A Historic Event For Nepal

“Fitch” one of the world’s major Credit Rating Agencies gives Nepal a “BB minus” Credit Rating, Fitch Ratings conducted an on-site assessment in September before releasing its findings.
This is a historic event for Nepal as the rating is said to be the best among South Asian countries except India. Countries rated above ‘BB Minus’ are considered favorable for investment which makes Nepal likely to attract more Foreign Investments in the future.

What is Credit Rating?

Credit ratings are evaluations of the creditworthiness of an entity, such as a corporation, government or financial instrument. Credit Ratings are assigned by independent Agencies to various kinds of borrowers (Government, private Companies etc.) based on their ability and willingness to repay its debts and meet financial obligations.

What are the factors that affect the Credit Rating of a Country?

The credit ratings of a country reflects the financial status of a country, it is affected by many factors, some of which are as mentioned below:

• Borrower’s payment history,
• Cash flow in the country,
• General economic outlook of the country,
• Credit Utilization,
• Inflation Rate,
• Real exchange rate changes,
• Length of Credit History,
• Total Debt,
• Government Income,
• Per Capita Income,
• Governance and Management,
• Credit mix and New Credit.

How does Credit Rating affect a country?

The Credit Rating of any country attracts the investments in the country which directly increases the Foreign Direct Investment (FDI) and contributes in the Gross Domestic Product (GDP) which directly affects the Economy of the country.

Some of the areas that the Credit Rating Directly impacts are as stated below:  

• Foreign Investments,
• Currency Stability,
• Access to International Capital Markets,
• Economic Growth,
• Sovereign Debt Stability,
• Political and Social Implications,
• Domestic Economy Impact etc.

Who determines the Credit Rating of a Country?

Credit ratings for countries, or sovereign credit ratings, are determined by credit rating agencies (CRAs). These agencies assess a country’s ability and willingness to repay its debt on time. They assign ratings based on extensive analysis of economic, political, and financial factors.

What are the Major Credit Rating Agencies in the world?

The most prominent agencies that determine a country’s credit rating are:

1. Standard & Poor’s (S&P): Provides ratings on a scale ranging from AAA (highest creditworthiness) to D (default). Known for its focus on economic fundamentals and fiscal health.
2. Moody’s Investors Service: Uses a rating system from Aaa (highest quality) to C (lowest quality). Emphasizes long-term economic trends and structural strengths of the economy.
3. Fitch Ratings: Rates countries on a similar scale to S&P, from AAA to D. Focuses on fiscal policies, macroeconomic stability, and external factors.