The World Bank Maldives Cat DDO and Pandemic Emergency Financing Facility (P163939) For Official Use Only Program Information Document (PID) Appraisal Stage | Date Prepared/Updated: 16-May-2019 | Report No: PIDA24186 Page 1 of 10 The World Bank Maldives Cat DDO and Pandemic Emergency Financing Facility (P163939) BASIC INFORMATION A. Basic Project Data OPS TABLE Country Project ID Project Name Parent Project ID (if any) Maldives Catastrophe Deferred Drawdown Option Maldives P163939 and Pandemic Emergency Financing Facility (P163939) Region Estimated Board Date Practice Area (Lead) Financing Instrument Social, Urban, Rural and Development Policy SOUTH ASIA 25-Jun-2019 Resilience Global Practice Financing Borrower(s) Implementing Agency For Official Use Only Government of the Maldives, Ministry of Finance Ministry of Finance Proposed Development Objective(s) To enhance the Maldives financial capacity to effectively manage the human, physical and fiscal impact of climate change, natural disasters and disease outbreaks. Financing (in US$, Millions) FIN_SUMM_PUB_TBL SUMMARY Total World Bank Financing 10.00 DETAILS -NewFin3 International Development Association (IDA) 10.00 IDA Credit 5.00 IDA Grant 5.00 Decision The review authorized the team to appraise and negotiate Page 2 of 10 The World Bank Maldives Cat DDO and Pandemic Emergency Financing Facility (P163939) B. Introduction and Context Country Context 1. The Maldives is highly vulnerable to natural hazards and extreme climatic events with considerable economic consequences. With a fragile ecological profile and low elevation, and sea levels that are expected to rise and extreme weather events that are likely to increase in frequency and intensity, located in the central Indian Ocean the Maldives is considered one of the world’s most vulnerable countries1. High frequency events such as monsoonal flooding, coastal erosion, salt-water intrusion, sea level rise, as well as less frequent events such as earthquakes, thunderstorms, flash floods and prolonged dry periods pose a real threat to lives and the economy of Maldives. The 2004 Indian Ocean tsunami, that battered the islands and claimed approximately 100 lives, damaged or destroyed almost 9,000 houses and caused severe damage to physical infrastructure of many islands. Total damages were estimated at US$470 million or 62 percent of GDP2 and direct losses totaled US$298 million. Since 2008, The Government of the Republic of the Maldives’s (GoM) has spent MVR 459 million (US$29.8 million) (2008-2017) in response to natural disasters3. The effects of climate change, if poorly managed, could cause annual economic losses of more than 12 percent of GDP by 2100 4. For Official Use Only Insufficient liquidity to cope with high-impact natural events affects the country’s ability to continue implementing its development plans, its efforts to become more resilient and to recover from disasters in a timely manner. As coastal erosion and pressure on scarce land resources increase, the physical vulnerability of island populations, infrastructure, and livelihood assets will increase as well. Eighty percent of the total land area of the Maldives, less than 300 square km, is lower than 1m mean sea level (MSL). 2. More than 44 percent of settlements—home to 42 percent of the population—and more than 70 percent of all critical infrastructure is located within 100m of the shoreline. The country’s success in building on its extraordinary natural assets in the last decades to develop high-end resort-based tourism and more recently public housing and large infrastructure, has also increased its level of exposure to natural hazards and to disaster risk. This development challenge has been compounded by the country’s limited economic opportunities, high costs of transport and service delivery, a small domestic market, and shortage of local skilled labor. 3. While Maldives has made substantive progress in communicable diseases, it continues to be highly exposed to public health threats. The Maldives received an average 1.25 million tourists per year between 2014-17 and almost a third of the population are international workers. These are ideal population dynamics for importation of noble diseases or reemergence of diseases either eliminated or persisting in low transmission levels. Between January 1 and March 18, 144 Severe Acute Respiratory Illness (SARI) admissions were recorded. While in 2015 the WHO declared Maldives as malaria-free country, Aedes mosquitos are prevalent throughout the country, which are principal vectors of Dengue, Zika and Chikungunya. The Government’s sustained investment in the health sector has led to impressive health outcome indicators in comparison to other countries in South Asia but less so in comparison with other countries with similar income levels or per capita health expenditures. 4. Maldives’ economic performance has been strong in recent years. Real GDP growth averaged 6.3 percent 1 The World Bank (2014). GFDRR Understanding Risk in an Evolving World. 2 UNDP. Tsunami Recovery in the Maldives 2004-2006. 3 This is the average per annum expenditure, 2012-2017. 