Fitch Ratings says Nepal’s new single-party government under the Rastriya Swatantra Party could finally deliver the policy predictability and reforms the Himalayan nation has long lacked after decades of coalition chaos.

In its latest report on Nepal, global credit rating agency Fitch Ratings stated that the clear majority for Nepal’s Rastriya Swatantra Party (RSP) “reduces near-term political uncertainty and provides an opportunity for enhanced policy predictability and the implementation of governance and economic reforms.”

The agency noted that the outcome lowers the risk of prolonged coalition negotiations following last year’s unrest and reduces the likelihood of the frequent government changes that have plagued Nepal for decades. Over the past three decades, the country has seen more than three dozen governments, none completing a full five-year term. Chronic instability – rooted in the 1996-2006 Maoist insurgency, the 2001 royal massacre, and the 2008 transition from monarchy to federal republic – has left a legacy of fragile coalitions, weak party cohesion and entrenched corruption.

Fitch added that a single-party majority, subject to final certification, “should imply a short political transition and could improve Nepal’s ability to sustain reform momentum and translate hydropower-led investment into broader-based economic growth.”

RSP’s Historic Landslide Ends Era of Instability

RSP secured a commanding parliamentary majority in the March 5 general elections, winning 182 of 275 seats in the House of Representatives – 125 under the first-past-the-post system and 57 through proportional representation. The result gives the four-year-old centrist party a near two-thirds supermajority, paving the way for Balendra Shah (popularly known as Balen), the former Kathmandu mayor and RSP’s prime ministerial candidate, to lead the next government. RSP founder and chairman Rabi Lamichhane also retained his seat.

Traditional powerhouses – the Nepali Congress and Communist Party of Nepal (Unified Marxist-Leninist) – suffered heavy losses, reflecting widespread voter frustration with the status quo. The election followed last year’s youth-led protests that toppled the previous administration amid demands for better governance and an end to corruption.

Ambitious RSP Policy Agenda Sets Stage for Transformation

The RSP’s manifesto outlines bold targets: average real GDP growth of about 7 per cent over the next five years, lifting per capita income above $3,000. Fitch describes these goals as “ambitious” compared with its current forecast of 4.5 per cent for the fiscal year ending mid-July 2027. The party aims to achieve this through productivity gains, formal job creation to stem emigration, and private-sector-led investment in infrastructure, agriculture, services, digital and innovative industries.

Key pledges include generating 30,000 megawatts of electricity within a decade, completing all national pride projects within two years, and boosting exports to $30 billion (from the current $1.5 billion) largely through information technology. The party plans to leverage surplus hydropower for server farms, cloud infrastructure and artificial intelligence computing, positioning Nepal as a regional digital hub. Additional commitments involve investigating the assets of public office holders dating back to the 1990 democratic transition and creating 500,000 jobs.

Fitch emphasised that “the new government’s policy agenda will be key” in determining whether these targets materialise.

Supported by Fundamentals

Nepal continues to hold a ‘BB-’ rating with a stable outlook, last affirmed by Fitch in November 2025. The rating is underpinned by relatively low and highly concessional government and external debt burdens, strong external liquidity, and solid medium-term growth prospects anchored by hydropower development. Successful implementation of an International Monetary Fund programme has further reinforced resilience.

However, structural weaknesses persist: low GDP per capita, exposure to external shocks and natural disasters, and governance metrics that lag behind ‘BB’-category peers. Fitch warned that “Nepal’s weak government effectiveness and regulatory quality scores compared with its peers could constrain execution.” Fitch says that private investment and foreign participation will hinge on measurable improvements in the business environment and sustained anti-corruption enforcement.

Implementation Challenges and Investor Outlook

While the RSP victory offers rare political stability, success will depend on execution. Economists and business leaders hope a strong majority government can finally tackle systemic issues – from protracted infrastructure delays (roads often take seven to ten years) to public procurement scandals and the politician-business nexus.

Fitch cautioned that “implementation capacity could pose a significant risk” if reform sequencing remains unclear or governance outcomes fall short of campaign promises. Yet, if the new administration delivers tangible progress, investor sentiment could improve markedly, supporting foreign direct investment and private-sector growth.

Nepal’s shift toward development-focused diplomacy and digital innovation under RSP leadership marks a potential turning point for one of Asia’s most underdeveloped yet resource-rich economies.

Global Benchmark for Credit Analysis

Fitch Ratings, one of the world’s “Big Three” credit rating agencies alongside Moody’s and S&P Global Ratings, has provided independent credit opinions for over 110 years. Founded in 1913–1914 by American economist John Knowles Fitch as the Fitch Publishing Company in New York, the firm now operates with dual headquarters in New York and London. Part of the Fitch Group, it employs more than 2,400 analysts and covers over 20,000 entities worldwide.

Fitch’s sovereign ratings and research – such as this latest commentary on Nepal – influence billions of dollars in investment decisions by governments, banks, pension funds and corporations globally. Its assessments blend quantitative data with qualitative insights on political risk, governance and economic policy, helping markets price risk accurately. The agency’s rigorous methodology has earned it designation as a Nationally Recognized Statistical Rating Organisation (NRSRO) by the US Securities and Exchange Commission.