Disaster and Constraint

Catastrophe hit the Himalayas last month when ice and rock collapsed in the Langtang National Park. The ensuing debris and floodwaters travelled 100 kilometers down the Lende Khole river, a tributary of the Bhote Koshi, destroying villages, roads, bridges, hydropower facilities, and other critical infrastructure in its path. More than 1,300 people have been confirmed dead and 5,100 are still missing in Nepal; numbers in Tibet are more difficult to ascertain. Scientists are still investigating the precise mechanics of the disaster, but consensus is forming that it was the result of a landslide―perhaps caused by bedrock made unstable by glacial retreat and its attendant meltwater. 

Hindu Kush Himalaya glaciers lost 12 percent of their area and 9 percent of their ice between 2000 and 2020, and glaciers and permafrost around the world are being weakened by global heating. The frequency of complex, cascading events in mountain landscapes such as these is only expected to increase in coming years. “Landslides have been occurring as long as the mountains have been building,” Göran Ekström, a seismologist at Columbia University’s Lamont-Doherty Earth Observatory, told Science. But “in areas where glaciers are disappearing, these landslides are occurring more frequently.”

As the rescue mission for the thousands of people still missing continues, Nepal, which is among Asia’s poorest countries, now faces the challenge of recovery and rebuilding. How to pay for that remains an open question. The financial cost of the disaster is estimated at about $5 billion, or a tenth of the country’s annual GDP. Some relief is on its way, but international aid has been meagre (the US sent as little as half a million dollars) and doesn’t even begin to make up for the deficits produced by cuts to global North aid and development finance budgets. 

Nepal’s government, only recently elected after last year’s Gen Z protests successfully ousted an older generation accused of complacency and corruption, has limited options to raise cash. International climate talks in Sharm El-Sheikh in 2022 established an aid facility intended to offer assistance for poorer countries hit by climate-change induced disasters. Nepal’s government was quick to submit a request to the UN Fund for Responding to Loss and Damage, but it remains unlikely they will receive funds, despite being eminently eligible: the fund has so far received just over half a billion dollars, and prior to the disaster in the Himalayas it had already received eligible aid requests for $2.8 billion. It has yet to make a single payment. 

Adaption finance

This might be the year in which the severity and magnitude of climate change has finally become embedded in our collective psyches, and in our expectations of the future. As this European summer has attested, the global North cannot pretend it’s immune from the crisis. Unprecedented and sustained heat waves killed tens of thousands and continue to wreak havoc on industrial vectors such as German shipping and French nuclear power generation. By August, European wildfires alone had already cost €3 billion, and will inevitably rise higher. The effects of heat this year—again, only as of the start of August— could ultimately cost as much as 1 percent of the bloc’s annual GDP.

If wealthy countries are not immune from the crisis, the global South nonetheless remains particularly vulnerable. This year’s Asian monsoon—an annual weather system that supports almost a billion people—was much smaller and later than usual, leading to crop failures and reduced planting. Now, with the tropical Pacific entering a super El Niño—pushing up temperatures while reversing typical patterns or rainfall in Asia and the Americas—the outlook is even more dramatic. Food price inflation is expected to rise in many countries as a result.  

The rapidly changing climate demands a litany of investments and reinvestments. Reducing emissions, and transitioning to clean energy remains of vital importance, but the need for adaptive measures, to protect against the worst effects of disasters like in the Himalayas, is more urgent than ever. This will mean “hardening” everyday infrastructure such as energy systems, roads, hospitals, and apartment buildings to minimize risk. It will also mean building entirely new classes of what might as well be called adaptation infrastructure: seawalls and levees, fire-breaks, heating, ventilations, and air conditioning, better irrigation systems, and so on. In the case of northern Nepal, improving disaster resilience in warming conditions would include better early warning systems and large-scale projects for flood and landslide management.

Little of this adaptation infrastructure yields financial revenues that can be packaged for investors, and finding ways to mobilize private finance for such projects will likely be futile. Only large-scale public borrowing will be capable of pushing back against the climate risk “doom loop” in which vulnerability and disinvestment exacerbate each other.

