The World Bank has projected a slowed economic growth rate of 3.7 per cent for Nepal in the Fiscal Year 2026/27 owing to the disruptions caused by the Bhotekoshi flood on August 26 to industry and services.
The projected growth rate of the Gross Domestic Product (GDP) is below the estimated economic expansion in FY 2025/26 when the country achieved 3.9 per cent. The economic growth rate in FY 2024/25 was 4.4 per cent.
The South Asia as a region is expected to achieve 6.9 per cent growth this year, with strong domestic demand keeping the region resilient to global shocks. Growth is expected to slow to 6.7 per cent in 2027.
However, reconstruction and rehabilitation activities are expected to begin supporting economic activity, supporting a recovery in growth to 5.2 per cent in FY2027/28 in Nepal, the WB said in its report ‘Nepal Development Update, Building Back Differently for the Future’ published on Tuesday.
However, the pace and strength of the recovery will depend on the speed and scale of reconstruction and restoration efforts, warned the multilateral donor.
“Industry is expected to be the primary drag on growth, reflecting extensive damage to hydropower, solar energy, electricity transmission, and transport infrastructure, which will constrain electricity generation, production, and the movement of goods,” read the report.
Services are expected to be affected through disruptions to trade, transport, tourism, and financial activity. Agricultural losses, while limited in the effects on aggregate output, are expected to have significant impacts on livelihoods in affected areas.
While the catastrophic flood caused devastating human and economic losses, the WB maintained that this is a moment of opportunity for Nepal to think about its infrastructure — connectivity, energy, and basic services like water and sanitation and health and education — and ensure that resilience and redundancy are central to its planning and investment, especially in the context of a changing climate and an evolving set of risks.
“Recovery should therefore go beyond restoring damaged assets to reconsider how future development in highly exposed mountain environments can better account for changing and interconnected risks as well as avoiding the accumulation of risk in a concentrated area,” read the report.
It added that reconstruction planning should be informed by updated multi-hazard risk assessments that consider floods, debris flows, landslides, glacial hazards, and river-system dynamics, as well as the potential for cascading impacts across entire infrastructure networks. This includes greater attention to the location and design of critical infrastructure and to lifeline systems— transport, energy, communications, and other networks
“The WB stands ready to assist the authorities in investing in systems and implementing the right policies to help put Nepal on a more resilient and
sustainable development path,” said David Sislen, World Bank Division Director for Maldives, Nepal, and Sri Lanka.
As the country moves from relief to reconstruction, the report recommended recovery efforts that go beyond restoring damaged assets and towards incorporating updated multi-hazard risk assessments, careful consideration of infrastructure location and design, and greater redundancy in critical transport, energy, and communications networks.
“Strengthening early warning systems will be equally vital, alongside building an Integrated Social Protection System as a foundation for rapidly delivering disaster assistance to vulnerable households,” said the WB.
The WB also launched the South Asia Economic Update report which is themed on ‘adopting AI for growth projects’.
According to it, adoption of AI in South Asia is rising but it remains well behind that in advanced economies.
Despite this gap, AI adoption is accelerating and firms are
using AI to find new market opportunities.
Analysis of recent data shows that AI is expanding opportunities, through global value chain links, for South Asian suppliers that are heavily exposed to AI.
Another area of significant potential is the use of AI for public service delivery, in sectors
such as health, education and agriculture, where skilled personnel are scarce.
“The adoption of AI has the potential to transform South Asia’s development trajectory by boosting labour productivity, expanding export opportunities, and improving public service delivery,” said Franziska Ohnsorge, World Bank Group Chief Economist for Asia. “But to reap these benefits, governments need to address the foundational gaps that hold back adoption.”
The report recommends policy measures to strengthen workforce skills, establish a more business-enabling environment, and improve physical and digital infrastructure, complemented by measures to reduce barriers to AI adoption by small firms, foster local AI innovation, and establish a clear regulatory framework that reduces uncertainty and safeguards data security and privacy.
