Nepal is the number-one improver, though still mired within highest-risk category

Nepal has become the most improved country in Euromoney’s crowd-sourcing risk survey at the halfway mark this year, though it still is mired within highest risk category broadly equivalent to Madagascar, Belarus and Niger in risk terms, on a lowly score of just less than 32 from a maximum 100 points.
“Gaining more than five points to move 14 places higher in the global risk rankings since 2018, and a whopping 24 places during the past five years, the improvement seems nothing short of phenomenal,” the Euromoney reports.
“It puts Nepal above the Maldives, Ethiopia, the Gambia and other nations in the top-10 most improved countries so far this year,” according to economists and other risk experts, who were polled. The survey upgraded all 15 of Nepal’s political, economic and structural risk indicators this year, notably raising the score for government stability since the last legislative elections were held in 2017 and a solution was found to the political deadlock surrounding the senate electoral process delaying the government’s formation.
The survey analysts said that the rising country risk score is ‘primarily due to political stability, high economic growth for three consecutive years, low inflation and improvement in institutionalising federalism. This report also helps to explain why the score for government finances has been upgraded, noting the fact financial assistance was recently approved by the World Bank (WB) to support the reforms required to accomplish an ambitious and gradual transition to a federal state. Meanwhile, GDP has shown remarkable real-term strength during the past few years, growing by 7.9 per cent in fiscal year 2016-17 (to mid-July), and 6.3 per cent in the fiscal year 2017-18, the report reads, adding that it has been bolstered by buoyant domestic demand leaning heavily on infrastructure investments, fuelled by China and India’s weighty foreign direct investments (FDI) aiding the reconstruction effort after the earthquakes in 2015. But the report quotes, one of the survey expert Chandan Sapkota, that downside risks include security disturbances by a fringe communist party, which has attacked private businesses and public assets. “Other multilateral creditors, including the Asian Development Bank (ADB) and International Monetary Fund (IMF), are predicting further strength, with GDP growth exceeding 6 per cent in fiscal year 2018-19 and fiscal year 2019-20, though the FDI has seen a decline in the last fiscal year 2018-19. “Again, this has been bolstered by high activity in construction, services – including tourism fuelled by an influx of Chinese visitors – and manufacturing, which is now less hindered since electricity outages have been resolved, enabling more capacity utilisation. “Other notable developments, according to Sapkota, include ‘a stable government that has almost a two-thirds majority in parliament, progress in construction of major infrastructure projects, such as international airports and hydroelectricity, and amendments of major business-related regulations”.
These regulations include the Industrial Enterprises Act, Special Economic Zone Act, Public-Private Partnership and Investment Act, and Labour Act, among others, although, as they are yet to be implemented, it is impossible to gauge their effectiveness.
However, Nepal’s advancement must also be put into some context, with the country still mired within Euromoney’s highest-risk category, in 135th place, broadly equivalent to Madagascar, Belarus and Niger in risk terms, on a lowly score of just less than 32 from a maximum 100 points. This is likely equivalent to a red-warning, junk-status credit rating were Nepal to ever receive one. “Downside risks include security disturbances by a fringe communist party, which has attacked private businesses and public assets,” the report reads, highlighting the risks to business safety in a country where Maoist rebels are intent on violent left-wing extremism. Deteriorating governance, especially fiduciary risks when it comes to implementing public projects, and the fact the fiscal deficit has increased under the weight of public spending – with additional outlays on poorly managed social security schemes – are also mentioned.
Meanwhile, inflation pressure has increased in response to an agricultural supply shock caused by flooding in the region, with the headline rate climbing above 5 per cent in May.