FOR OFFICIAL USE ONLY Report No: ICR00006361 IMPLEMENTATION COMPLETION AND RESULTS REPORT IBRD-89620 ON A LOAN IN THE AMOUNT OF US$ 200 MILLION TO THE Republic of Guatemala FOR A Guatemala DRM Development Policy Loan with Cat DDO II (P159710) March 5, 2024 Urban, Resilience And Land Global Practice Latin America And Caribbean Region CURRENCY EQUIVALENTS (Exchange Rate Effective as of December 30th, 2023) Currency Unit = US$1.00 Guatemalan Quetzales 7.82702 = US$1.00 GOVERMENT FISCAL YEAR January 1 – December 31 Regional Vice President: Carlos Felipe Jaramillo Country Director: Michel kerf Regional Director: Anna Wellenstein/ Benoit Bosquet Practice Manager: David Sislen Lizardo Narváez, Zoila Navarro / Task Team Leader(s): Jack Campbell, Rodrigo Donoso ICR Main Contributor: Luis Rolando Durán Vargas ICR Team Luis Corrales, Natalia Víquez ABBREVIATIONS AND ACRONYMS Cat DDO Catastrophe Deferred Drawdown Option CCA Climate Change Adaptation CCRIF SPC Caribbean Catastrophe Risk Insurance Facility Segregated Portfolio Company CPF Country Partnership Framework CMGIRs Comprehensive Municipal Risk Management Plans COMRED Municipal Coordinating Committees for Disaster Reduction (Coordinadora Municipal para la Reducción de Desastres) CONRED National Coordinator for Disaster Reduction (Coordinadora Nacional para la Reducción de Desastres) DPL Development Policy Loan DRF Disaster Risk Financing DRFS Disaster Risk Financing Strategy DRM Disaster Risk Management GDP Gross Domestic Product GoG Government of Guatemala IMF International Monetary Fund INGUAT Guatemalan Tourism Institute (Instituto Guatemalteco de Turismo) INSIVUMEH National Institute of Seismology, Volcanology, Meteorology and Hydrology (Instituto Nacional de Sismología, Vulcanología, Meteorología e Hidrología) MAGA Ministry of Agriculture, Livestock and Food (Ministerio de Agricultura, Ganadería y Alimentación) MARN Ministry of Environment and Natural Resources (Ministerio de Ambiente y Recursos Naturales) MINEDUC Ministry of Education MINFIN Ministry of Finance MTA Technical Agroclimatic Committees PDO Program Development Objective SECONRED Executive Secretariat of the National Coordinator for Disaster Reduction (Secretaría Ejecutiva de la CONRED) SEGEPLAN Secretariat for Planning and Programming of the Presidency (Secretaría de Planificación y Programación de la Presidencia) TABLE OF CONTENTS DATA SHEET ......................................................................................................................... 1 I. PROGRAM CONTEXT AND DEVELOPMENT OBJECTIVES ............................................... 4 II. ASSESSMENT OF KEY PROGRAM DESIGN AND OUTCOMES .......................................... 8 III. OTHER OUTCOMES AND IMPACTS ............................................................................ 16 IV. BANK PERFORMANCE ............................................................................................... 18 V. RISK TO SUSTAINABILITY OF DEVELOPMENT OUTCOMES .......................................... 20 VI. LESSONS AND NEXT PHASE ....................................................................................... 20 ANNEX 1. RESULTS FRAMEWORK ........................................................................................ 25 ANNEX 2. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION PROCESSES ...... 26 ANNEX 3. BORROWER, CO-FINANCIERS, AND OTHER DEVELOPMENT PARTNERS’/STAKEHOLDERS’ COMMENTS ........................................................................... 29 . . DATA SHEET BASIC INFORMATION Product Information Project ID Program Name P159710 Guatemala DRM Development Policy Loan with CAT DDO II Country Financing Instrument Guatemala Development Policy Lending DPF Options Programmatic Regular Deferred Drawdown Option Catastrophic Deferred Drawdown Option No Yes Yes Crisis or Post Conflict Sub-National Lending Special Development Policy Lending No No No Organizations Borrower Implementing Agency Republic of Guatemala Ministry of Public Finance Program Development Objective (PDO) Program Development Objective (PDO) The PDO is to help strengthen Guatemala’s legal, institutional and financial framework to manage the impact of adverse natural events and climate risk. PROGRAM FINANCING DATA (USD) FINANCE_TBL Approved Amount Actual Disbursed World Bank Administered Financing 200,000,000 200,000,000 IBRD-89620 Total 200,000,000 200,000,000 The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) KEY DATES Concept Review Decision Review Approval Effectiveness Original Closing Actual Closing 02-Oct-2018 12-Feb-2019 24-May-2019 16-Apr-2020 31-Mar-2023 31-Mar-2023 RATINGS SUMMARY Program Performance Overall Outcome Relevance of Prior Actions Achievement of Objectives (Efficacy) Bank Performance RATINGS OF PROJECT PERFORMANCE IN ISRs Actual No. Date ISR Archived DO Rating IP Rating Disbursements (US$M) 01 11-Jun-2020 Satisfactory Satisfactory 199.00 02 18-Dec-2020 Satisfactory Satisfactory 199.00 03 21-Jun-2021 Satisfactory Satisfactory 199.00 SECTORS AND THEMES Sectors Mitigation Co- Adaptation Co- Major Sector/Sector (%) benefits (%) benefits (%) SECTOR0_TBL Public Administration 100 0.00 92.00 Other Public Administration 100 0 92 Themes Major Theme/ Theme (Level 2)/ Theme (Level 3) (%) Page 2 of 29 The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) Finance 100 Finance for Development 100 Disaster Risk Finance 100 Public Sector Management 33 Public Finance Management 33 Public Expenditure Management 33 Human Development and Gender 17 Gender 17 Education 17 Education Facilities 17 Urban and Rural Development 67 Disaster Risk Management 67 Disaster Risk Reduction 33 Disaster Preparedness 50 Environment and Natural Resource Management 92 Climate change 92 Adaptation 92 ACCOUNTABILITY AND DECISION MAKING Role At Approval At ICR . Page 3 of 29 The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) I. PROGRAM CONTEXT AND DEVELOPMENT OBJECTIVES A. Context at Appraisal Country Context 1. At the time of appraisal of the Second Disaster Risk Management (DRM) Development Policy Loan with Catastrophe Deferred Drawdown Option (Cat DDO II), Guatemala’s moderate economic growth momentum was still considered to fall short of the rates needed to reduce poverty and meaningfully lift the living standards of its citizens. After four consecutive quarters of deceleration, a return to growth in the second semester of 2018 raised the forecast from 2.7 percent to 3 percent for the 2019-2021 period, in the context of an uncertain external environment, tightened monetary conditions in the United States, and higher oil prices). The agricultural sector made its contribution (2.5 percent y/y), after recovering from a severe drought and the eruption of El Fuego Volcano in 2018. However, Guatemala’s historically low real GDP growth rates remained a key challenge to significantly reduce its high levels of poverty – 60 percent of the population was below the poverty line at the time of appraisal.1 2. Although inflation remained under control, it was driven up temporarily by natural hazards and adverse weather conditions. Agricultural exports were key drivers of export growth – notably coffee and cardamom, which left the country exposed to weather and climate shocks and crop diseases, all of which had hit the country in previous years. Light manufacturing, such as garments, was also an important driver of exports. However, at the time of appraisal, the current account surplus was expected to decline to 0.6 percent of GDP by the end of 2021 due to increased consumer imports and some demand for investment goods. Exports declined 2.0 percent in 2018 driven by terms of trade losses for key export products such as sugar, rubber, and coffee. The 2018 annual inflation was at 3.8 percent and was expected to remain within the official 3-5 percent range. The efficiency of monetary policy was expected to continue to be partly hampered by low financial intermediation, while temporary cost pressures coming from the El Fuego Volcano eruption and the rise of global oil prices were expected to present challenges that could have significant impacts on poverty. 