4 ADB (2014). Page 3 of 10 The World Bank Maldives Cat DDO and Pandemic Emergency Financing Facility (P163939) between 2013-17, on the back of strong performances of the tourism and construction sectors. Real GDP slowed down to 6.1 percent in 2018, compared to 6.9 percent in 2017. Tourism contributed 1.7 percentage points, followed by construction (0.8pp), wholesale and retail trade (0.4pp) and financial services (0.4pp). Tourist arrivals and bed nights increased by 6.8 percent and 10.2 percent respectively y/y, supported by infrastructure investments on the international airport, the opening of new resorts, and expansion in the guest houses’ sector.5 5. Growth is expected to remain strong at around 5.4 percent in the medium term. The relative decline is expected to be driven by the gradual tapering-off of investment projects6 and the related slowdown in construction activity. Tourism is expected to remain vibrant as recent infrastructure investment7 will help relieve supply bottlenecks in the sector. Tourism arrivals are projected to grow at about 5 percent per year, also facilitated by the opening of new resorts and the expansion of the guest houses’ sub-sector. 6. In spite of the risks, the macroeconomic framework is considered adequate for development policy financing, with the program design being an important mitigation factor. First, strong growth is expected to mitigate adverse debt dynamics. Recent investments, to address key supply-side bottlenecks, are expected to For Official Use Only yield important growth and fiscal returns going forward. Second, the winding down of large infrastructure projects is also expected to lead to an improvement in the fiscal and external position. Third, the GoM has earmarked the proceeds from the airport development fee (ADF) and dividends from the state-owned airport operator, MACL, for debt repayment. Relationship to CPF 7. The proposed operation is consistent with the 2015 Systemic Country Diagnostic (SCD) and the Country Partnership Framework (CPF) FY 16–198 and proposed adjustments.9 The SCD identifies many challenges including exposure to external demand shocks from natural disasters and limited macroeconomic and fiscal space to deal with an external shock, and also recognizes that improving preparedness for disasters and climate change would have a medium- to long-term impact on reducing macro fiscal risk. The proposed operation therefore, also conforms with SCD Priority Area 3 by increasing macroeconomic resilience to external shocks. It also responds to the CPF Focus Area 2 - building resilience to climate change and other exogenous shocks, and Focus Area 3 - strengthening fiscal sustainability. This operation is part of an integrated set of operations that would improve Maldives’ fiscal sustainability, and its physical and human resilience to adverse natural events. C. Proposed Development Objective(s) To enhance the Maldives financial capacity to effectively manage the human, physical and fiscal impact of climate change, natural disasters and disease outbreaks. 5 Tourism accounted for about 25 percent of nominal gross value added between 2013-17. 6 Including the development of the airport and Hulhumale Island Phase I and Phase II 7 Notably the expansion of the main international airport runway and terminal; Staff projects that tourism arrivals will reach 1.5 million by 2019, which is the capacity of the airport. The expansion of the airport will increase capacity to 7.5 million arrivals per year. 8 Maldives: Country Partnership Framework, FY 16-19, World Bank, 2016. http://documents.worldbank.org/curated/en/125521468195563512/Maldives-Country-partnership-framework-for-the-period-FY16-19. 9 “Maldives Performance and Learning Review of the Country Partnership Framework for the period FY 2016 -19,� World Bank, May 2018. Page 4 of 10 The World Bank Maldives Cat DDO and Pandemic Emergency Financing Facility (P163939) Key Results 8. Key results expected for this operation include: a. Increased government capacity to ensure protection of Maldives’ natural and built up environment from disasters, to guide disaster-related policy making and provide operational guidance for disaster response. This will lead to a more functional disaster risk management system in the country, support the coordination among various key stakeholders, and improve resilience of infrastructure b. Government’s implementation of adaptation activities, under its NDC plan, are able to reduce, to acceptable levels, the risk associated with full spectrum of weather, climate and oceanic hazards and, to address the consequences of long-term climate change and extreme events. c. Increased GoM preparedness and response capacities for public health threats to achieve the required core International Health Regulations (IHR) capacities. D. Project Description For Official Use Only 9. The Cat DDO-PEF operation will support the GoM’s efforts to advance and consolidate its ongoing DRM agenda, and further develop the country’s regulatory, institutional, technical and financial capacities to better respond to the impact of natural hazards and emergency situations. The proposed operation will be one of the first IDA Cat DDOs, the second in the South Asia Region and the first ever that incorporates the PEF. This risk financing product is consistent with the Bank’s emphasis on disaster prevention, as opposed to only disaster response. 