KATHMANDU, AUGUST 19
Disasters have become one of the biggest recurring drains on Nepal’s public finances, with both steady annual losses and occasional catastrophic shocks threatening to wipe out years of development progress, said Ramesh Subramaniam, global director – programmes and strategy at the Coalition for Disaster Resilient Infrastructure (CDRI), in an interview with The Himalayan Times.
“Floods are the number one threat to Nepal’s energy sector, with annual average losses of $32.4 million, according to catastrophe modelling,” said Subramaniam, citing findings from a Fiscal Risk Assessment (FRA) report. Under a baseline scenario, the report projects a 10-year maximum loss of $69.5 million for the sector, which could rise to $94 million under an extreme climate scenario. “Roads and bridges are even more vulnerable,” he said, with average annual losses from landslides triggered by rain at more than $101 million and probable maximum losses at $210.5 million in any 10-year period.
Subramaniam cited Nepal’s recent disaster history as proof of the magnitude of the challenge. Almost 9,000 people died in the 2015 Gorkha earthquake, which cost an estimated $7.1 billion – about a third of the country’s GDP – while the August 2017 floods displaced 1.7 million people and caused $585 million in damage. More recently, it was estimated that rebuilding after the 2022-23 Doti-Bajhang-Jajarkot earthquakes would cost more than $481 million, while the September 2024 floods caused $295 million in damage, primarily to transportation and energy infrastructure.
According to Subramaniam, these repeated shocks have put sustained pressure on Nepal’s public finances, with the country’s debt-toGDP ratio rising from around 34 per cent in 2019 to around 47 per cent in 2023. With Nepal’s National Disaster Management Fund holding only about $35 million in reserves as of 2024, he warned that each new disaster forces the government to redirect funds away from planned development projects, compounding the financial burden over time.
A FISCAL, NOT JUST AN ENGINEERING, CHALLENGE
Subramaniam argued that resilient infrastructure should be treated as a public finance priority rather than a purely technical concern, because damage to physical assets causes a cascade of economic and fiscal consequences that eventually affect government balance sheets. He said, “The FRA report traces this chain directly: disasters damage infrastructure, which disrupts economic activity and creates contingent liabilities affecting government revenue, expenditure, investment and overall fiscal health.”
Energy and transport infrastructure are Nepal’s largest sources of recurring fiscal exposure, he said, noting that power generation suffers particularly high relative losses from earthquakes because power-plant components are highly susceptible to ground shaking. Major infrastructure failures often force governments to reallocate capital budgets, diverting funds intended for new investment to emergency repairs and reconstruction while delaying broader development priorities far beyond the damaged asset itself.
Subramaniam said that this exposure goes beyond infrastructure that is owned by the government.
Public-private partnerships and private operators, including hydropower developers, may also require government assistance following a disaster, increasing the state’s contingent liabilities beyond its own asset base. “This is why resilient design standards for roads, bridges and power infrastructure should be viewed as a fiscal risk-management measure, not just a technical upgrade,” he said.
MOVING FROM REACTIVE TO PROACTIVE FINANCING
According to Subramaniam, the report’s central recommendation is for governments to transition from financing disaster losses after they occur to arranging financing in advance, using a layered strategy that matches financial instruments to the scale and frequency of various risks. This entails relying on budgetary reserves for frequent, low-cost events, contingent credit for medium-severity events, and insurance or risk-transfer instruments for rare, high-severity events, with no single mechanism expected to absorb all types of shocks.
“Nepal’s national disaster fund is around $35 million, which is small compared to the country’s estimated exposure,” Subramaniam said, highlighting the need to blend reserves with contingent credit and risk transfer instruments. Pre-arranged contingent credit, such as a Catastrophe Deferred Drawdown Option, can supplement reserves by allowing for quick fund disbursement after a disaster is declared, reducing reliance on emergency budget reallocation or donor appeals.
He emphasised the importance of a structured process for new risk-transfer instruments, citing Nepal’s 2021 Disaster Risk Financing (DRF) Implementation Plan, which requires instruments such as catastrophe bonds or insurance pools to undergo cost-benefit and feasibility assessments, comply with legal requirements, roll out market-based instruments in stages, and align with government budgeting processes. “Disaster-related liabilities must also be integrated into the government’s debt management framework,” he added, with improved sector- and subnational-level risk data enabling more risk-informed budgeting.
LESSONS FOR OTHER CLIMATE-VULNERABLE COUNTRIES
Subramaniam said, “Nepal’s experience offers useful lessons for other climate-vulnerable economies, both in terms of specific financing tools and the institutional systems needed to support them.”
He cited Nepal’s World Bank Catastrophe Deferred Drawdown Option (Cat DDO) as an example of proactive, pre-arranged financing – the government secured a $50 million facility in 2020 and increased it to $150 million in October 2024, providing it with immediate, ready-todraw liquidity as soon as a State of Disaster is declared.
However, he cautioned that contingent credit alone cannot cover all disaster costs: even a $150 million Cat DDO does not close the funding gap, and a single 10-year flood-and-landslide event could leave Nepal with a $95245 million financing shortfall. Contingent credit should therefore supplement, not replace, government reserves and insurance, he said.
Subramaniam also pointed to Karnali Province’s Natural Disaster Risk Group Insurance Programme – which covers about 1.7 million people with a payout of Rs 200,000 per claim – as an example of how subnational insurance innovation can be tested without provinces waiting for a national scheme.
He also mentioned Nepal’s use of forecast-based financing to support early disaster response. In the Koshi and Karnali river basins, he explained, a two-step trigger system releases funding from the UN Central Emergency Response Fund to agencies such as UNICEF and the World Food Programme (WFP) ahead of peak flooding – the first trigger supporting preparedness, and the second allowing agencies to assist communities before a disaster reaches its peak.
According to Subramaniam, such instruments rely on strong institutional foundations, with Nepal’s Disaster Risk Reduction and Management Act (2017) and National Disaster Risk Financing Strategy (2020) establishing clear responsibilities at the federal, provincial, district, and local levels. “Without such laws, institutions and coordination systems in place,” he said, “disaster-financing tools cannot function effectively.”