3. Overall, the deficit was expected to remain around the -2 percent of GDP mark during the 2019-2021 period. Public spending was expected to remain contained over the medium term, with the Government generally restraining both capital and social expenditures to keep the fiscal balance from deteriorating but limiting the resources for long term growth and poverty reduction. Fiscal revenues were projected to remain stable at around 11 percent of GDP— among the lowest in the world. Continued widespread tax evasion, informality, low rates, and narrow bases, coupled with weak tax administration capacity were expected to continue to hinder the effectiveness of fiscal policy in fulfilling some of its key objectives, including service delivery and infrastructure, to support growth. 4. Despite the risks and challenges presented above; Guatemala’s overall macroeconomic policy framework was deemed adequate for the purpose of the Cat DDO II operation. Guatemala’s debt-to-GDP ratio was among the lowest in Latin America, inflation was low and within the central bank’s target range and expected to eventually fall below the mid-point, the fiscal deficit was contained, and the balance of payment financing needs were within the Government’s control. According to the International Monetary Fund (IMF)’s debt sustainability analysis, the trajectories of public 1 Between 2006 and 2014, poverty measured at the upper (US$5.5 per day) and lower middle-income (US$3.2 per day) class lines increased from 44.4 percent to 50.1 percent and from 24.7 percent to 25.3 percent, respectively. These increases were largely driven by price rises, particularly for food, in response to the increasing oil prices and disaster related events, such as the drought and volcanic eruption in 2018. Page 4 of 29 The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) debt and total external debt were sustainable and resilient to negative shocks. As a result, Guatemala’s economy was considered stable and showed little macroeconomic volatility. Sector Context 5. Severe events including earthquakes, volcanic eruptions, hurricanes, and flooding continued to present major obstacles to the country’s economic growth. Major disasters in Guatemala include the 1976 earthquake, which resulted in more than 23,000 deaths and damages estimated at 20.7 percent of GDP; Hurricane Mitch (1998); Hurricane Stan (2005), the concurrent eruption of the Pacaya volcano and the passing of the Agatha tropical storm (2010); along with the eruption of El Fuego volcano (2018). The Ministry of Finance (MINFIN) estimated that the impacts of the past severe events raised the fiscal deficit by 0.5 percentage points of GDP. In these events, the Government had to interrupt ongoing service delivery and development programs in sectors such as health and education to finance immediate needs for recovery and reconstruction. 6. Having identified natural hazards and climate risks as contingent liabilities affecting Guatemala’s fiscal sustainability, with potential for undermining the Country’s development path, the Government requested a second Cat DDO operation. Recognizing the need to enhance the country's policy and institutional framework in the areas of DRM and climate change adaptation (CCA), the Government initiated a series of policy reforms, including a bill to Congress aimed at modernizing Guatemala’s disaster risk management and adopting of a Financial Risk Management Strategy. The second Cat DDO operation was designed to support the upgrading of Guatemala’s legal and institutional framework to better manage disasters and climate risks; and increase the Government’s capacity to quickly mobilize resources in the aftermath of a disaster triggered by a materialized natural hazard. The Cat DDO II was also foreseen as playing a key role in unlocking synergies with other World Bank operations in Guatemala. 7. Poverty reduction and social development were continuously disrupted by intense natural and climate events. Vulnerable households might only be one disaster away from falling below the poverty line or sliding further back into poverty. In 2010, for instance, poverty rates rose by 5.5 percentage points in the areas flooded by tropical storm Agatha. This meant that nearly 80,000 additional households fell below the poverty line. Moreover, vulnerability to disaster and climate risks further exacerbated the burden of chronic malnutrition,2 which represented a substantial cost to Guatemalans, limiting opportunities to participate in the economy and to contribute to the country’s social and economic development. As increasing evidence of the relationship between the impact of natural hazards and poverty, a 2011 report found that the probability of child labor increased by 7.3 percent in departments affected by Tropical Storm Stan.3 Rationale for World Bank Assistance 8. The Cat DDO II was fully consistent with the Country Partnership Framework (CPF) in which DRM and climate change were identified as key priorities. The 2016 CPF was anchored in the Government’s commitment to preventive planning and disaster risk reduction, which sought to identify opportunities to expand the World Bank’s engagement in these thematic areas. The “Fostering Inclusion and Resilience” pillar of the CPF identified vulnerability to natural 2 Guatemala remained an extreme outlier in the region in terms of chronic malnutrition and almost half of all children in the country suffered from stunting. 3 Bustelo, M. (2011), “Bearing the burden of natural disasters: child labor and schooling in the aftermath of tropical storm Stan in Guatemala”, Three essays on investments in children’s human capital, doctorate thesis, Urbana, University of Illinois at Urbana -Champaign. As cited in Oscar A. Ishizawa, Oscar; Miranda JJ (2016). Weathering Storms Understanding the Impact of Natural Disasters on the Poor in Central America. Policy Research Working Paper 7692, The World Bank. Available at: https://documents1.worldbank.org/curated/en/254391467993466399/pdf/WPS7692.pdf Page 5 of 29 The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) hazards as a critical development constraint for Guatemala. To address this challenge, building capacity to respond to disasters and climate change was highlighted as core objective of the CPF. 9. The World Bank supported the Government’s DRM program through the first Cat DDO (P112544). The Cat DDO II built on the progress and lessons learned from the first operation. In the aftermath of the catastrophic situation created by the 2010 eruption of the Pacaya Volcano and passing of Tropical Storm Agatha, the Government disbursed US$85 million from the first Cat DDO. As designed, the Cat DDO provided the Government with a reliable source of a pre-established amount of quick liquidity. In addition, the DRM/CC policy dialogue between the Bank and the GoG promoted by the first Cat DDO contributed to building awareness and mainstreaming DRM/CC considerations in the Government’s decision-making process, including the development and adoption by MINFIN of additional financial instruments. Building on the experience and lessons learned, the Cat DDO II provided an enabling environment for consolidating key disaster risk reduction actions including (i) improving the analysis of fiscal impacts due to natural hazards, and further implementation of the Disaster Risk Financing (DRF) Strategy; (ii) establishing thematic budget classifiers and incorporating the assessment of disaster and climate risks as inputs to the preparation of the annual General Budget report, and (iii) development of a proposal for an updated legal framework for DRM/CC. The World Bank shared its global expertise on best practices and lessons learned from other Cat DDO operations implemented worldwide. Policy dialogue was also complemented with targeted Technical Assistance (TA) aimed at supporting relevant policy reforms and strengthening key government agencies. TA support was provided through three Analytical and Advisory Services (ASA): Strengthening DRM and Resilience of Central American Municipalities (P157269); Central America Disaster Risk Financing Engagement (P148729); and the Volcan de Fuego Resilient Recovery (P167980). Original Program Development Objective(s) (PDO) (as approved) 10. The Project Development Objective (PDO) was “to help strengthen Guatemala’s legal, institutional, and financial framework to manage the impact of adverse natural events and climate risk.” Original Policy Areas/Pillars Supported by the Program (as approved) 11. This operation focused on strategically supporting the strengthening of the Government of Guatemala's program of policy reforms aimed at building greater resilience to disaster risk, as described in the Letter of Development Policy, by which the Government expressed its commitment to the implementation of the Program.4 Particularly, this operation supported the Government program's policy reforms, objectives, and actions aiming to: (a) enhance the disaster risk management legal framework; (b) invest in the identification and mitigation of risk, and disaster preparedness; and (c) increase the financial capacity to respond and recover from disasters and emergencies. 