"Who Will Pay for the Recovery?" Developing Countries Facing the Climate Disaster Bill [Climate Crisis Brought by Disasters 5·Final]

[Financial News] Damage from major floods, landslides, storm surges and heat waves continues after rescue operations end, creating burdens from recovery costs, insurance claims, and food and energy prices. Climate-vulnerable countries such as Nepal, Pakistan and Libya must absorb damage to roads, homes, farmland and power facilities all at once, and are calling on the international community to compensate them for loss and damage.

The major floods that struck Nepal's Himalayan mountain region on the 26th of last month show the costs a mountainous country must bear after a climate disaster. According to major foreign media outlets, including the Associated Press, Nepal's Finance Minister Swarnim Wagle estimated that $4 billion to $5 billion would be needed to repair the flood damage. The upper estimate of $5 billion is close to 10% of Nepal's economic output.
The damage spread to villages along rivers, roads, bridges and hydropower facilities. Foreign media reported that Nepal disaster authorities' initial damage estimate was $2.56 billion, nearly one-fifth of the country's annual government budget of about $14 billion. Although the final reconstruction cost has not yet been determined, estimates indicated that it could rise to $4 billion to $5 billion.
The Nepalese government argues that the disaster was not simply a natural disaster but damage caused by climate change. Nepal's Foreign Minister Shisir Khanal said the country was "paying the price for a global crisis it did not cause" and announced that Nepal had sent official letters to international partners demanding compensation for climate change.
Minister Khanal described the floods not as a "standard flood" but as a "Himalayan tsunami." When glaciers, mountainous terrain and fast-moving currents combine, water, soil and rocks rush down valleys, damaging roads, power facilities and residential areas downstream at the same time. For a mountainous country, recovery costs extend beyond rebuilding homes to include severed transportation networks, energy facilities and tourism infrastructure.


Calls for compensation from climate-vulnerable countries became more pronounced in international negotiations after the 2022 floods in Pakistan. The "2022 Pakistan Floods Post-Disaster Needs Assessment," conducted with the participation of the World Bank, Asian Development Bank (ADB), European Union (EU) and United Nations Development Programme (UNDP), estimated the damage and economic losses from the floods at more than $30 billion. The cost of recovery and reconstruction was assessed at more than $16.3 billion.
Pakistan's case shows that the cost of a climate disaster cannot be explained by housing repair costs alone. The assessment calculated damage across multiple sectors, including agriculture and livestock, housing, transportation, education and health. The World Bank analyzed that the floods could increase the number of people living in poverty by as many as 9.1 million.
After the disaster, Pakistan called on the international community for climate finance. Pakistan emphasized that a country with limited responsibility for greenhouse gas emissions had suffered massive flood damage. The discussion led to an agreement to establish a loss-and-damage fund at the 27th Conference of the Parties to the United Nations Framework Convention on Climate Change (UNFCCC) in 2022.

When flood damage combines with aging infrastructure, reconstruction costs expand beyond homes and roads to restoring the functioning of an entire city. The World Bank, United Nations (UN) and European Union (EU) estimated the damage and losses from the floods in eastern Libya at $1.65 billion in the "Libya Storm and Flood Rapid Damage and Needs Assessment." Recovery and reconstruction needs were assessed at $1.8 billion.
In Derna, Libya, two dams collapsed after heavy rain, causing extensive damage to the city. Roads, bridges, homes, health facilities, water and sewage systems, and power grids were all damaged at once. World Bank data explains that recovery involves not only rebuilding facilities but also restoring services and reorganizing urban infrastructure.
Disaster recovery costs are divided among national finances, international assistance, insurance and residents. In countries facing political instability or limited administrative capacity, damage assessments and the distribution of aid are also delayed. Derna's case shows how recovery costs increase when climate risks, aging infrastructure and administrative gaps overlap.

