Officials prioritise grants and climate funds after the catastrophic August Bhotekoshi floods, but experts warn reconstruction costs will force reliance on concessional borrowing.

The government of Nepal is scrambling to finance reconstruction after the devastating August 26 Bhotekoshi floods, which killed more than 1,300 people and left thousands missing. Officials prefer grants and climate-related compensation over loans, yet experts say soft loans will almost certainly be required to close a multi-billion-dollar funding gap.

The National Planning Commission has launched a Post-Disaster Needs Assessment (PDNA) expected within five weeks. That report will guide a planned donor conference and form the basis for recovery planning. An earlier Rapid Damage and Needs Assessment put losses to private and public property at more than Rs 400 billion. Officials now expect the final PDNA figure to run at least 30 per cent higher, pushing the overall reconstruction bill to $4-5 billion.

At least 1,377 people have been confirmed dead, 5,326 remain missing and 6,827 were injured when a massive glacier collapse on the northern slopes of Mt Langtang Lirung unleashed floods that tore through Rasuwa, Nuwakot, Dhading and neighbouring districts. Some 7,570 houses were destroyed or damaged, affecting more than 32,900 people according to initial counts. Hydropower projects along the Bhotekoshi and Trishuli rivers suffered heavy damage, with losses at a dozen plants in Rasuwa and Nuwakot alone estimated at Rs 25-30 billion.

Preference for Grants Over Debt

Foreign Minister Shisir Khanal has made clear that Kathmandu’s preference is grants and aid rather than loans. “Though it has not been officially decided and is not a declared policy, we prefer grants and aid over loans for reconstruction and rebuilding,” he told The Kathmandu Post. He instructed senior ministry officials to mobilise Nepal’s diplomatic network to seek grant support from foreign governments and organisations, stressing that the country’s loan burden relative to GDP is already rising.

Finance Minister Swarnim Wagle echoed the preference for grants while acknowledging practical limits. Grants, he indicated, cannot meet all of Nepal’s needs. The government is therefore casting a wider net, approaching traditional development partners, philanthropic organisations and wealthy individuals for contributions.

Govinda Raj Pokharel, who led the National Planning Commission during the post-2015 earthquake PDNA, argued that sufficient pure grants are unrealistic under current global financial conditions. “In the current global financial and economic architecture, it is almost impossible to receive sufficient grants and aid,” he said. Soft loans, he added, will have to form part of the package alongside outreach to charitable sources.

Climate Finance and the Loss and Damage Fund

Nepal plans to frame the disaster as climate-driven and seek support from the global Loss and Damage Fund. Officials argue that climate change intensified the severity of the floods. A senior government source described any funding secured from the fund as potentially symbolic yet useful for opening further avenues of compensation and justice claims. At the same time, authorities concede that international climate finance alone will fall far short of the total required.

The PDNA is expected to recommend structural changes – altered settlement patterns, improved river-basin planning and relocation of communities from high-risk zones – all of which will demand substantial additional resources. Strengthening early-warning systems, disaster preparedness and community response mechanisms is also on the agenda.

International Aid Already Flowing

While long-term reconstruction financing remains uncertain, immediate assistance has begun to arrive. The European Union has provided further humanitarian support bringing its total emergency funding to more than NPR 445 million (EUR 2.5 million), channelled largely through the Nepal Red Cross Society to assist up to 20,000 people with shelter, cash, water, sanitation and healthcare.

The United States has contributed a $5 million grant plus technical assistance. China has provided $2 million in grants and continues coordination for further help. The World Bank has released $8.5 million under its Catastrophe Deferred Drawdown Option (Cat-DDO), with a further $150 million available on standby. The Asian Development Bank has also extended emergency grant support.

The United Nations and partners launched a $49.6 million flash appeal to reach more than 84,000 affected people with cash, food, shelter and health services before winter. Domestic contributions have been substantial: the Prime Minister’s Disaster Relief Fund and related accounts have collected well over Rs 11 billion, with the government already releasing funds for immediate relief.

Domestic Relief and Business Revival Measures

Alongside external appeals, the government has rolled out domestic packages. A business revival scheme offers tax and customs relief, loan restructuring, cheaper credit and faster insurance payouts for flood-hit enterprises. Preferential interest rates will apply for one year, and additional loans are available to help firms restart operations and protect jobs.

A scholarship programme worth around Rs 1 billion has been announced for students whose education was disrupted. Nineteen schools in the worst-affected districts were damaged; the scheme aims to provide free education, materials and residential support from early childhood through Grade 12.

Local governments in Rasuwa, Nuwakot, Dhading, Gorkha and Tanahun have received grants from the National Disaster Risk Reduction and Management Authority to support immediate relief.

Balancing Debt Concerns with Reconstruction Imperatives

Nepal’s public debt has risen significantly since the 2015 earthquake. Officials are therefore determined to minimise further borrowing. Yet the sheer scale of the damage – homes, roads, bridges, hydropower capacity, schools and health facilities – leaves limited room for manoeuvre. Finance Minister Wagle has indicated that building back stronger and more resilient could push costs toward $6 billion in some scenarios.

Experts note that reconstruction after the 2015 earthquake took years and relied on a mix of grants, concessional loans and domestic resources. A similar hybrid approach appears inevitable this time. Soft loans from multilateral institutions, bilateral partners and climate funds will likely fill the gap that pure grants cannot cover.

The coming weeks will be critical. Once the PDNA is complete, the government intends to convene donors and present a clear financing strategy. Success will depend on how effectively Nepal can combine grant appeals, climate-justice arguments and carefully calibrated concessional borrowing while protecting fiscal sustainability.

For the tens of thousands of survivors still living in temporary shelters or searching for missing relatives, the priority is clear: durable homes, restored livelihoods and infrastructure that can withstand the next extreme event. How Kathmandu finances that recovery will shape both the country’s debt trajectory and its resilience for years to come.

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