12. The operation was structured around two policy pillars: • Pillar A. Strengthening the legal and institutional framework for DRM and CCA: The legal and institutional framework for disaster risk management (DRM) in Guatemala, introduced in 1996, was a significant change from the existing civil defense framework focused on emergency response. Due to the rapid development of DRM conceptual frameworks and the adoption of international agreements (Sendai Framework among others), a 4 TheProgram was described in the Loan Agreement (LA, Loan Number 8962-GT) Section I of Schedule 1 by reference to the Government’s Letter of Development Policy, included in Annex 3 of the Program Document. The LA explicitly defines the Program as follows: “’Program’ means: the program of objectives, policies, and actions set forth or referred to in the letter dated April 8, 2019 from the Borrower to the Bank declaring the Borrower's commitment to the execution of the Program, and requesting assistance from the Bank in support of the Program during its execution and comprising actions taken consistent with the program's objectives.” Page 6 of 29 The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) review of the legal framework was warranted. Therefore, the country has prioritized the modernization of its law to align with the progress made in institutional approaches to DRM. Notwithstanding these regulatory constraints, institutional approaches to DRM have continued to make progress in Guatemala. However, the lack of a forward- looking legal framework, well informed with current trends in DRR and CCA, and country’s evolving disaster risk profile, has hindered the consolidation of these processes. The Government expressed its commitment to improving and updating its DRM legal framework to ensure clarity among different government levels, and institutions, as well as strengthen capacities for volcanic resilience and enhance the country’s environmental aspects of DRM. Under this policy area the operation focused on supporting actions that allowed the GoG to strengthen the legal and policy framework for DRM and CCA. • Pillar B. Incorporating disaster risk into the management of public finances for fiscal resilience : Reforms under this policy area focused on actions that allowed the GoG to strengthen fiscal resilience by incorporating disaster risk into comprehensive fiscal management and the management of public finances. The GoG expressed its commitment to establishing financial mechanisms that would help strengthen fiscal resilience to potential economic impacts generated by adverse natural events. The policy reforms under this pillar were coordinated by MINFIN. B. Significant Changes During Implementation 13. Neither the PDO nor the Results Indicators and its targets were revised during implementation. The Cat DDO II was a single tranche operation, in the amount of US$200 million. It was approved by the Bank’s Board on May 24, 2019, and became effective on April 16, 2020. The operation was not renewed, and its closing date was on March 31, 2023. 14. Key government agencies, including National Coordinator for Disaster Reduction (CONRED), Secretariat for Planning and Programming of the Presidency (SEGEPLAN), and National Institute of Seismology, Volcanology, Meteorology and Hydrology (INSIVUMEH), continue to work on the implementation of actions aligned with the prior actions. For instance, in the context of the impact of the COVID-19 pandemic, exacerbated by the passing of tropical storm Amanda and hurricanes Eta/Iota, these agencies strengthened collaboration and coordination of their interventions. The complex emergency made evident and reinforced the understanding of chronic technical and financial gaps identified during the design of this Cat DDO operation, including the limited resources available to these agencies for carrying out, in a timely and effective response, their mandates, in the context of evolving emergency situations. 15. Congress approved the CATDDO Loan operation on 1 April 20205, and it became effective on 16 April 2020. The Government of Guatemala decided, on 21 April 2020, to withdraw the entire amount of the loan (i.e., US$199 million available in immediate liquidity, after deducting US$1 million Front-end Fee from the US$ 200 million loan amount). While, at the time of requesting the full withdrawal of the loan proceeds, government liquidity needs resulting from the financial shock created by the evolving COVID-19 pandemic were yet unknown, it was considered reasonable and justified given preliminary estimates. At closing of this operation, on March 31, 2023, the number of confirmed cases of COVID-19 and deaths reported for Guatemala were 1,244,812 and 20,187, respectively.6 5 Legislative Decree 10-2020, published in the National Gazette, "Diario de Centro America" Number 42 on April 1, 2020. Declared of national urgency, with the favorable vote of more than two thirds of the total number of members of Congress. Approved after a single debate, the Decree entered into force on April 2, 2020. https://www.congreso.gob.gt/detalle_pdf/iniciativas/5652#gsc.tab=0 6 World Health Organization COVID-19 website. https://covid19.who.int/region/amro/country/gt accessed on Oct. 10, 2023. Page 7 of 29 The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) II. ASSESSMENT OF KEY PROGRAM DESIGN AND OUTCOMES 16. The overall design and outcomes of the Cat DDO II are rated Satisfactory, with the Relevance of the Prior Actions rated Satisfactory and the Achievement of the Objectives (Efficacy) rated Moderately Satisfactory, as 11 out of 13 results’ indicators were fully achieved. 17. The operation’s Theory of Change (TOC), shown in Figure 1, was developed ex post, based on information provided in the Program Document and Legal Agreement (LA). 18. Prior Actions under Pillar A are described below. The respective Results Indicators targets, and their expected end values, and at closing, are detailed in Table 1: Prior Action A.1: The Government has submitted to its Congress a bill of law to strengthen the legal DRM framework, establish a national system for DRM and define procedures and instruments to enhance risk knowledge and reduction, disaster preparedness and response, and resilient recovery. Results and outcomes from implementing Prior Action A.1: Improved Government coordination as well as enhanced capacities for risk assessment, risk reduction, early warning, preparedness, and resilient recovery. Prior Action A.2: The Government has adopted a DRM roadmap including contingency plans and information dissemination activities to strengthen risk management and resilience for volcanic hazards. Results and outcomes from implementation of Prior Action A.2: Enhanced institutional capacities to manage volcanic risks, contributing to the resilience of Guatemala against adverse natural events. Prior Action A.3: The Government has strengthened the DRM’s institutional framework in the environmental sector by creating the Department of Integral Environmental Risk Management within the Ministry of Environment and Natural Resources Results and outcomes from implementing Prior Action A.3: Enhanced coordination and synergies between DRM and environmental management and increased awareness of nature-based DRM solutions. 