The impact of climate change is accelerating worldwide. However, the question of the financial resources required to manage it is becoming serious. The 29th Conference of the Parties (COP-29) was held in Baku, the capital of Azerbaijan, in 2024. At the COP, developed countries set a new climate finance target of providing at least US$3 trillion annually to developing countries by 2035 to support climate action. However, it is estimated that it will take about US$3 trillion annually for developing countries to achieve the climate goal. This fact clearly indicates that there is a huge gap between climate finance needs and commitments.  

Nepal is one of the most vulnerable countries in terms of climate risk. Various studies have shown that the frequency and intensity of floods, landslides, droughts and extreme weather events are increasing in Nepal due to climate change. In addition, the process of rapid melting and shrinkage of glaciers due to warming is ongoing. This is likely to seriously affect the flow system of perennial rivers originating from high mountainous regions. This will disrupt the seasonal balance of rivers and increase the availability and time uncertainty of water resources. Its direct impact is expected to be in important areas such as agricultural production, drinking water availability, and hydropower.

According to the vulnerability and risk assessment report released by the Ministry of Forest and Environment, it is estimated that 33 districts of Nepal may fall into the category of very high climate risk by 2050. Currently, only 8 districts are at such risk. Similarly, studies have indicated that climate change may negatively impact Nepal's gross domestic product by about 10 percent by 2100. In such a situation, climate risk management has now become a central issue not only in environmental but also in economic, social, and development policies.

In this context, the upcoming budget formulation process is very important. The main instruments for determining the long-term development direction of the country are the budget, policies, and programs. The Government of Nepal, while accepting multi-hazard and climate risks, has formulated the National Adaptation Plan (NAP), Nationally Determined Contribution (NDC), and a long-term strategy aimed at net zero emissions.

(LTS) has been prepared. Positive practices such as the Climate Change Budget Code (CCBC) for climate risk reduction have also been implemented since 2012. The government has also estimated the investment required for climate change adaptation and mitigation. According to the NAP, it is estimated that 47 billion US dollars (about 2.1 billion US dollars annually) will be required by 2050, especially for implementing the adaptation action plan. Similarly, according to the NDC 3.0 report submitted by the Government of Nepal to the UNFCCC in the month of Jestha last year, it is estimated that about 74 billion US dollars will be required by 2035, especially for mitigation. In simple terms, based on these two plans alone, Nepal will need about 9.5 billion US dollars annually by 2035.

Although Nepal's contribution to greenhouse gas emissions is low, Nepal has had to bear the burden of climate change impacts disproportionately. The need of the day is to gradually increase the share of the domestic climate budget by effectively implementing plans such as NAP and NDC.  However, when comparing the current situation with the financial needs, the figures are very serious. A recent study by IWMI found that Nepal has allocated an average of about US$0.65 billion annually on climate-related activities based on the CCBC during the period 2013-2026. According to the studies, Nepal has attracted an average of about US$0.5 billion annually in external climate finance during the period 2012-2020. Overall, it can be estimated that there is a climate finance gap of about US$8.3 billion annually.

This gap is not limited to numbers. It has a multifaceted impact on the economy, food security, housing, employment, poverty and overall development journey. The risks can become more serious if appropriate climate adaptation and mitigation measures are not implemented in a timely manner. In this context, expanding access to climate finance in Nepal is highly relevant.

Although Nepal's contribution to greenhouse gas emissions is low, Nepal has had to bear the burden of climate change impacts disproportionately. The need of the day is to gradually increase the share of the domestic climate budget by effectively implementing plans such as NAP and NDC. The provision in the 16th Plan that at least 20 percent of the annual budget should be allocated to highly relevant climate activities is very relevant. And, it is important to mobilize domestic resources accordingly. This will lay the foundation for long-term financial stability for climate change management at the national level. And, at the international level, it will help establish Nepal's leadership role in mainstreaming climate change. Similarly, amid the increasing need for co-financing in international climate funds, such an exercise will help make Nepal's access to external finance more credible. 

In addition, Nepal is in the process of moving up from the category of least developed country (LDC) to the category of middle-income developing country (LMIC) by 2026. This transition will bring some structural challenges along with opportunities. Nepal needs to expand its access to international climate finance in a more strategic and proactive manner, as the concessional financial access it has enjoyed in the past may gradually become limited. 

The currently available international climate finance appears to be limited, slow, and has a complex access process. If Nepal does not prepare domestically in time, it may miss the available opportunities. Therefore, it is imperative to increase investment in national preparedness, institutional capacity, and project preparation for accessing external climate finance.

With Nepal's annual budget of around US$14 billion, it is difficult for the government and limited external resources alone to bear the huge financial burden required for climate management. In this context, private sector participation in climate mitigation and adaptation becomes even more important. Diversifying sources of climate finance is possible if the private sector can be attracted through clear policy incentives, investment protection, and innovative sources such as blended finance. This will help strengthen the growing climate risk and limited financial situation.

Ultimately, Nepal, which is facing the dual burden of growing climate risk and inadequate finance, needs to adopt a far-sighted and balanced fiscal strategy. A path to sustainable and resilient development can be ensured by mitigating climate risks through strong mobilization of domestic resources, active access to international climate finance, and effective participation of the private sector.