Everest, Kathmandu, October 6- The World Bank has projected that Nepal’s economic growth will decline during the current fiscal year due to the Rasuwa floods that occurred on August 26. The bank estimates that economic growth will fall to 3.7 percent as disruptions to the industrial and services sectors caused by the floods affect economic activity.

According to the World Bank’s latest Nepal Development Update, economic activity is expected to receive support once reconstruction and rehabilitation activities begin. The bank has projected that Nepal’s economic growth will rise to 5.2 percent in fiscal year 2027/28.

The Nepal Development Update, titled “Building Back Differently for the Future,” estimates that Nepal’s economic growth and industrial sector will be significantly affected by the extensive damage caused by the floods.

The report states that extensive damage to hydropower, solar energy, electricity transmission and transport infrastructure will directly affect electricity generation, manufacturing activities and the movement of goods. The services sector is expected to be affected by disruptions to trade, transportation, tourism and financial activities. Although the impact of agricultural damage on overall production is expected to remain limited, it could have a significant impact on livelihoods in the affected areas.

“Rasuwa floods have caused significant human and economic losses. They also present an opportunity for Nepal to rethink its infrastructure, roads, communications, energy, water supply and sanitation, health and education services. In particular, in the context of climate change and evolving risks, resilience and alternative arrangements need to be given greater importance in infrastructure planning and investment. The World Bank stands ready to support the Government of Nepal in investing in the systems needed and implementing the right policies to put Nepal on a more resilient and sustainable development path,” said David Sislen, World Bank Division Director for Maldives, Nepal and Sri Lanka.

As Nepal moves from rescue and relief toward reconstruction, the report recommends that reconstruction efforts should go beyond simply restoring damaged structures and include updated assessments of multi-hazard risks. It also recommends careful consideration of the location and design of infrastructure, as well as ensuring greater redundancy in critical transportation, energy and communications networks.

The report also emphasizes the importance of strengthening disaster early-warning systems. It further stresses the need to establish an integrated social protection system that can serve as a foundation for rapidly delivering post-disaster assistance to vulnerable households.

The Nepal Development Update is a companion report to the South Asia Economic Update, which is published twice a year and analyzes economic developments and prospects across the South Asia region. The latest South Asia Economic Update projects economic growth in South Asia at 6.9 percent this year.

The region’s economies are expected to remain resilient to global shocks, supported by strong domestic demand. However, economic growth is projected to decline to 6.7 percent in 2027.

The World Bank said the report also analyzes how the strategic use of artificial intelligence (AI) can create new sources of economic growth. Although the use of AI is increasing across South Asia, adoption remains significantly behind that of advanced economies. Despite this gap, AI adoption is growing rapidly, with businesses increasingly using the technology to identify new market opportunities.

“AI adoption presents an opportunity to transform South Asia’s development trajectory by boosting labor productivity, expanding export opportunities and improving the delivery of public services,” said Franziska Ohnsorge, World Bank Group Chief Economist for Asia. “However, to realize these benefits, governments need to address the fundamental weaknesses that hinder the adoption of AI.”

The report recommends policy measures to strengthen workforce skills, create a business-friendly environment and improve physical and digital infrastructure. It also calls for efforts to remove barriers faced by small businesses in adopting AI, encourage AI-related innovation at the local level and establish clear regulatory frameworks. Such frameworks should reduce uncertainty while ensuring data security and privacy, the report emphasizes.