19. Prior Actions under Pillar B are described below. The respective Results Indicators targets, and their expected end values, and at closing, are detailed in Table 1: Prior Action B.1: The Government has approved and published a Disaster Risk Financing Strategy (DRFS) to promote diversification of disaster-related financial instruments and enhance capacity to respond to disasters. Results and outcomes from implementing Prior Action B.1: Enhanced government capacity to respond to disasters while protecting its fiscal balance. Prior Action B.2: The Government has created the position of Fiscal Transparency and Procurement Vice-Minister within MINFIN and clarified the functions and responsibilities of MINFIN; and approved an integrated analysis of fiscal risks to strengthen the management of fiscal risks and enhance transparency of public spending. Page 8 of 29 The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) Results and outcomes from implementing Prior Action B.2: Enhanced understanding of the potential impact of disaster-related fiscal shocks on solvency, liquidity, and financing needs. Prior Action B.3: The Government has enhanced the efficiency of public spending, planning and budget allocation processes related to DRM and CCA activities by clarifying the responsibilities of the thematic budget classifiers’ governing bodies and updating the scope of said instruments throughout its budget cycle. Results and outcomes from implementing Prior Action B.3: Enhanced planning, monitoring, and transparency of DRM and CCA expenditures and an additional financing window for risk knowledge and risk reduction activities. Figure 1. Guatemala Second DPL with Cat DDO. Theory of Change Assumptions A. The Government of Guatemala is fully committed to strengthening its DRM Program through improved regulatory and institutional frameworks to build the country’s overall resilience against the adverse impacts of materialized natural hazards and the exacerbating effect of climate change. B. The adoption and implementation of the Disaster Risk Financing Strategy (DRFS) provides the policy framework and enabling environment that promote enhancements to the country’s capacity to manage fiscal risk resulting from contingent liabilities, implicit and explicit, resulting from catastrophic events triggered by natural hazards, including public health-related emergencies. C. Through well-targeted Technical Assistance (TA) and adequate supervision of this operation, the World Bank and the Government of Guatemala maintain, throughout the implementation period, an effective DRR policy dialogue, which in turn contributes to ensure that DRR actions carried out by the Government complement each other and contribute to creating positive synergies aimed at enhancing resilience of public assets, populations, and the economy against external shocks, including those triggered by extreme natural events. A. Relevance of prior actions Rating: Satisfactory (S) 17. The relevance of the Prior Actions is rated Satisfactory. The Prior Actions were clearly linked to the Government’s DRM program as well as to the operation’s PDO: help strengthen Guatemala’s legal, institutional, and financial framework to manage the impact of adverse natural events and climate risk. The Prior Actions were strategically selected and designed to advance the policy issues that the Government identified as critical for the further Page 9 of 29 The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) implementation of its DRM Program. The Prior Actions were linked through policy dialogue and targeted TA to create positive synergies and promote collaboration, coordination, and coherence among the agencies responsible for the implementation of the policy reforms promoted by the GoG and supported by this operation. 18. A.1: Bill of law to strengthen the legal DRM framework, establish a national system for DRM and define procedures and instruments to enhance risk knowledge and reduction, disaster preparedness and response, and resilient recovery. It is important to understand that the PA was the formulation of the bill and its submission to Parliament on January 18, 2019, not its enactment as law. The relevance of this PA should be measured in relation to the commitment to sending a bill that is considered adequate for the country's priorities and the Bank's objectives and development strategy for Guatemala. Given the independence of the Republic of Guatemala’s three branches of Government (Legislative, Executive and Judicial Bodies), this action did not imply a commitment to the approval of the law, which is not in the purview of the Executive. Even with this identified risk, the Bank and the Government agreed on having the drafting and submission of the bill as the PA. As of this writing, the DRM bill is still pending debate by Congress. In this sense, three aspects need to be highlighted: first, the recognition at the political and technical level of the pressing need to update the regulatory and institutional framework with an innovative and more appropriate approach to DRM; second, the positive impact that the drafting of the bill and its consultation process have had on the current system, processes, and institutional culture. In this regard, the bill, elaborated through extensive consultation and participatory process, reached a consensus in the adoption of a new framework of responsibilities, a focus on causality and prevention and a territorial approach, among others; third, the drafting of the bill has built momentum, reflected in, for example, 223 municipal DRM committees created or reinforced by SECONRED, currently undertaken proactive disaster risk reduction actions based on the provisions introduced in the proposed law. This represents a direct impact of the Prior Action on the institutional scenario. The drafting of the bill provided an enabling environment for the implementation of this operation and the successful achievement of its PDO. However, the fact that the bill has not been approved by Congress weakens the country and maintains the existing gap on DRM mandates for the agencies. While the DRR policy dialogue between the Bank and the Government continues, as reflected in the implementation of this operation and the previous Cat DDO operation, and GoG's continued commitment to allocating significant resources to disaster relief, the CPF 24-27 recognizes that an integrated disaster risk management strategy will be necessary to address vulnerabilities and focus on prevention proactively. Therefore, the pending approval of the DRM bill into Law is creating a significant gap between the regulatory and the institutional frameworks for DRM. 19. A.2: DRM roadmap including contingency plans and information dissemination activities to strengthen risk management and resilience for volcanic hazards. The DRM roadmap was adopted by the National Council for Disaster Risk Reduction on December 12, 2018, and the Volcanic Hazard Roadmap on December 10, 2018. As planned, the DRM roadmap, inspired by the process and the contents of the DRM bill (PA1), guided several processes of institutional and territorial strengthening, in line with the PDO. Based on the multi-hazard risk profile of the country, it is considered highly relevant to guarantee commensurate levels of risk management in different spatial configurations according to their respective risk profiles. INSIVUMEH is the key government agency responsible for providing actionable technical/scientific information. 