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.

World Bank approves $50 million Digital Transformation Project

The World Bank’s Board of Executive Directors today approved $50 million in financing to boost Nepal’s digital public infrastructure and digitise public services, fundamentally changing how services are delivered to the people.
The Nepal Digital Transformation Project will invest in digital platforms including an integrated online citizen service portal and an integrated social registry; a secure government-wide data exchange; and a digital locker to manage verifiable credentials and digital wallet, according to a press note issued by the World Bank. "The project will also help digitise high-impact services including land administration with other services being added in a phased approach," it reads, adding that the project aims to boost private sector investment in the data infrastructure market by improving legal and regulatory frameworks. "To promote trust in the digital economy, the project will invest in electronic signatures, cybersecurity, and data governance."
“By investing in core digital platforms and digitalising services, this project will help deliver enhanced services to people and businesses in an inclusive and transparent manner thereby improving service delivery, public sector efficiency, and good governance,” said World Bank Division Director for Maldives, Nepal, and Sri Lanka David Sislen.
The project will be financed under a joint co-financing arrangement between the World Bank and the Asian Development Bank (ADB) under the Full Mutual Reliance Framework. The World Bank is the lead lender while the ADB will serve as the trail lender and contribute $40 million. ADB’s management is expected to present the project to their Board for consideration in March 2026.
The project will be implemented by the Ministry of Communications and Information Technology and Department of National ID and Civil Registration.

World Bank approves $95 million to support sustainable and inclusive finance

The World Bank’s Board of Executive Directors approved a $95 million operation to help expand access to finance for more than 100,000 small and medium enterprises (SMEs) and promote job-led growth in Nepal.

“This operation will strengthen Nepal’s Deposit and Credit Guarantee Fund (DCGF) to expand risk-sharing, enhance financial sustainability, and introduce new guarantee products for underserved segments such as women-led businesses,” said World Bank Country Division Director for Maldives, Nepal, and Sri Lanka David Sislen. “By easing access to finance and reducing transaction barriers, the operation will broaden financial inclusion, support the integration of MSMEs into regional and global value chains, and foster job creation and private sector–led growth."
The Sustainable and Inclusive Finance Project (SIF) builds on reforms supported under the World Bank financed Financial Sector Stability and Finance for Growth Development Policy Credit (DPC) series, concluded in 2024, which prioritised access to finance for underserved segments as a key pillar.
Complementing these efforts, the project will invest in technology and institutional capacity of the Credit Information Bureau of Nepal (CIBN) to expand data coverage, integrate alternative data sources, and enhance data security and privacy. The International Finance Corporation has been supporting CIBN in this endeavor. The project also aligns with the Government of Nepal’s recently approved second Financial Sector Development Strategy, according to the World Bank.
“Inadequate collateral and limited credit histories have long constrained SMEs’ access to affordable finance while limiting lenders’ ability to accurately assess credit risk,” said Senior Financial Sector Specialist for South Asia Region, and Task Team Leader for the operation Sabin Raj Shrestha. "The DCGF will be strengthened by upgrading its management information system, improving claims-settlement efficiency, and transitioning to risk-based pricing and first-loss coverage."

IOM supports government to strengthen capacity for climate change negotiations

The International Organisation for Migration (IOM) Nepal, in collaboration with the Ministry of Forest and Environment, organised a three-day capacity building training on climate change negotiations for Government Officials from 25 to 27 January. The initiative aimed to enhance Nepal’s preparedness and strategic engagement in international climate negotiations under the United Nations Framework Convention on Climate Change (UNFCCC).
Nepal is among the countries most vulnerable to impacts of climate change due to its fragile ecosystems and an economy highly dependent on climate-sensitive sectors such as tourism, agriculture, water resources, and forestry, according to a press note issued by the IOM. "As climate-related hazards intensify, they are increasing economic stress, disrupting livelihoods, and slowing developmental progress," it reads, adding that these pressures are also directly impacting climate-induced displacement across communities. "Despite this growing scale and complexity of climate-related mobility, global climate governance and policies have not yet fully integrated into these issues, limiting opportunities for comprehensive and people-centred climate action."
IOM Chief of Mission in Nepal Helene Fors, on the occasion, echoed the importance of strengthened advocacy on the concerning issue of climate mobility in Nepal on global platforms. “Together, we can ensure that Nepal’s voice, particularly on climate vulnerability, climate finance, and human mobility is clearly heard on the global stage,” she said.
The training brought together government officials from key institutions, including Ministry of Forests and Environment; Ministry of Home Affairs; Ministry of Foreign Affairs; Ministry of Labour, Employment and Social Security; National Planning Commission; National Disaster Risk Reduction and Management Authority; and National Human Rights Commission and others.
The programme focused on enhancing participants’ understanding of substantive and procedural issues under the UNFCCC process, strengthening inter- ministerial coordination and collaboration, promoting knowledge-sharing and building practical negotiation skills. Particular emphasis was placed on the nexus between climate change, environmental degradation, and human mobility.
This initiative lays a foundation for more future initiatives to strengthen national climate action response through an informed, coordinated and strategically prepared national negotiation team, supporting effective participation and influence in upcoming UNFCCC processes, including the Bonn Climate Sessions, the 31st Session of the Conference of the Parties (COP31), and future negotiations.
Joint Secretary at the Ministry of Forests and Environment Maheshwar Dhakal, on the occasion, encouraged participants to make full use of the three-day training and further enhance their negotiation skills, noting that “Negotiation is a vital skill, not only within the context of climate change and the UNFCCC process, but also in our everyday lives."
Through this capacity-building initiative, IOM reaffirmed its commitment to supporting Nepal in addressing critical intersections of climate change, human mobility and sustainable development, while advancing the recognition and integration of human mobility considerations within national climate action and policy frameworks.
This event was organised under the project 'Nepal: Promoting a Human Security and Gender Equality- Based Approach to Migration and Adaptation to Climate Change,' supported by the IOM Development Fund. It aligns with the project’s overarching objective of supporting Nepal in responding to the challenges across the Migration, Environment and Climate Change nexus.

IMF sets stage for major anti-corruption reform plan in Nepal

An International Monetary Fund (IMF) technical assistance mission, led by Jonathan Pampolina, successfully concluded its scoping visit to Kathmandu yesterday (January 21).
The 10-day mission, which began on January 12, was conducted at the request of the Nepali authorities to lay the groundwork for a comprehensive Governance and Corruption Diagnostic (GCD).
The diagnostic is designed to identify governance weaknesses and corruption vulnerabilities that are critical to Nepal’s macroeconomic stability. The final goal is to create a prioritized and sequenced action plan to strengthen the country's state functions and integrity.
What are the focus areas of the diagnostic?
The mission utilized the IMF 2018 Enhanced Governance Framework to target core state functions, specifically focusing on Fiscal Governance, Financial Sector Oversight, Rule of Law, strengthening anti-money laundering and countering the financing of terrorism and Anti-Corruption Framework.
The IMF team held extensive consultations with a broad spectrum of state institutions, including the Ministry of Finance, Nepal Rastra Bank (NRB), the Supreme Court, and the Commission for the Investigation of Abuse of Authority (CIAA). To ensure a holistic perspective, the mission also met with business associations, civil society organizations, and international development partners.
The IMF staff praised the Nepali government's commitment to the diagnostic process. A full GCD mission is scheduled for the coming months to finalize reform recommendations. The process will culminate in a comprehensive report analyzing the severity of corruption and providing a roadmap for reforms intended to boost Nepal’s economic outcomes and institutional resilience.