1. Context

On the morning of 26 August 2026 a glacier collapse in the Langtang range sent a wall of water and debris down the Bhotekoshi and Trishuli rivers. By late September the National Disaster Risk Reduction and Management Authority had recorded 1,453 deaths and 5,285 people missing. Twelve hydropower projects were hit, taking around 430 MW, or 10.6% of Nepal's installed generation capacity, off the grid and damaging a further 395 MW under construction. More than 55 km of the 82 km Galchhi to Rasuwagadhi corridor was destroyed, cutting the crossing that carries 47% of Nepal's exports to China. Over 100 bridges were damaged or lost.

The Government's rapid damage and needs assessment puts physical damage at US$1.81 billion and total disaster effects at around US$2.7 billion. Recovery and reconstruction will cost about US$4.8 billion, roughly a tenth of annual GDP, almost all of it for longer-term reconstruction rather than immediate relief.

The damage to roads, bridges and power stations is the visible part of the bill. The larger part is what the flood does to the economy as a whole, and this part the current support system does not cover. Lost generation, transport and trade have pulled this year’s growth forecast well below the Government’s target. Nepal’s public debt has grown sharply over the past decade through borrowing after the 2015 earthquake and the pandemic, and debt servicing already takes up almost as much of the budget as capital spending. Reconstruction will be financed mainly by more borrowing. Nepal obtained its first sovereign credit rating only two years ago, and a downgrade after a shock of this size would raise the cost of every dollar borrowed to rebuild. Only a small share of the damage was insured, most of it contractors’ cover on hydropower sites, so households, public infrastructure and the wider economy are largely unprotected. The Fund for responding to Loss and Damage has made its first disaster-specific allocation to Nepal, which is welcome, but it covers a very small fraction of what is needed.

This pattern is not specific to Nepal. IIED’s work with Small Island Developing States shows the same chain. Between low and high disaster periods, average external debt in SIDS rose from 45% to 58.5% of GDP. From 2000 to 2022 the average sovereign rating of rated SIDS fell from 9.94 to 6.87 on a 21-point scale. The climate risk premium on borrowing is expected to cost the most vulnerable countries US$168 billion over the next decade, and currency depreciation costs SIDS US$2.43 billion and LDCs US$11.63 billion a year.

The response has to be more than grants for rebuilding. SIDS have shown this can be done. The SIDS Debt Sustainability Support Service, co-designed by SIDS leaders and adopted in the Compromiso de Sevilla at FfD4, brings together debt relief, insurance of sovereign debt and GDP losses, resilience investment and credit rating reform in one package. Nepal’s flood is the test case for whether the same thinking can be applied to a mountain LDC: grant finance for relief and recovery; layering debt relief, debt swap and a pause tied to the disaster; insurance that protects the economy and not only individual assets; a credit rating approach that does not penalise resilience investment; and lending in local currency. This session asks what such a package would look like for Nepal, and who needs to do what to put it together.

2. Objectives

The event will:

• • Set out the full macroeconomic cost of the August 2026 flood for Nepal, beyond the damage to physical assets.
• • Show that a holistic package combining grants, debt relief, insurance of GDP losses, credit rating reform and local currency lending is possible and has been agreed at the multilateral level.
• • Discuss what a comparable package would need for Nepal and other LDCs, and who should carry it forward.

3. Proposed agenda and format