10. The proposed operation will include the Cat DDO and PEF: (i) the Cat DDO, an instrument made available under IDA 18, can provide immediate liquidity to the country in the aftermath of a disaster resulting from an adverse natural event including public health emergencies and, (ii) the PEF, an innovative mechanism that can provide resources through its Cash and Insurance Windows, is for countries to respond to high-severity disease outbreaks and to prevent them from becoming pandemics. 11. Drawdown triggers. Funds may be drawn down upon occurrence or imminent occurrence of a natural disaster and/or health-related shock in accordance with: (i) Declaration of a state of a disaster by the President on the recommendation of the NDMA as per the Disaster management Act 28/2015 read with the section 3, Vol 1 of the National Emergency Operations Plan or; (ii) Declaration of a state of public health emergency by the Minister of Health as per the Public Health Protection Act 7/2012 to be read with section 1, item 7 of the Health Emergency Operations Plan. 12. The PEF is a mechanism that can provide surge financing, in the form of non-reimbursable trust fund grants, for response to outbreaks with pandemic potential. 13. Maldives is eligible to receive PEF funds, contingent on the following conditions: (i) Having the disease outbreak affecting Maldives meet the activation criteria of the PEF (the PEF Operations Manual sets out guidelines related to the operating arrangements and procedures, including the activation criteria of the facility and the processes for fund allocations); and (ii) the PEF being operational and having sufficient resources available. The PEF has been established for an initial operational period of 3 years (from July 2017 to June 2020). Work is already Page 5 of 10 The World Bank Maldives Cat DDO and Pandemic Emergency Financing Facility (P163939) underway to extend the PEF for a second period, starting in July 2020. 14. The PDO will be achieved by supporting policy reforms under the following three pillars: i. Pillar A: Enhancing the institutional and regulatory framework to manage the impact of climate and disaster risk; ii. Pillar B: Integrating climate change and disaster risk reduction in key sectors; and iii. Pillar C: Enhancing the capacity to manage human health crisis preparedness and response. 15. Enhancing the institutional and regulatory framework to manage the impact of climate and disaster risk: Actions under this pillar consist of: • Prior action 1: The borrower has established the National Disaster Management Authority (NDMA) which will focus on mainstreaming disaster risk reduction in national planning, processes, standards and policies. The NDMA will be responsible for carrying out a more holistic model of disaster risk identification, reduction and mitigation, preparedness, and integrated disaster response efforts and recovery. This includes establishing standards and developing, implementing and enforcing policies and procedures such as the National Emergency Operation Plan (NEOP). For Official Use Only • Prior action 2: The borrower enacted the Building code to ensure buildings are safe, healthy and durable for the people who use them. The Building Code sets out performance criteria that building construction must meet. It covers aspects such as structural stability, fire safety, access, moisture control, durability, services and facilities, and energy efficiency. 16. Integrating climate change and disaster risk reduction in key sectors: Actions under this pillar consists of: • Prior action 3: The borrower has approved and adopted an Implementation Plan for Maldives’ Nationally Determined Contribution (NDC), that was communicated to the Paris Agreement by the GoM; • Prior action 4: The borrower drafted the Water and Sewerage Regulations in recognition of the strategic importance of the sector in the country’s economic and social development. The draft WS Act and draft water and sewerage regulations, take into account the country’s need for a legal framework to govern the quality and assurance of the WS services from project design to management and operation of systems, and to optimize these services towards the benefit of the island communities. 17. Enhancing the capacity to manage human health crisis preparedness and response: Actions under this pillar consists of: • Prior action 5: The borrower has developed and endorsed the Health Emergency Operations Plan (HEOP) which specifies the processes and procedures to be taken by the Government to respond to disasters and health emergencies, including disease outbreaks and epidemics and; • Prior action 6: The borrower has established a national Health Emergency Operations Center (HEOC) at the MoH, as the government’s public health coordination center for public health emergency situations. 