Even as major disasters become more frequent, only part of the losses are covered by insurance. Swiss Re Institute estimated global economic losses from natural disasters in 2025 at $220 billion. Of that amount, $107 billion was covered by insurance. Governments, households and businesses bore the remaining losses.
The insurance gap is even wider in emerging economies. The institute explained that 80% to 90% of natural-disaster losses in emerging economies are generally not covered by insurance. Damage outside insurance coverage is made up through government budgets, family savings, loans and international aid.
Nepal's recent floods also show that total recovery costs far exceed insured losses. Reuters reported that commercial insurance losses from the major floods in Nepal could exceed 20 billion Nepalese rupees, or approximately $132.3 million, excluding claims for deaths and injuries. Compared with the $4 billion to $5 billion in recovery costs estimated by the Nepalese government, only a portion will be handled through insurance.


The cost of climate disasters is also reflected in living expenses outside affected areas. When heavy rain inundates farmland, crop shipments decline, while heat waves increase livestock deaths and damage to fish farms. When ports and roads are cut off, food and fuel transportation is also disrupted. The effects are distributed among farmers, fishers, transport operators and consumers.
The World Bank's assessment of the Pakistan floods also found that agriculture and food accounted for a significant share of the damage. Flooded farmland, dead livestock and damaged irrigation facilities affect production through the next harvest season. When food prices rise, low-income households must devote a larger share of their spending to food.
Heat-wave damage is also calculated as an economic cost. In the report "Heat-Wave Disasters and Climate-Vulnerable Groups," researchers Kwon Soon-il and Han Jin-hyun of the Korea Insurance Research Institute diagnosed that heat-wave damage increases not only physical injuries and livestock and fishery losses but also indirect losses such as lost labor income caused by work stoppages outdoors. When working hours decline at construction sites, in delivery services and in agriculture and fisheries, both wages and output fall.

Domestic disaster statistics also show the scale of recovery costs. According to the "2024 Disaster Yearbook and Disaster Almanac" published by the Ministry of the Interior and Safety (MOIS), natural disasters in 2024 caused 121 casualties and 910.7 billion won in property damage. Natural-disaster recovery costs were tallied at 1.2379 trillion won.
The government uses storm and flood damage and earthquake insurance to compensate for natural-disaster damage to homes and greenhouses, as well as stores and factories operated by small businesses. According to National Safety 24, the insurance is a policy insurance program overseen by the Ministry of the Interior and Safety and operated by private insurers. Typhoons, heavy rain, floods, strong winds, high waves, storm surges, heavy snow, earthquakes and tsunamis are covered.
In agriculture and fisheries, recovery-cost unit prices were also adjusted. The Ministry of Oceans and Fisheries (MOF) announced in August that it would revise its "Notice on Unit Prices for Calculating Natural-Disaster Recovery Costs." Seven recovery items, including seaweed seed, were newly added, while unit prices for 18 items, including rockfish and olive flounder, were raised. The recovery unit price for one large rockfish was adjusted to 2,817 won, up 38% from the previous year.


Discussions on compensation for loss and damage are repeatedly taking place in climate negotiations. Developing countries, small island nations and mountainous countries argue that nations with little responsibility for greenhouse gas emissions bear a disproportionate share of damage from floods, rising sea levels and heat waves. Developed countries have called for expanded climate finance and contributions to funds, but have remained cautious about language that could be interpreted as implying legal liability for compensation.
Parties to the United Nations Framework Convention on Climate Change (UNFCCC) agreed at the 27th Conference of the Parties to establish a fund to address loss and damage caused by climate change. At the 28th Conference of the Parties, the operating arrangements for the Fund for responding to Loss and Damage (FRLD) were specified in greater detail. According to official FRLD data, pledges totaled approximately $822.06 million as of March 15, 2026.
That amount is less than the estimated recovery cost of a single major disaster. Nepal reported recovery costs of $4 billion to $5 billion after the major floods, while reconstruction needs after the Pakistan floods exceeded $16.3 billion. Affected countries are calling for increased contributions to the fund, rapid disbursement and grants rather than loans.
United Nations Secretary-General António Guterres has described the establishment of the loss-and-damage fund as an important step forward for climate-vulnerable countries. However, the United Nations and developing countries have pointed out that current pledges are insufficient compared with the recovery needs created by major disasters.
[email protected] Han Seung-gon Reporter