But where will this investment for adaptation come from? The current landscape is discouraging. The total flow of development aid fell by almost a quarter in 2025, prompting UN agencies to warn that decades of progress could be reversed. One existing major foreign direct investment venture, the Upper Trishuli-1 Hydropower Project, financed by the World Bank, Asian Development Bank, and a host of other development finance institutions, was severely damaged by the glacier collapse. NGOs point out that the ADB’s own independent expert panel pointed out the risks of the project and recommended a climate resilience assessment, which doesn’t appear to have been conducted. About 300 workers are trapped in the project’s tunnels. 

Hydropower projects supply nearly all of Nepal’s electricity, but most are privately financed and are, like Upper Trishuli-1, “run of river,” meaning they lack storage so their electricity generation falters during the dry season and can’t offer the protections against flooding and drought that well-designed dams can provide. The country still relies heavily on burning biofuels and waste for the majority of its energy, as electricity generation is too unreliable to support any growth in manufacturing that might help development. The government has a goal of increasing hydropower generation capacity from 3,000 MW in 2024 to 28,500 MW by 2035—but the World Bank notes that this would require financing equivalent to 3–5 percent of GDP per year, when financing is already scarce. 

In the global North, many countries are now facing their own fiscal constraints. Annual interest payments on US national debt now exceed $1 trillion; it’s the first time in the country’s history that such payments are exceeding national defense or Medicare spending. The change has been popularly attributed, at least in part, to new doubts about US reliability and creditworthiness, as US Treasuries appear to be losing their status as safe, low-yielding assets. Analysis by economist Hanno Lustig shows ten-year Treasuries are now closer in price to the debt of other G10 countries. Some have made the case that Treasuries markets are not in crisis per se, but simply reflecting a return to more normal expectations of growth and inflation that existed prior to 2008, but nonetheless, it’s clear that the US government is no longer viewed as the risk-free investment it once was. Last week, Norway’s enormous sovereign wealth fund proposed slashing its holdings of US Treasuries by $80 billion, and in August the Netherlands moved some of its gold reserves from New York to London.

Other rich countries are also seeing their borrowing costs rise, if not quite as steeply. The UK, Germany, France, the Netherlands, and Australia are all facing borrowing costs not seen for almost two decades, stemming in part from increased debt after Covid and the energy shock of 2022. Europe’s annual investment in clean energy has remained static the past few years, falling short of its target by hundreds of billions of euros, and the continent declined to provide exclusions for green public investment when reviewing its fiscal rules in 2023.  

The reality of higher borrowing costs can compound the fear of governments being unwilling or unable to plan for the longer term, which in turn prompts investors to demand even higher premiums as they perceive risk. It’s a familiar scenario for developing countries, many of which are already enduring harsh austerity. Two billion people faced swingeing budget cuts as global South governments followed IMF diktat in the early 2020s. Oxfam researchers found that “for every dollar that the IMF provides to a poor country for social spending, it requires the country to cut four times more through austerity measures.”

New inflationary normal

In addition to hurting growth, climate impacts can be inflationary; a difficult combination even in times without fears of a debt blowout. Crop failures from droughts or floods, damage to infrastructure, and interruptions to transport can push up prices of essential goods. Absent the will or means to increase public investment, or to increase taxes, many countries might find themselves managing inflation by raising official interest rates—a brutally blunt tool. Central bankers have recently recognized the threat of a permanent change in inflation dynamics driven by climate-related disasters. Previously such disasters had largely been seen as only creating temporary inflation which could be ignored in setting interest rates, but James Talbot at the Bank of England said last year that “monetary policymakers will need to understand the economic impact of these shocks and may need to react to them in order to keep inflation expectations anchored.”

Global growth is already sclerotic, challenging governments’ abilities to balance debt and pursue domestic priorities. The combination of rearmament in the global North and shortages of key fossil fuel feedstocks will constrain the supply of inputs needed for energy transitions, climate adaptation, and infrastructure investments everywhere. The combination of inflationary shocks stemming from the war on Iran, and the global upward pressure on longer-duration bond yields will continue to add particular fiscal pressure in global South countries. 

Nepal had been expected to see a growth rebound to 5 percent next year, according to the Asian Development Bank, but that is no longer on the horizon. The latest disaster makes it more likely that it will join the ranks of countries like Bangladesh and Dominica, where persistent climate disaster intertwined with financial subordination invites capital discipline rather than increased aid and social spending. The lack of reform in the global financial system amid these rolling disasters—setting off doom loops that tighten finance and investment in both rich and poor countries—makes funding recovery, let alone prevention, seem increasingly out of reach.