20. A.3: Strengthened the DRM’s institutional framework in the environmental sector by creating the Department of Integral Environmental Risk Management within the Ministry of Environment and Natural Resources. This Prior Action, completed by MARN on September 21, 2018, was highly relevant to the Government’s efforts to reduce risks with a multisectoral comprehensive approach, providing a broader scope that articulates the concepts of DRM and Climate Change adaptation, ecosystem services, and vulnerability of ecosystems. Page 10 of 29 The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) 21. B.1: The Government has approved and published a Disaster Risk Financing Strategy (DRFS) to promote diversification of disaster-related financial instruments and enhance capacity to respond to disasters. This Prior Action, completed by MINFIN on April 18, 2018, was highly relevant to the Government’s efforts to promote and facilitate the development and operationalization of the country’s DRFS. The availability of a DRFS represents a significant contribution to the DRM public policy context in Guatemala, particularly because it compels a modernization and reinforcement of the regulatory and institutional framework. The DRFS provides for improved financial protection and budget elements that are generally considered to be disconnected in the current legal framework in Guatemala, and other countries in the region. 22. B.2: The Government has created the position of Fiscal Transparency and Procurement Vice-Minister within MINFIN and clarified the functions and responsibilities of MINFIN; and approved an integrated analysis of fiscal risks to strengthen the management of fiscal risks and enhance transparency of public spending. The prior action was approved by Governmental Accord creating the new Vice-Ministry position on February 12, 2018, and Government Accord, on June 27, 2018, ordering the analysis of fiscal risks. The adoption of this prior action brings an innovative approach to the DRM framework, in line with Prior Action B.1. Based on the comprehensive approach that was mainstreamed in the policy reform established in PA/A1, the expanded scope of fiscal risk management provides a key contribution to achieving the PDO, considering that it develops on the concepts of prospective and corrective risk management. 23. B.3: The Government has enhanced the efficiency of public spending, planning and budget allocation processes related to DRM and CCA activities by clarifying the responsibilities of the thematic budget classifiers’ governing bodies and updating the scope of said instruments throughout its budget cycle. This PA was approved in the Budget Law for the Fiscal Year 2019. 24. The operation’s PDO continues to be highly relevant to the World Bank’s engagemen t in Guatemala and supports key objectives of the CPF FY2024-2027. This operation is fully aligned with the current joint IBRD/IFC/MIGA Country Partnership Framework for the Republic of Guatemala for FY 24-27 (FY24-27 CPF), (Report No. P500103), discussed by the Executive Directors on 30 May 20237. The CPF 24-27 aims to continue supporting Guatemala in addressing its development challenges, with a focus on inclusion and sustainability. The CPF articulates the WBG’s strategy around three mutually reinforcing high-level outcomes (HLOs): (i) Increased human capital, (ii) Increased resilience to natural disasters and climate change, and (iii) Improved Job Opportunities; along with two cross-cutting themes: Strengthening Institutional capacity - improving the availability of data, integrity, and transparency; and Inclusion- tackling discrimination and barriers for the economic empowerment of women and Indigenous people. Under HLO2’s Objective 3, “improving capacity for the management of disaster risk, and natural capital under a changing climate,” the CPF aims to “support the Government to enhance disaster risk and natural capital management capacity, as well as resilience to climate shocks through improved disaster response policies, forestry management and better infrastructure.“ Considering the current, highly polarized, political environment in Guatemala, the new CPF will focus on a selective set of interventions where there is strong ownership across a wide spectrum of stakeholders and strong synergies vis-a-vis other development partners. In this regard, considering its relevance to the Government’s resilience building agenda, and its contribution to the achievement of the CPF’s development objectives, a third Cat DDO operation is foreseen as a key operation for Bank’s financing, subject to the adequacy of the macroeconomic situation. B. Achievement of Objectives (Efficacy) 7 https://documents1.worldbank.org/curated/en/099050523121019313/pdf/BOSIB0af647f3b0320ac2205e50cbaf0673.pdf Page 11 of 29 The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) Rating: Moderately Satisfactory 25. Overall, the operation’s efficacy is rated Moderately Satisfactory as it has helped strengthen Guatemala’s legal, institutional, and financial framework to manage the impact of adverse natural events and climate risk. Under the DPL with Cat DDO program, the Government carried out actions that: (a) strengthened the institutional frameworks for DRR at central, sectorial, and territorial level; and (b) integrated disaster and climate risk considerations in the investment planning processes. Therefore, this operation substantially contributed to strengthening the Government’s capacity to implement a modern approach to DRM by promoting a comprehensive, multisectoral framework aimed at increasing resilience to natural hazards and the exacerbating effects of climate change. Additionally, the actions carried out by the Government under this operation contributed to the strengthening of emergency response and macroeconomic sustainability and the protection of the country’s social development gains. Furthermore, table 1 which summaries the Results Indicators and its targets, shows an overall achievement of 85 percent (i.e., 11 out of 13) of expected End Targets. 26. Generally, the results and indicators selected for measuring progress and achievement of the PDO were appropriate. However, the B.3b indicator (i.e., “Permanent National DRM Fund annually funded and operational”) was not met. This situation was due to its reliance on the approval of a Law by Congress, authorizing the establishment and capitalization of a fund for DRM. The Bank Team presented a proposal of alternatives for addressing the result in a different way, by changing the instrument of approval. However, the counterpart agency did not decide on this proposal, and as a result, the achievement of this indicator fell beyond the Executive branch's purview. Table 1. Cat DDO II Pillars and Expected Results Pillar A: Strengthening the legal and institutional framework for DRM and CCA Prior Action A.1 ►A.1a: Percentage of municipalities that have included disaster risk reduction activities in their local development plans. (Percentage, Custom) PA A.1 Baseline At Closing End Target (ET) ET at closing Value 3.50% 85% 29% Exceeded Date 20-Mar-19 31-Mar-23 31-Mar-23 Comments: The percentage of municipalities that have incorporated disaster risk reduction activities into their local development plans exceeded the target of 29% and reached a coverage rate of 85%. Achievements related to this include the launch of the first Territorial Platform for Disaster Risk Management in the West Region, which facilitates regional and local dialogue on risk management. CONRED continued promoting Comprehensive DRM at municipal level, following the conceptual framework established in the Bill. ►A.1b: Percentage of municipalities that have created or updated local DRM committees in line with the new DRM framework. (Percentage, Custom) PA A.1 Baseline At Closing End Target ET at closing Value 0 69% 15% Exceeded Date 20-Mar-19 31-Mar-23 31-Mar-23 Comments: The municipalities that have established or updated local DRM committees in accordance with the new DRM framework reached 69 percent (i.e., 233 municipalities out of 340) as of the closing date, surpassing the 15% target established in 2021. Page 12 of 29 The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) ►A.1c: Number of educational facilities constructed in compliance with the technical