KATHMANDU — Nepal's economic growth is projected to slow to 3.7 percent in the current fiscal year ending mid-July 2027, largely due to disruptions to industry and services caused by the Aug 26 flood, the World Bank said on Oct 6.

The flood is expected to affect Nepal's economy through four primary transmission channels: energy, transportation, trade and tourism.

According to the World Bank's global rapid post-disaster damage estimation, total direct economic damage to physical assets amounted to $1.66 billion, with infrastructure accounting for 83 percent, followed by residential buildings at 11 percent and nonresidential buildings at 6 percent.

The government's preliminary rapid damage and needs assessment estimates total physical damage at $1.81 billion and total disaster effects — including losses from disruptions to productive activities, livelihoods and essential services — at approximately $2.7 billion.

READ MORE: Floods, landslides kill 56 in India and 14 in Nepal

The Asian Development Bank last month trimmed Nepal's growth forecast by 0.4 percentage points to 4.1 percent for the current fiscal year. The government, which has set a 6 percent growth target, however, is yet to release its post-flood assessment.

According to the World Bank's Nepal Development Update, Building Back Differently for the Future, industry is expected to be the primary drag on growth, reflecting extensive damage to hydropower, solar energy, electricity transmission and transport infrastructure.

The damage will constrain electricity generation and production, as well as the movement of goods.

Energy, including hydropower and the electricity grid, was the most affected infrastructure subsector, while economic activities and livelihoods accounted for the largest impacts within the productive sector.

Damage to the Prithvi Highway at Krishnabhir further compounded the disruption by affecting a critical artery connecting Kathmandu with southern Nepal and the Indian border, with implications for both international trade and domestic supply chains.

The World Bank said tourism is expected to face a potentially prolonged impact, reflecting both physical disruptions and heightened perceptions of travel risks. More than 200 hotels and restaurants were damaged across the affected districts, while access to major trekking and pilgrimage destinations — including Langtang, Gosaikunda and the Kailash Mansarovar corridor — has been disrupted.

The timing of the flood further compounds the impact, as the disruption occurred immediately before the main fall tourism season from September to November, when tourist arrivals and trekking activity typically increase.

The United Kingdom, Australia, Canada and the United States subsequently updated their travel advisories for Nepal.

Future prospects

In the next fiscal year, beginning in mid-July 2027, reconstruction-related demand for construction materials, machinery and equipment is expected to substantially increase imports, while hydropower and tourism exports could recover as damaged infrastructure is restored, additional generation capacity comes online and international tourist arrivals rebound.

According to the World Bank, reconstruction can support not only recovery from the August 2026 flood but also a more resilient development pathway for Nepal's Himalayas.

"The goal is to build resilient systems that continue functioning when individual assets fail and reduce the impact of future disasters," the World Bank said.

Reconstruction and rehabilitation activities are expected to begin supporting economic activity, and growth may recover to 5.2 percent in the next fiscal year.

The Rasuwa flood has caused devastating human losses. According to the National Disaster Risk Reduction and Management Authority, as of Sept 26, 1,453 people had died, 5,285 people remained missing and 13,795 people had been rescued.

"This is a moment of opportunity for Nepal to think about its infrastructure — connectivity, energy, and basic services like water and sanitation, 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," said David Sislen, World Bank Division Director for Maldives, Nepal and Sri Lanka.

"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."

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, according to the World Bank.