Nepal’s Growth Slows After Rasuwa Flood as Rebuilding Tests Its Readiness for Risk

The report places safer infrastructure and stronger disaster preparedness at the centre of rebuilding, connecting Nepal’s immediate recovery needs with its exposure to changing climate risks.

Nepal's economy is projected to grow by 3.7% in FY27 as damage from the August 26 Rasuwa flood disrupts industry and services, leaving businesses and affected communities facing a difficult recovery. The World Bank's latest Nepal Development Update: Building Back Differently for the Future expects reconstruction and rehabilitation to begin supporting economic activity, helping growth recover to 5.2% in FY28. The report places safer infrastructure and stronger disaster preparedness at the centre of rebuilding, connecting Nepal's immediate recovery needs with its exposure to changing climate risks.

Flood damage disrupts power, production and livelihoods

Industry is expected to be the biggest drag on growth, with extensive damage to hydropower facilities, solar energy installations, electricity transmission and transport infrastructure restricting electricity generation, production and the movement of goods. Services face disruption across trade, transport, tourism and financial activity, spreading the economic effects beyond the damaged infrastructure itself. Agricultural losses are expected to have a limited effect on total national output, with significant consequences for livelihoods in affected areas where families depend on farming for their income.

David Sislen, the World Bank's Division Director for Maldives, Nepal and Sri Lanka, described the Rasuwa flood as a source of devastating human and economic losses and urged Nepal to reconsider how it plans and invests in essential infrastructure. His call extends across connectivity, energy, water, sanitation, health and education, with resilience and backup capacity becoming central requirements as climate conditions and risks evolve. The World Bank expressed its readiness to help authorities invest in systems and implement policies that support a more resilient and sustainable development path.

Rebuilding needs safer designs and reliable backup systems

The move from emergency relief to reconstruction brings decisions about where infrastructure should be located, how it should be designed and how services can continue when individual assets fail. The report recommends updated assessments covering multiple hazards, careful choices about location and design, and greater redundancy in critical transport, energy and communications networks. Building backup routes and capacity into these systems would help reduce the disruption caused by future disasters and strengthen the reliability of services that households and businesses depend on.

Stronger early warning systems form another essential part of the proposed recovery approach, giving communities and authorities a better foundation for responding to approaching hazards. The report recommends an Integrated Social Protection System to support the rapid delivery of disaster assistance to vulnerable households, connecting infrastructure recovery with the needs of people facing immediate financial hardship. These measures would help Nepal rebuild with better preparation for future emergencies and a stronger ability to reach families requiring support.

South Asia's AI opportunity depends on skills and access

The Nepal update accompanies the World Bank's twice-yearly South Asia Economic Update, which examines regional economic developments and prospects. Its latest edition, Adopting AI for Growth, projects South Asian growth of 6.9% in 2026, supported by strong domestic demand that helps the region withstand global shocks, followed by a slowdown to 6.7% in 2027. AI adoption is accelerating from levels well below those in advanced economies, with firms finding new market opportunities; recent data also show expanding opportunities through global value chains for South Asian suppliers heavily exposed to AI.

According to the regional report, AI could improve public services in health, education, and agriculture, particularly where skilled personnel are scarce. Franziska Ohnsorge, the World Bank Group's Chief Economist for Asia, highlighted its potential to raise labour productivity, expand exports and improve service delivery, stressing the need to address foundational gaps. Recommended measures include stronger workforce skills, a better business environment, improved physical and digital infrastructure, fewer barriers for small firms adopting AI, support for local innovation, and clear regulation that reduces uncertainty and protects data security and privacy.