Nepal's growth projected to slow to 3.7 pc in FY27 following Rasuwa flood

KATHMANDU: Nepal's economic growth is projected to slow to 3.7% in Financial Year 2027 (FY27) due to disruptions across industry and services caused by the devastating Rasuwa flood on August 26. According to the World Bank in its latest Nepal Development Update, reconstruction and rehabilitation efforts will eventually support a recovery, with growth expected to reach 5.2% in FY28.

The report, titled 'Building Back Differently for the Future', indicates that the industrial sector will be the primary drag on the economy. This reflects extensive damage to transport infrastructure, electricity transmission, solar energy, and hydropower, constraining the movement of goods and power generation.

Furthermore, the services sector is projected to suffer through disruptions to financial activity, tourism, transport, and trade. Although the impact on aggregate agricultural output is limited, the losses are anticipated to have a severe effect on the livelihoods of those in the affected regions.

"The Rasuwa flood has caused devastating human and economic losses," said David Sislen, World Bank Division Director for Maldives, Nepal, and Sri Lanka. "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."

Sislen noted that the World Bank 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.

As Nepal transitions from relief to reconstruction, the World Bank advises that recovery efforts should extend beyond merely restoring damaged assets. The recommendations include incorporating updated multi-hazard risk assessments, carefully evaluating the location and design of infrastructure, and building greater redundancy into crucial communications, energy, and transport networks.

Enhancing early warning systems is highlighted as vital, alongside the development of an Integrated Social Protection System (ISPS) to rapidly deliver disaster assistance to vulnerable households.

The Nepal Development Update is a companion piece to the South Asia Economic Update, a twice-a-year report that examines economic developments and prospects in the South Asia region. The latest South Asia Economic Update, Adopting AI for Growth projects growth in South Asia to increase to 6.9% this year, with strong domestic demand keeping the region resilient to global shocks. Growth is expected to slow to 6.7% in 2027.

The report explores how the strategic application of AI can create new avenues for growth. Although AI adoption in South Asia remains significantly behind advanced economies, it is accelerating as businesses utilise the technology to find new market opportunities.

Recent data highlights that AI is broadening prospects for South Asian suppliers heavily exposed to the technology through global value chains. Another area of considerable potential is the application of AI in public service delivery across sectors such as agriculture, education, and health, where skilled personnel are in short supply.

"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."

To achieve this, the report advises policymakers to strengthen workforce skills, create a more enabling business environment, and upgrade digital and physical infrastructure. These steps should be complemented by actions to lower barriers to AI adoption for small businesses, encourage local innovation, and implement clear regulatory frameworks that safeguard data security and privacy and reduce uncertainty.