Nepal’s RSP majority eases near-term political risk, policy agenda key: Fitch Ratings

The clear parliamentary majority for Nepal’s Rastriya Swatantra Party (RSP) reduces near-term political uncertainty and provides an opportunity for enhanced policy predictability and implementation of governance and economic reforms, according to a press note issued by the Fitch Ratings. "The election result should lower the risk of a prolonged coalition negotiation after severe unrest last year, reduce the chance of a recurrence of recent years’ frequent government changes and potentially boost investor sentiment over time if signals point to tangible improvements in governance and economic reform delivery," it adds.
The scale of the RSP’s victory reflects a voter mandate to break with the status quo politics of power sharing, with the Nepali Congress (NC) and the Communist Party of Nepal-Unified Marxist-Leninist (CPN-UML) losing seats. A single-party majority, subject to final certification by the Election Commission (EC), should imply a short political transition and could improve Nepal’s ability to sustain reform momentum and translate hydropower-led investment into broader-based growth.
The RSP targets average real GDP growth of about 7 percent over the next five years, raising per capita income above $3,000, which we believe is ambitious. The new government’s policy agenda will be key in determining the extent to which growth can be lifted from our current forecast of 4.5 percent in the fiscal year ending 15 July 2027.
The RSP’s manifesto and announcements indicate it is aiming for policies that would lead to productivity gains, formal job creation to curb emigration, and higher private-sector-led investment in infrastructure, agriculture, service, digital and innovative industries.
When Fitch affirmed Nepal’s ‘BB-’ rating with a Stable Outlook in November 2025, "we stated that strong, sustainable growth, enabling substantial increases in GDP per capita - potentially supported by improved governance standards and regulations conducive to private and foreign investment - could improve Nepal’s credit profile," it further reads.
However, implementation capacity could be a key risk down the road, it says, adding that Nepal’s weak government effectiveness and regulatory quality scores compared with its peers could constrain execution, for instance, if reform sequencing is unclear or governance outcomes lag behind campaign expectations. "Private investment and foreign participation are likely to hinge on measurable improvements in the business environment and accountability frameworks, alongside sustained anti-corruption enforcement under the new government."
Nepal’s ‘BB-’ rating is supported by low and highly concessional government and external debt burdens, strong external liquidity, and solid medium-term growth prospects anchored by hydropower, with resilience reinforced by successful IMF programme implementation. Constraints remain the underdeveloped economy’s exposure to external shocks and natural disasters, and weaker structural features - especially GDP per capita and governance metrics - than ‘BB’ category peers.

World Bank supports Nepal’s Clean Air and Prosperity Project to reduce air pollution from industries

The World Bank’s Board of Executive Directors has approved a $52 million credit for the Nepal Clean Air and Prosperity Project to reduce air pollution and strengthen air quality management, according to a press note issued by the multilateral lending institution.
The project will help reduce fine particulate matter (PM2.5) emissions, particularly from industrial and commercial boilers and furnaces, while strengthening national systems for air quality management. It will focus on the Kathmandu Valley, the Terai, and surrounding foothill regions where air pollution poses severe risks.
"Air pollution is not only a public health crisis but also a significant economic burden in Nepal, costing the country more than six percent of GDP each year through health costs and lost labor productivity,” said Division Director for Maldives, Nepal and Sri Lanka David Sislen. "This project aims to protect millions of people from harmful pollution by helping Nepali enterprises adopt cleaner and more efficient technologies that at the same time also lower operating costs, improve competitiveness, and support sustainable industrial growth."
Industrial emissions are projected to become the largest source of air pollution in the coming years as the country continues to industrialise, underscoring the urgency of cleaner production technologies. Through a combination of clean technology financing, incentives, and technical assistance, the project will support around 400 industrial and commercial enterprises to adopt electric boilers/furnaces, modern biomass boilers/furnaces, or advanced emission control technologies, leading to substantial air quality improvements.
"The adoption of clean technology is limited in Nepal due to a combination of high upfront investment costs, constrained access to long-term financing, and low technical capacity among enterprises,” said World Bank Senior Environmental Economist, South Asia Region Martin Heger. "This project addresses these barriers by pairing long tenor financing and targeted capital incentives with hands-on technical assistance, helping industries to transition to cleaner production."
The project will be implemented by the Department of Industry under the Ministry of Industry, Commerce and Supplies and the Department of Environment under the Ministry of Forests and Environment. Rastriya Banijya Bank will serve as the handling bank for the clean technology financing facility.
The project financing from the World Bank is complemented by a $5 million grant from the World Bank’s Resilient Asia Program, funded by the United Kingdom’s Foreign, Commonwealth and Development Office and Swiss Agency for Development and Cooperation. The project is part of the World Bank’s Regional Air Quality Management Program in the Indo-Gangetic Plains and Himalayan Foothills (IGP-HF), a global air pollution hotspot.

ADB supports Nepal’s digital transformation toward high‑impact services

The Asian Development Bank (ADB) has approved a $40 million concessional loan to help Nepal accelerate its digital transformation agenda and expand access to high‑impact digital services for citizens and businesses.
The Nepal Digital Transformation Project - the first in South Asia to be co-financed under the ADB–World Bank Full Mutual Reliance Framework (FMRF) - will strengthen the country’s data hosting and cybersecurity infrastructure to enhance government-wide digital security and resilience, along with core digital public infrastructure for modern, user‑centric services, according to a press note issued by the ADB. "It will support key initiatives such as developing an integrated citizen service portal, improving the national social registry, establishing a secure government-wide data exchange platform for safe and efficient information sharing, and digitalizing about 11 high‑impact government services, according to a press release issued by the multilateral lender."
“Digital transformation is no longer optional - it is critical for improving public service delivery and supporting Nepal’s economic development,” said ADB Country Director for Nepal Arnaud Cauchois. “The reforms supported by ADB and the World Bank will make key services easier to access, reduce waiting times and administrative barriers, and enhance transparency in government processes - helping build greater trust between citizens and public institutions.
The project will be implemented by Ministry of Communications and Information Technology. It aligns with Nepal’s Digital Nepal Framework 2.0, Sixteenth National Plan, e‑Governance Blueprint, and ADB’s country partnership strategy for Nepal, 2025–2029, which identifies digital transformation as a core crosscutting priority, the press note reads.
The FMRF is an innovative co-financing arrangement between ADB and the World Bank designed to streamline project preparation, reduce duplication, and deliver faster and more effective development support. The World Bank is the lead lender for the Nepal Digital Transformation Project, approving its $50 million concessional loan in February this year.
ADB is a leading multilateral development bank supporting inclusive, resilient, and sustainable growth across Asia and the Pacific. Working with its members and partners to solve complex challenges together, ADB harnesses innovative financial tools and strategic partnerships to transform lives, build quality infrastructure, and safeguard our planet. Founded in 1966, ADB is owned by 69 members - 50 from the region.