criteria adopted by the Ministry of Education about safe location and seismic-resistant infrastructure.8 (Number, Custom) PA A.1 Baseline At Closing End Target ET at closing Value 100 3,497 220 Exceeded Date 20-Mar-19 31-Mar-23 31-Mar-23 Comments: The number of educational facilities built in accordance with the technical criteria set by the Ministry of Education for safe location and seismic-resistant infrastructure has surpassed the target of 220 educational spaces in 2021. The adoption of the MINEDUC design regulations by the Development Councils at the municipal level resulted in an impressive scaling up of results, with 3,497 educational facilities built according to safe location and seismic -resistant infrastructure criteria. According to the official report submitted by the Ministry of Education (see source, below), the total number of educational spaces were endorsed by the Ministry of Education: 128 structures built by MINEDUC and 3,369 by the Development Councils at Municipal level. Source: Official Communication from the Ministry of Education's Under-directorate of the educational infrastructure, addressed to the Head of the Directorate of Public Credit, confirming the data shown above: DIPLAN-1-10,096-2023 of 18 December 2023. Prior Action A.2 ►A.2a: National Institute of Seismology, Volcanology, Meteorology and Hydrology (INSIVUMEH), restructured, strengthened, and providing enhanced hazard information related to volcano activity. (Yes/No, Custom) PA A.2 Baseline At Closing End Target ET at closing Value No Yes Yes Met Date 20-Mar-19 31-Mar-23 31-Mar-23 Comments: INSIVUMEH has undergone restructuring and strengthening efforts to provide enhanced hazard information related to volcano activity. The target set for 2020 was successfully achieved through the improvement of the monitoring network and coordination with CONRED for preparation and alerts. ►A.2b: Coordination of humanitarian assistance guided by the updated National Humanitarian Assistance Manual adopted by the Executive Secretariat of the National Coordinator for Disaster Reduction. (Yes/No, Custom) PA A.2 Baseline At Closing End Target ET at closing Value No Yes Yes Met Date 20-Mar-19 31-Mar-23 31-Mar-23 Comments: The coordination of humanitarian assistance was guided by the updated National Humanitarian Assistance Manual adopted by CONRED. The target set for this coordination was achieved in 2021, with the manual being successfully utilized during the tropical emergencies Eta and Iota. Prior Action A.3 ►A.3a: Number of local communities with environmental risk evaluations completed and disseminated and trained to protect strategic ecosystems and the livelihoods provided by them. (Number, Custom) PA A.3 Baseline At Closing End Target ET at closing Value 0 25 25 Met Date 20-Mar-19 31-Mar-23 31-Mar-23 8 Education facilities refers to any space involved in education purposes (including psychomotor, social, behavioral, creative, and sensitive activities) such as the following areas: classrooms, administrative areas, service areas, or circulation areas. Page 13 of 29 The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) Comments: In 2021, the goal of completing and disseminating environmental risk evaluations in local communities to protect strategic ecosystems and livelihoods was achieved. A total of 25 communities underwent validation, with 13 communities in the Lake Petén Itzá ecosystem and 12 communities in the Lake Izabal ecosystem. These communities also received training from the Department of Risk Prevention Against the Effects of Climate Change. Collaboration through early warning systems facilitated by Agroclimatic Technical Committees (MTAs) in partnership with INSIVUMEH ensures that farmers receive crucial information for enhanced crop planning. Pillar B: Incorporating disaster risk into the management of public finances for fiscal resilience Prior Action B.1 ►B.1a: Number of new financial instruments established in line with the DRFS. (Number, Custom) PA B.1 Baseline At Closing End Target ET at closing Value 0 2 2 Met Date 20-Mar-19 31-Mar-23 31-Mar-23 Comments: In 2021, two new financial instruments were established in line with the DRFS: Cat DDO II and parametric insurance for excess rainfall (CCRIF SPC). These instruments were part of a financial strategy that aimed to organize financial instruments and identify their benefits based on specific needs. Additionally, the government negotiated a contingent credit line of up to US$400 million with the IDB. MAGA is also piloting agricultural insurance to provide economic coverage for small producers affected by intense rainfall or prolonged drought. https://www.minfin.gob.gt/images/eta/baselegal.html ►B.1b: Accelerated response time in providing emergency funds maintained after the declaration of emergency. (Days, Custom) PA B.1 Baseline At Closing End Target ET at closing Value 14 14 14 Met Date 20-Mar-19 31-Mar-23 31-Mar-23 Comments: Guatemala joined the CCRIF SPC ( https://www.ccrif.org) in 2019. CCRIF SPC promises that, in the event of a materialized natural hazard that triggers a country's qualifying hazard insurance policy payout, the respective payout will be made within 14 days after such event. Therefore, at the time of selecting the Baseline and End Target for this Results Indicator (B.1b) maintaining a 14-day window time for accessing emergency liquidity was considered the condition for its achievement. In 2021, following the impact of Tropical Storm Eta, a state of emergency was declared, and the CCRIF payout was received within the 14-day period stipulated in this indicator. While this is not strictly speaking a net acceleration, as the indicator formulation suggested, the objective set as per Guatemala's joining the CCRIF SPC was met. In addition, this DPL with Cat DDO was triggered upon the GoG’s request for drawdown for responding to the COVID19 pandemic, the loan proceeds were made available to the Government in under one week. ►B.1c: Operations Manual for the implementation of the DRFS adopted by the Ministry of Public Finance (MINFIN). (Yes/No, Custom) PA B.1 Baseline At Closing End Target ET at closing Value No Yes Yes Met Date 20-Mar-19 31-Mar-23 31-Mar-23 Comments: MINFIN designed and adopted a DRFS Operations Manual, achieving its target in 2022 through Ministerial Agreement No. 167-2022. This operation’s manual clarified and organized internal functions regarding financial management, fiscal policy, and expenditure quality within the disaster risk management framework. Furthermore, the Operational Plan has received World Bank and WFP support. https://www.minfin.gob.gt/images/downloads/leyes_generales/167_acuerdo_riesgos.pdf Prior Action B.2 Page 14 of 29 The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) ►B.2a: Number of new emergency procurement tools and mechanisms in place for dealing with adverse natural events. (Number, Custom) PA B.2 Baseline At Closing End Target ET at closing Value 0 3 2 Exceeded Date 20-Mar-19 31-Mar-23 31-Mar-23 Comments: Since 2020, the number of new emergency procurement tools and mechanisms for addressing adverse natural events exceeded the target of two, reaching three instruments. This accomplishment was made possible through the issuance of streamlined guidelines and provisions for procurement processes within the emergency framework. These resources can be accessed on the GUATECOMPRAS website. ►B.2b: Number of fiscal risk budget reports elaborated by the Directorate of Fiscal Transparency that consider natural hazards and climate risks. (Number, Custom) PA B.2 Baseline At Closing End Target ET at closing Value 2 12 4 Exceeded Date 20-Mar-19 31-Mar-23 31-Mar-23 31-Mar-23 Comments: The Directorate of Fiscal Transparency has produced a significant number of fiscal risk budget reports that address natural hazards and climate risks. The initial target of four reports was exceeded, with 12 as of the closing date in 2020. These reports include Specific Risk Reports, Risk Supplement, and Annual Fiscal Risk Report. Prior Action B.3 ►B.3a: Number of government institutions implementing