencies.

A sovereign credit rating is considered a vital tool to attract foreign investment, as it provides a clear picture of the investment climate and also determines the risk of doing business in a country. Uttar Kumar Khatri, joint secretary at the Ministry of Finance (MoF), said the ministry has started the preliminary works to acquire the rating in close coordination with the country’s development partners. “The process to get a sovereign credit rating has been started and our related task force has been working on it.”

Earlier, the MoF had formed a committee to execute the works of acquiring a credit rating under the leadership of Revenue Secretary Lal Shankar Ghimire. The team also compromises Head of MoF’s Financial Sector Management and Corporation Co-ordination Division, Toyam Raya; Director General of Central Bureau of Statistics, Suman Raj Aryal; Deputy Governor of Nepal Rastra Bank, Chintamani Siwakoti; Chairman of Insurance Board, Chiranjibi Chapagain and Chairman of Securities Board of Nepal, Rewat Bahadur Karki.

“We hope to get the credit rating by the end of this fiscal year,” said Khatri, adding that the task force is finalising details on which credit rating agency to opt for. “We hope to assign the job of the sovereign credit rating by December and complete all the other necessary processes by the end of the current fiscal year,” he informed.
As per Raya, the Finance Ministry has given Standard Chartered Bank Nepal the responsibility for the necessary preparatory works before a credit rating agency is selected. “The bank will also be advising the government on the necessary procedures that the country needs to follow to receive a good credit rating.”

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.

As per Raya, Moody’s — a US-based credit rating agency — recently suggested 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 will consider the suggestions of Standard Chartered Bank and other development partners before selecting the agency,” Raya added.

Raya further mentioned that the primary reason behind acquiring a credit rating is to give an insight to foreign investors about the level of business opportunities and risks in Nepal. Besides, 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 mega hydropower projects, railways, airports, and expressways, among others, that have attracted foreign investment.

With anticipation that the level of risk in doing business in Nepal has reduced in the recent years, the government expects the country’s credit rating to be crucial in bringing foreign investment.

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