18. Link between the Cat DDO and PEF: While the CAT-DDO has been designed to support response to natural disasters including health emergencies, the PEF has been designed to specifically support response to large- scale qualifying disease outbreaks. The Cat DDO and PEF complement each other and will support the GoM’s efforts to address climate and disaster risk. Page 6 of 10 The World Bank Maldives Cat DDO and Pandemic Emergency Financing Facility (P163939) 19. Link between the Cat DDO, the Maldives Urban Development and Resilience Project (MUDRP) and the Fiscal Sustainability and Budget Credibility DPF : The Cat DDO, a development policy financing operation designed to provide budget support to respond to natural disasters, would be complemented by the proposed MUDRP, an investment project financing, which supports enhancing services and strengthening resilience in the Greater Male Region, institutional capacity building and emergency preparedness. The improved disaster preparedness achieved by the Cat DDO-PEF and MUDRP operations will in turn contribute to the budget credibility and fiscal sustainability policies supported under the upcoming Development Policy Financing Operation. E. Implementation Institutional and Implementation Arrangements 20. The Ministry of Finance (MoF) is the main counterpart agency for this operation with the responsibility to For Official Use Only monitor program progress and to ensure the accountability of relevant institutions to the commitments made. The MoF will collaborate with the NDMA, Ministry of Environment (ME), Ministry of National Planning and Infrastructure (MNPI), and Ministry of Health (MoH) to monitor the progress of the proposed operation during the entire drawdown period. The MoF will have an overall coordination and decision�making role while the NDMA, ME, MNPI and MoH will monitor the implementation of the indicators. The Bank will monitor both the macroeconomic policy framework and the implementation of the program supported by the operation during the drawdown period. 21. The Bank will monitor the status of the program implementation through regular implementation support missions and by tracking the baselines and output indicators provided in the policy and results matrix, based on the data provided by the Government agencies and disclosed in the official sources. The Bank team will maintain the disaster risk management dialogue with the authorities and to assess the compliance of the authorities with legal provisions under the loan agreement. F. Poverty and Social Impacts and Environmental Aspects Poverty and Social Impacts 22. It is expected that country policies supported by the proposed operation are likely to have positive poverty and social effects, especially on poor people and vulnerable groups. The timely liquidity to be provided to the country, by the Cat DDO and the PEF when facing a disaster, is expected to have a positive impact on government finances. The Cat DDO and PEF resources are expected to improve national disaster risk management and vulnerability reduction strategies, that will in turn benefit the poor. However, great care has to be taken to ensure that vulnerable groups are specifically considered in National Disaster Risk Management strategies, particularly in the Maldives where poverty remains a challenge despite high GDP growth of past decades (poverty headcount ratio stands at over 8 percent in 2016 based on the national poverty line). A set of social protection programs, such as a pension and cash transfer system, exist in the Maldives which can be used to build resilience of poor and vulnerable populations. Page 7 of 10 The World Bank Maldives Cat DDO and Pandemic Emergency Financing Facility (P163939) 23. The proposed prior actions under the operation Pillar A – Establishment NDMA (prior action #1) and the Building Code (prior action #2) - are likely to have positive effect on poor and marginalized groups of Maldivian society as mechanisms will be established, including standardized disaster risk reduction and response mechanisms and safer construction practices, to increase the safety of vulnerable groups, such as the poor, women, and people with special needs, and enhance their resilience in the face of disasters. The NDC Implementation Plan (Prior Action #3) is expected to have a positive direct impact on the poor due to the improved early warning provided by expansion of AWS network, reducing risk to lives and livelihoods. The Water and Sewerage Regulations (Prior action #4) under Pillar B, have the potential of positive spillover effects if there is no discrimination in providing access to safe water supply and adequate sewer services. Prior actions #5 and #6 under Pillar C are likely to have a positive impact on the poor as it enhances the health sector’s ability and capacity to better respond to disease outbreaks and identify and address health emergencies, which benefits the entire population, but will be specifically relevant to the poor who often suffer the greatest adverse health impacts. 