KATHMANDU, October 6: Nepal’s economic growth is projected to slow to 3.7 percent in Fiscal Year 2026/27 following disruptions to industry and services caused by the August 26 flood, according to the World Bank (WB)’s latest development update.
Reconstruction and rehabilitation activities are expected to begin supporting economic activity, supporting a recovery in growth to 5.2 percent in FY 2027/28.
Releasing its signature publication, ‘Nepal Development Update, Building Back Differently for the Future’ states that 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.
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.
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According to the WB, the Rasuwa flood has caused devastating human and economic losses. 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.
“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 recommends 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, reads the WB’s report.
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 percent this year, with strong domestic demand keeping the region resilient to global shocks. Growth is expected to slow to 6.7 percent in 2027.
The report explores how the strategic use of AI can build new sources of growth. 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.
The WB’s 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 labor 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 also 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.
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