ADB cuts growth forecast to 4.1% after Bhotekoshi floods

The Asian Development Bank (ADB) has lowered Nepal’s economic growth forecast for FY2027 to 4.1% from 4.5%, citing the impact of the Bhotekoshi floods on hydropower, transport infrastructure, trade, tourism and local economic activity.

In its September 2026 Asian Development Outlook, the ADB said flood-related damage and disruptions are expected to slow growth in the industry and services sectors, particularly in the first quarter of the fiscal year. Reconstruction and rehabilitation spending could support economic activity, but the additional expenditure will increase pressure on public finances.

The ADB has raised its inflation forecast for FY2027 to 5.3% from 5.0%, mainly due to supply disruptions, higher transportation costs and increased demand for construction materials and labour. Inflation averaged 3.1% in FY2026.

The fiscal deficit is projected to widen to 4.7% of GDP, compared with an estimated 3.0% in FY2026 and the earlier forecast of 3.4%. The government has estimated that rebuilding flood-damaged infrastructure will require around NRs 723.3 billion. Public debt, estimated at 44.9% of GDP in FY2026, is also expected to rise.

The floods have severely affected the hydropower sector, with more than 430 MW, or around 10% of Nepal’s installed generation capacity, temporarily knocked out. The ADB expects the damage to limit electricity exports in FY2027. Tourism is also likely to face a temporary setback because of damaged roads and other infrastructure.

Strong external position provides cushion

Nepal enters the crisis with a relatively strong external position. The ADB estimates that remittances grew 29.% in fiscal 2026, helping generate a current-account surplus equivalent to 14% of GDP and an overall balance-of-payments surplus of 15.6%.

Foreign-exchange reserves reached a level sufficient to cover more than 19 months of imports of goods and services.

The ADB expects remittance inflows to remain strong in fiscal 2027. However, reconstruction and stronger domestic demand are likely to increase imports, while temporary declines in tourism receipts and electricity exports could narrow the external surplus.

The ADB has meanwhile revised Nepal’s FY2026 growth estimate upward to 3.9% from 3.3%, supported by stronger private investment, consumption and external demand.