thematic classifiers in DRM and CCA in line with the new conceptual guide and implementation manual. (Number, Custom) PA B.3 Baseline At Closing End Target ET at closing Value 0 1 2 Unmet Date 20-Mar-19 31-Mar-23 31-Mar-23 Comments: SECONRED successfully implemented the DRM classifier for DRM according to the new conceptual guide and implementation manual. However, MARN did not report any progress in the implementation of the CCA classifier, resulting in the non-achievement of the indicator. ►B.3b: Permanent National DRM Fund annually funded and operational in line with the DRFS. (Yes/No, Custom) PA B.3 Baseline At Closing End Target ET at closing Value No No Yes Unmet Date 20-Mar-19 31-Mar-23 31-Mar-23 Comments: The establishment of a Permanent National DRM Fund, operational and annually capitalized through the Annual Budget Law, in accordance with the DRFS, is yet to be achieved. According to Government authorities, this situation is due to pending Congress approval of the respective legislative reform that authorizes the creation of said Fund. Through Governmental Agreement 105-2012 of May 28, 2012, the Government of Guatemala created the Emergency Fund, which can be used to address damages caused by a natural catastrophic event. According to senior government authorities, the Emergency Fund has been capitalized to provide greater financial flexibility to address emergency situations. While this ad-hoc, temporary, funding of the Emergency Fund provides additional flexibility for addressing materialized emergency situations, it is recognized that having Congress approval of the Permanent National DRM fund is the best option for ensuring that funds for disaster risk reduction are also invested in prevention and preparedness, and not only for response in the aftermath of materialized extreme events. 27. Of the 13 expected results’ indicators monitored throughout the operation 6 were achieved, 5 were exceeded, and 2 were unmet. Some of the key achievements of the operation include: Page 15 of 29 The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) • Strengthening Territorial Planning Structures in Disaster Risk Reduction. SECONRED has established Risk Management advisory structures for mayors as part of the Municipal Coordinating Committees for Disaster Reduction (COMRED) in 233 municipalities. As part of this process, DRM has been introduced in the Municipal Development Plans (PDM-OT). The approach utilized by SECONRED is based on the updated DRM concepts integrated in the bill of law sent to Parliament. • Consolidation of Volcanic Emergency Management Preparedness and Response. The expansion and improvement of the monitoring network has led to significant improvements in eruption alert notification times. Cooperation and coordination with CONRED have expedited monitoring and response processes. Additionally, INSIVUMEH has provided support to municipalities in developing hazard maps. • Comprehensive Environmental Risk Management at MARN. The creation of the Comprehensive Environmental Risk Management Department by MARN facilitated the carrying out of comprehensive environmental risk assessments and interactive training workshops. These assessments and workshops aimed at identifying potential losses, monitoring land-use changes, and addressing mitigation needs. Moreover, MARN has played a pivotal role in spearheading the development of a robust multi-hazard risk atlas. Additionally, MARN has established Technical Agroclimatic Committees (MTA) to effectively communicate potential impacts, affected areas, and recommended measures for agricultural producers to minimize potential losses. • Strengthening Financial Protection. Based on an assessment of the country's needs, MINFIN clarified and structured its internal functions, focusing on financial management, fiscal policy, and expenditure quality within the framework of disaster risk management. This process involved identifying efficient and complementary financial protection instruments from various internal and external sources. • Strengthening the Procurement Process for Fiscal Risk Management. The Procurement Directorate established procurement guidelines for emergencies to ensure traceability during extreme events, such as the passing of tropical storms Eta and Iota. Furthermore, the guidelines aligned the fiscal agenda in Disaster Risk Management (DRM) and the environmental fiscal agenda by incorporating fiscal risks associated with disasters and climate change, positioning the country for enhanced fiscal transparency and resilience. C. Overall Outcome Rating and Justification Rating: Moderately Satisfactory 28. Considering the assessment of relevance and efficiency of Pillars and Prior Actions, it can be concluded that the performance of the project was moderately satisfactory: most of the indicators were achieved and even surpassed. Considering that the enactment of laws is the exclusive prerogative of the Congress of the Republic, the approval of the DRM law cannot be considered a responsibility or commitment of the executive branch. Thus, there is no material evidence to question the strong commitment of the Executive Branch to strengthen the DRM Program. Instead, there is clear evidence of the Executive's commitment to promote policy reform, as several Government actions that were not explicitly included in the Performance Indicators were clearly aligned with the achievement of the Project Development Objective (PDO), such as the strengthening of the territorial network, as well as the adoption of local planning and organizational instruments based on generally accepted best practices for DRM/DCA. However, despite the efforts made, two Pillar 2 indicators were not achieved, which, as explained above, was due in part to factors or processes beyond the control of the Executive. III. OTHER OUTCOMES AND IMPACTS Page 16 of 29 The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) A. Poverty, Gender and Social Impacts 29. The project has played a role in preventing increased poverty from new extreme natural events and mitigating the enduring impact of disasters. It achieves this by strengthening procedures and tools to enhance knowledge, facilitate risk reduction, improve disaster preparedness, and support resilient recovery. These comprehensive efforts concentrate on reducing Guatemala's vulnerability through the enhancement of DRM frameworks, Financial Protection, municipal planning, and educational infrastructure. While the project may not directly decrease poverty, it addresses root causes by strengthening the country's normative structure. The substantial reduction in high vulnerability levels is poised to enhance the well-being of Guatemala's most deprived population. Underprivileged socioeconomic conditions heighten household vulnerability to hazard impacts, limiting their ability to respond, cope, and adapt to disasters. The impoverished face a lower threshold for enduring external shocks, lacking financial resources or capital to rely on. Disaster reduction activities embedded in municipal development plans aim to prioritize the most vulnerable population, considering their multidimensional poverty status, and thereby contribute significantly to shielding them from unforeseen events. B. Environmental, Forests, and Natural Resource Aspects 30. Through the fulfillment of Prior Action A.3, the Government established the Comprehensive Environmental Risk Management Department within MARN. This department produced and distributed 25 local environmental risk assessments by 2021 and provided community training to safeguard strategic ecosystems and associated livelihoods. This directly contributes to effective environmental management. MARN shared progress achieved after creating the department, which included: (i) development of environmental risk assessments and training workshops, revealing changes, impacts, and advancements in loss identification, land use changes, and identification of mitigation needs. For example, they highlighted risk assessments in water resource management for the Motagua, Naranjo, and Nahualate