24. Ensuring that gender, age and vulnerability sensitivities are not compromised during crisis response is one of the priorities of the HEOP. Under Pillar C, steps will be taken to address women’s challenges when accessing For Official Use Only health services under the special conditions of a disaster or public health emergency. These include coordinating delivery of reproductive health services during crisis situations. Implementation of the HEOP will be supported by the Ministry of Gender and Family and other stakeholders to ensure integration and/or coordination of the delivery of Minimum Initial Service Package (MISP) for reproductive health in crisis situations in an effort to prevent excess neonatal and maternal morbidity and mortality, reduce transmission of HIV, and prevent and manage the consequences of sexual violence. Environmental Aspects 25. It is anticipated that country policies supported by the proposed operation are likely to have a positive and mainly indirect effect on the Maldives’ environment and natural resources. The geographic conditions of the Maldives (80% below 1 m sea level) make the country highly vulnerable to natural hazards such as surges, cyclones and tsunamis and the coral islands heavily rely on the biological and geomorphic functioning of the coral reef environment for their stability10. The susceptibility of coral reefs systems to increased sea temperatures and ocean acidification, due to climate change events, generate significant problems as they threaten their survival11. This situation increases risk of coastal communities and assets, as coral reefs provide significant coastal protection through wave-force attenuation and are the primary sand producer12. The National Disaster Council, which is expected to provide guidance, advice and approve all critical decisions on disaster management shall aim at protecting the natural –and built– environment13. By preserving natural ecosystems, the Maldives can be better protected from natural hazards and maintain the services they provide that support for example the fisheries and tourism industries. 26. The Building Code (prior action #2) will help to improve construction practices, therefore increasing people’s safety and resilience to rapid-onset events such as cyclones and climate change impacts like sea-level rise14. 10 World Bank. 2015. Maldives: Systematic Country Diagnostic. 11 Republic of the Maldives. Strategic National Action Plan for Disaster Risk Reduction and Climate Change Adaptation 2010-2020. 12 Perry, C.T., Kench, P.S., O’Leary, M.J., Morgan, K.M. and Janucho wski-Hartley, F., 2015. Linking reef ecology to island building: Parrotfish identified as major producers of island-building sediment in the Maldives. Geology, 43(6), pp.503-506. 13 Maldives: Disaster Risk Management Act 2006. 14 World Bank Group. 2015. Building Regulations for Resilience. Managing Risks for Safer Cities. Page 8 of 10 The World Bank Maldives Cat DDO and Pandemic Emergency Financing Facility (P163939) By ensuring the protection, conservation and efficient management of groundwater and rainwater through the Water and Sewerage Regulations (prior action #4), the GoM will prevent inland erosion, and ecosystems degradation, which in turn increases communities’ resilience by securing water for food production, and improve landscapes’ capacity to adjust to floods and droughts. G. Risks and Mitigation . 27. The overall risk to achieving the PDO is assessed as High. This reflects high macroeconomic and institutional capacity risks. The macroeconomic framework’s adequacy depends on whether the large downside fiscal, external and political risks can be mitigated. 28. Although the DRM program is based on adopted legal policies, the change in government, as a result of the recently concluded Presidential and Parliamentary elections is likely to bring changes in key counterpart agencies and its personnel, that are responsible for coordinating some of the policy areas. Risk related to institutional capacity for implementation and sustainability is rated as high. Institutional capacity and mechanisms for effective coordination and enforcement of standards to incorporate disaster risk For Official Use Only consideration, and support disaster preparedness is limited. Going forward, an increased coordination between key stakeholders will be achieved under the leadership of the recently established NDMA. Pillar A of the proposed operation is expected to mitigate the risks to a certain extent with the full adoption of the NEOP. Risks from climate and disasters to the operation are assessed as moderate. The proposed operation seeks to enhance policy and institutional frameworks to manage climate and disaster risks in the short- to medium-term. CONTACT POINT World Bank Armando Eduardo Guzman Escobar, Francisca Ayodeji Akala, Rocio Schmunis Senior Disaster Risk Management Specialist Borrower/Client/Recipient Government of the Maldives, Ministry of Finance Ibrahim Ameer Minister of Finance admin@finance.gov.mv Implementing Agencies Ministry of Finance Ibrahim Ameer Minister of Finance admin@finance.gov.mv Page 9 of 10 The World Bank Maldives Cat DDO and Pandemic Emergency Financing Facility (P163939) FOR MORE INFORMATION CONTACT The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 473-1000 Web: http://www.worldbank.org/projects APPROVAL Armando Eduardo Guzman Escobar, Francisca Ayodeji Akala, Rocio Task Team Leader(s): Schmunis Approved By For Official Use Only APPROVALTBL Country Director: Idah Z. Pswarayi-Riddihough Page 10 of 10