Updated Economic Outlook Following Nepal’s Earthquake — Needs and Priorities

The quake affected about two-thirds of Nepal’s 75 districts, particularly in the central and western parts of the country.
The quake affected about two-thirds of Nepal’s 75 districts, particularly in the central and western parts of the country.

By Chandan Sapkota

Immediately after the devastating 25 April earthquake in Nepal, ADB made an initial assessment of how the catastrophe would affect the country’s economic growth. Here’s an update on the background, needs, and priorities following last week’s strong aftershock.

In a blog post on 1 May, we presented a quick preliminary analysis of the economic impact of the 7.8 magnitude earthquake that struck Nepal on 25 April.

A subsequent 7.3 magnitude aftershock on 12 May brought further casualties and inflicted added damage to property. The government has declared 14 districts as severely affected (mostly in the central and western regions) although the earthquakes have affected about two-thirds of Nepal’s 75 districts.

This piece updates the background, needs, and priorities.

Background. According to the National Seismological Center, the 25 April earthquake was followed by over 240 aftershocks with local magnitude above 4. The powerful aftershock of 12 May shook a large part of the country, particularly central and western administrative regions, further damaging the already weakened houses and other physical infrastructure, and triggering massive landslides in rural areas.

Latest data have confirmed over 8,500 deaths and 17,866 injured. Some 489,549 and 269,534 houses were, respectively, fully and partially destroyed, forcing thousands of people to seek temporary shelter under tents and tarpaulin sheets. Meanwhile, thousands of classrooms have been either fully or partially damaged.

Needs assessment. The economic cost of damage following the earthquake and aftershocks, and the rehabilitation and reconstruction needs will be clearer after a detailed Post Disaster Needs Assessment, initiated by the government in collaboration with development partners, including ADB. The assessment, which has just kicked off, is scheduled to be completed by 15 June. ADB will be leading the assessment of the education, irrigation, communication, and transport sectors.

Priorities. The government is winding down rescue operations and is gradually focusing on relief efforts in view of the start of the monsoon season in the second week of June. Together with relief efforts, rehabilitation and reconstruction planning, institutional arrangement and implementation will gather pace. In this regard, the following priorities may be considered:

  1. Delivery of basic relief items and cash grants to affected households before the onset of monsoon.
  2. Finalize the Post Disaster Needs Assessment as scheduled and use the results as key inputs for an upcoming international donors' conference and the fiscal year 2016 budget, which is expected to be delivered in the second week of July.
  3. To finance reconstruction and rehabilitation costs, rationalization of recurrent expenditure could open up some space to increase capital expenditure. Domestic borrowing could focus on medium-to-long-term bonds. External borrowing is normally on concessional terms.
  4. Ensure a clear institutional set-up, legal mandate, and implementation arrangement for reconstruction and rehabilitation efforts. A separate lean and efficient apolitical entity with a fixed operational lifetime would be helpful to expedite decision-making, procurement, and approvals. However, the implementation of reconstruction projects should happen through the line ministries.
  5. Ensure robust monitoring and evaluation of reconstruction and rehabilitation efforts. Good governance is essential for effectiveness of such efforts.
  6. Continue the ongoing and planned reforms to increase private sector investment. This is particularly important to boost investor confidence in the economy and the country’s ability to effectively deal with the aftermath of the disaster. Some of the reconstruction projects may be initiated on a public private partnership (PPP) basis, for which the government will have to pass the nearly finalized PPP Policy and speedily enact the PPP Act. Other policies and acts prepared or updated with the aim to develop the private sector and increase their investment also need to be passed or enacted in an expeditious manner.

This is the first of a series of 3 post-disaster blog posts about the economic impact of Nepal’s earthquake by ADB’s chief economics officer in the country.