World Bank and ADB cut Nepal's growth forecasts as the Rasuwa flood hits industry

Two of Nepal's largest lenders have marked down their expectations for the economy after the flood that came down the Bhotekoshi river on 26 August. The World Bank now forecasts growth of 3.7% in the 2026/27 fiscal year, which runs to mid-July 2027, according to its Nepal Development Update published on 6 October and reported by The Himalayan Times. That is below the 3.9% the economy is estimated to have grown in 2025/26 and the 4.4% of the year before, The Rising Nepal reported.

The Asian Development Bank reached a similar conclusion a fortnight earlier. Its Asian Development Outlook for September cut the forecast for 2026/27 to 4.1%, from the 4.5% it had published in July, and named the flood as the reason. In the same report it raised its inflation forecast for the year to 5.3%, from 5.0%.

Industry takes the hit

Both institutions expect industry to suffer most. The World Bank said damage to hydropower, solar plants, transmission lines and roads would constrain electricity generation, production and the movement of goods, according to ShareSansar's summary of the report. Services are expected to be hurt through trade, transport, tourism and financial activity. Farm losses, the bank said, will matter less for national output than for the livelihoods of families in the affected valleys.

That is a reversal of the pattern of the past year. The ADB said industry grew 5.7% in 2025/26, driven mainly by new hydroelectric capacity, while agriculture grew only 1.6% after a late monsoon and floods in October 2025 cut the paddy harvest. Services grew 4.2%. The National Statistics Office's preliminary estimate put overall growth for 2025/26 at 3.85%, with electricity and gas the fastest-growing activity at 20.93%, B360 reported. Hydropower is now among the sectors the World Bank expects to drag on output; the scale of the damage is described in our report on the flood's effect on power supply.

Demand had been recovering before the flood. The ADB said private consumption grew 3.2% in 2025/26, up from 2.3%, and private investment rose 39.6% after shrinking 8.1% the year before, helped by remittances and lower interest rates. Public investment remained weak because of poor execution of the capital budget.

Rebuilding as a source of growth

Neither lender expects the slowdown to last. The World Bank projects growth of 5.2% in 2027/28 as reconstruction and rehabilitation gather pace, though it warned that the strength of the recovery depends on the speed and scale of that work, The Rising Nepal reported. The ADB said reconstruction spending would partly offset the damage in the current year by supporting demand.

The bill will be large. The ADB now expects the fiscal deficit to widen to 4.7% of GDP in 2026/27, against a pre-flood projection of 3.4%, as the government raises recurrent and capital spending. It also expects electricity exports to contribute little to export growth this year and tourism receipts to weaken for a time, which would narrow the current-account surplus of 14.0% of GDP recorded in 2025/26.

The World Bank used the report to argue that reconstruction should not simply restore what was lost. David Sislen, its division director for Maldives, Nepal and Sri Lanka, said resilience and redundancy should be central to planning in connectivity, energy and basic services, The Himalayan Times reported. The bank recommended updated multi-hazard risk assessments covering floods, debris flows, landslides and glacial hazards, and an integrated social protection system able to deliver disaster aid quickly.

The World Bank released the Nepal update alongside its South Asia Economic Update, which forecasts regional growth of 6.9% in 2026 and 6.7% in 2027.

What to watch: the government's post-disaster needs assessment and any donor conference built on it, the pace at which damaged hydropower plants return to the grid, and the first-quarter national accounts, which will show whether the slowdown is as sharp as the lenders expect.