Key Takeaways:

• World Bank forecasts Nepal's growth at 3.7 percent in FY2026-27
• Rasuwa flood expected to disrupt industry, services and infrastructure
• Economic growth projected to rebound to 5.2 percent in FY2027-28
• Report calls for resilient infrastructure and stronger disaster preparedness

KATHMANDU, OCTOBER 6 Nepal's economic growth is projected to slow to 3.7 percent in fiscal year 2026-27 following the devastating Aug. 26 Rasuwa flood, which damaged critical infrastructure and disrupted economic activity, according to the World Bank's latest Nepal Development Update. The report forecasts growth will recover to 5.2 percent in FY2027-28 as reconstruction and rehabilitation efforts help revive economic activity. According to the World Bank, the industrial sector is expected to be the main drag on growth after extensive damage to hydropower plants, solar facilities, electricity transmission infrastructure and transport networks constrained electricity generation, production and the movement of goods. Services are also expected to face pressure from disruptions to trade, transport, tourism and financial activities. While agricultural losses are projected to have a limited impact on overall economic output, the report cautions that they could significantly affect livelihoods in flood-affected communities. 'The Rasuwa flood has caused devastating human and economic losses,' said David Sislen, World Bank Division Director for Maldives, Nepal and Sri Lanka. He said the disaster presents an opportunity for Nepal to rethink infrastructure planning and investment, particularly in connectivity, energy and essential public services such as water supply, sanitation, health and education. Sislen said resilience and redundancy should become central principles of infrastructure development as Nepal faces increasing climate-related risks. The World Bank also urged Nepal to move beyond rebuilding damaged assets and instead adopt a more resilient reconstruction approach. The report recommends updated multi-hazard risk assessments, improved infrastructure planning and stronger redundancy across critical transport, energy and communications networks. It also highlights the need to strengthen early warning systems and establish an Integrated Social Protection System capable of rapidly delivering disaster assistance to vulnerable households. The Nepal Development Update was released alongside the latest South Asia Economic Update, titled Adopting AI for Growth. The regional report projects South Asia's economy will grow by 6.9 percent this year before easing slightly to 6.7 percent in 2027. According to the World Bank, artificial intelligence could become an important driver of economic growth by improving labour productivity, expanding export opportunities and strengthening public service delivery. The report says AI adoption is increasing across South Asia, although usage levels remain below those of advanced economies. It also notes that AI could help improve service delivery in sectors such as health, education and agriculture, where shortages of skilled personnel remain a challenge. '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. The report recommends improving workforce skills, strengthening digital and physical infrastructure, creating a more business-friendly environment and developing regulatory frameworks that support AI innovation while protecting data security and privacy.