The economic cost of the devastating Bhotekoshi-Trishuli flood is emerging as a far larger crisis than the destruction of roads, bridges, houses and power plants visible along the river corridor.
The devastating flash flood that swept through the Bhotekoshi-Trishuli River corridor on Aug 26 has escalated into one of the most economically damaging natural disasters in Nepal’s recent memory. Beyond a human toll exceeding 1,250 dead and nearly 4,000 missing, the floods destroyed important trade corridors, energy grid infrastructure, vibrant marketplaces, bank branches, government infrastructure, and private residences across Rasuwa, Nuwakot, and Dhading districts.
Insurance companies have received claims worth Rs 25.87bn, according to preliminary figures released by the Nepal Insurance Authority. It is expected to rise further once detailed assessments are made. However, they already exceed the Rs 23.20bn in insurance claims generated by the GenZ movement last year and are substantially higher than the Rs 16.09bn claimed following the 2015 earthquakes.
The insurance figure should not be mistaken for the flood’s economic cost. A large portion of damaged homes, public infrastructure, informal businesses and other assets were not insured. Nor do insurance claims capture lost income, interrupted trade, reduced electricity generation, disrupted tourism, additional government spending or the longer-term impact on investment.
The government has estimated that $4-5bn could be required for reconstruction and rehabilitation—equivalent to roughly 10 percent of Nepal’s annual economic output.
The composition of the insurance claims provides an early indication of where the economic damage is concentrated.
Engineering and contractor-risk insurance accounts for Rs 20.5bn, or nearly four-fifths of the total claims. This largely came from operating or under-construction hydropower projects along the Bhotekoshi-Trishuli corridor. Property insurance accounts for another Rs 2.34bn, while motor insurance claims stand at Rs 1.55bn. Transport insurance claims amount to Rs 897.7m, while claims under other insurance categories total Rs 529.2m.
The Oriental Insurance has alone received claims worth Rs 13.04bn from eight insured parties. Shikhar Insurance has received the largest number of claims, with claims worth Rs 1.87bn from 127 insured parties.
Rs 50bn may be needed to rebuild roads, bridges
The Department of Roads (DoR) has estimated around Rs 30bn in damage to two strategic highways and said as much as Rs 50bn may be required to rebuild roads and bridges using more resilient technologies.
Around 40 km of the Bidur-Rasuwagadhi section has been completely destroyed, while 31 bridges have been washed away, according to DoR’s preliminary study.
Beyond the immediate cost of reconstruction, damaged road networks will have a long-term impact on the economy. Roads are the arteries through which fuel, food, construction materials and imported goods move. A sudden disruption in traffic movement can send prices soaring.
The disruption of the Rasuwagadhi border point will also have a significant long-term impact on the economy. Nepal imported goods worth Rs 425.24bn from China in the last fiscal year, while imports through Rasuwagadhi alone amounted to Rs 45.74bn. In recent years, Rasuwadhi had emerged as the most viable customs point for imports of electric vehicles from China. With China also closing Tatopani border, the destruction of the border point means importers will have to route all imports through the Korala border in Mustang which is certain to put additional burden on end consumers.
The economic consequences of this can extend to Kathmandu’s supply chains and consumer prices, particularly ahead of the Dashain and Tihar shopping season.
The flood has also struck one of the sectors Nepal regards as the foundation of its future economic growth. More than 12 percent of the country's installed electricity-generation capacity was estimated to have been affected, with projects including Upper Trishuli-1, Trishuli 3A, Trishuli 3B and Chilime suffering damage.
The damage has dealt a double blow to hydropower developers. In addition to the immediate cost of repairing generation infrastructure, they will lose revenue while the affected plants remain out of operation. Prolonged outages could make it more difficult for developers to service their debt, while banks that financed the projects could face increased credit risks.
For projects still under construction, the damage could be even more consequential. Reconstruction will require additional capital and may delay commercial operation, potentially weakening the investment cycle in a sector Nepal has been aggressively promoting.
The financial sector has not escaped the disaster. Banks operating in affected areas have reported direct losses of around Rs 600m. Fifteen of the 16 branches of 12 banks operating in the affected areas are completely damaged. Together, those branches had 78,204 depositors and Rs 4.50bn in deposits, while banks had extended Rs 2.43bn in loans, excluding lending to hydropower projects.
Tourism is another sector where the economic damage extends beyond destroyed assets. Minister for Culture, Tourism and Civil Aviation Khadak Raj Paudel has estimated preliminary losses of more than Rs 50bn when direct damage and potential future losses are considered. The floods damaged 142 hotels, 57 small restaurants and 141 tourism-related vehicles, along with 27 heritage sites and two mosques, monasteries, stupas and temples.
This is particularly important because tourism losses cannot be measured solely by the cost of rebuilding hotels or heritage structures. Damage to roads, trekking routes, cultural sites and perceptions of safety can affect visitor arrivals for months or even years.
The cost of rebuilding private homes, restoring highways and bridges, repairing hydropower projects, replacing public buildings, restoring border infrastructure and supporting affected households will be massive. Lost electricity revenues, interrupted trade, reduced tourism income, deterioration in bank loan portfolios and the fiscal cost of relief and rehabilitation is certain to have a long-term impact on the economy.