river basins, identifying pilot projects for watershed cleaning, waste retention through preventive structures, construction of biological fences, and a solid waste collection center; (ii) regarding awareness of environmental and climate risks, since 2021, MARN has led the creation of a risk atlas (multi-hazard), with ongoing database collection such as a historical record of forest fires. C. Institutional Change/Strengthening 31. Through the fulfillment of indicators under Pillar A - Strengthening the Legal and Institutional Framework for DRR and Climate Change, the government through the SECONRED program, established Municipal Instances for Comprehensive Disaster Risk Management as advisory bodies to mayors on risk management. This also included Municipal Coordinators for Disaster Reduction in 233 municipalities. This initiative achieved a more comprehensive approach to risk in planning and vulnerability reduction while enhancing the initial local response. It is part of a staggered system at the national level where each entity is activated progressively based on the magnitude of emergencies. The territorial planning component was also integrated into Municipal Development Plans. Additionally, during the mission, it was confirmed that, through government efforts, INGUAT is updating the National Tourism Policy to incorporate Disaster Risk Management within its pillars. Page 17 of 29 The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) D. Other Unintended Outcomes and Impacts 32. As mentioned earlier, developing a new regulatory framework, suitable for guiding the country towards resilience, has directly impacted the institutional framework at various levels. For instance, 233 out of 340 municipalities have organized themselves and developed instruments for comprehensive disaster risk management, based on the newly agreed conceptual and functional framework, effectively addressing the identified gaps the disaster response focus established in the Law of 2009. 33. At the time of selecting the operation’s Results Indicator (RI) A.1.c, MINEDUC’s authorities sought to apply their new guidelines for safer school construction to existing and planned educational facilities under their direct responsibility. Therefore, the end target for the RI A.1.c was set up to reflect a reasonable number of expected new educational spaces, under the purview of MINEDUC, that would be built or retrofitted by the ministry’s safer school construction guidelines. A positive outcome was the voluntary adoption of MINEDUC’s schools building guidelines by the subnational governments, i.e., municipal governments. Such adoption of MINEDUC guidelines resulted in a spike on the number of educational spaces that met the RI requirements to be counted as built according to MINEDUC’ s guidelines. The above reflects a national commitment to implement DRR measures by all levels of Guatemala’ public administration. IV. BANK PERFORMANCE During Preparation Rating: Satisfactory 34. The dialogue between the Bank and the Government of Guatemala regarding Disaster Risk Management (DRM) and Climate Change Adaptation (CCA) has been ongoing for a long time. The Program Development Objective (PDO) and the Results Framework emerged as a natural progression of the dialogue and the assessment of previous experiences. This includes not only the first Cat DDO and other projects supported by the Bank but also the experiences of other international actors, such as the Inter-American Development Bank's (IDB) implementation of the Index of Governance in DRM Public Policies (iGOPP) which informed the formulation of the Bill sent to parliament. 35. The Bank team also considered Guatemala's growing engagement in DRR at the global and regional levels, as reflected in its adoption of the Central American Comprehensive Risk Management Policy (PCGIR) and the Sendai Framework. Key analytical underpinnings of the DPL with Cat DDO included: The Intergovernmental Panel on Climate Change (IPCC) underscored the significance of effective national Disaster Risk Management (DRM) systems, highlighting the roles of multiple actors, while a GFDRR (Global Facility for Disaster Reduction and Recovery) Country Note on Guatemala provided critical insights into specific risk factors. The importance of location and building regulations came into focus in the World Bank and GFDRR's Roadmap for Safer Schools. Further, an international workshop report in Guatemala prioritized capacity building, institutional strengthening, and fiscal risk management for effective DRM. Studies from the United Nations University and the World Bank highlighted the promise of ecosystem management as a sustainable solution, advocating for the integration of environmental considerations into DRM policies. Nature-based solutions for DRM were exemplified by the World Bank in various projects, underscoring the potential of these strategies. Page 18 of 29 The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) 36. The operation’s PDO was fully aligned with both the CPS for FY2011–2014 (which envisaged this operation as a key commitment between the WBG and the Government); and the priorities reflected in the Government Strategic Plan. 37. The Bank accurately assessed the different categories and levels of risk for this operation and built adequate risk mitigation measures in the project’s M&E systems, to be monitored throughout the life of the operation. The constraints for passing the new law were identified, and risk was rated high. The team highlighted that “The approval of the new proposed DRM Law may be also affected by Congressional gridlock.” A risk rate of substantial was applied for fiduciary aspects. 38. Multiple comprehensive progress reports were submitted to the Bank as part of the Bank’s supervision of this operation as well as follow-up included in the Aide Memoires. 39. The outcome indicators were clearly linked to the Prior Actions and the policy reforms supported by this operation. The results indicators were appropriately formulated, and data for monitoring progress towards the achievement of the targets were made readily available by the Government, which proactively provided and facilitated access to relevant information related to program implementation. 40. "In relation to the potential impact of the non-approval of the DRM Law during the validity period of the CATDDO, the Bank's team conducted a thorough analysis to highlight the potential consequences and propose alternative policies to address the objective for the Permanent National DRM Fund. The team applied due diligence in assessing the potential impact and recommended different types of policies to mitigate the effects. During Implementation Rating: Satisfactory 41. The Bank maintained a close policy dialog with the Government and relevant stakeholders during the period. The Bank provided key technical support and implemented technical assistance activities in line with the policy reforms included in the policy matrix. The Bank conducted regular implementation support missions (semi-annually) to assess the progress towards expected results in the policy matrix and to monitor progress towards the achievement of the development objective. The Ministry of Public Finances, in collaboration with the World Bank and with support from the CCRIF Multi-Donor Trust Fund, organized a focused discussion on Disaster Risk Financial Management, with a particular emphasis on the Catastrophe Deferred Drawdown Option (Cat DDO). Additionally, the event saw participation from representatives of PMA. Also, the Bank's team, as part of actions to achieve indicator B1.a, provided support for the damage and loss assessment led by SEGEPLAN with technical assistance from CEPAL during the disaster events linked to hurricanes Eta and Iota. 42. Effective collaboration and coordination between the Bank teams and the Government contributed to the identification of emerging needs and the timely response to those needs. In various instances, the supervisory missions have emphasized the risk associated with the non-approval of the Bill by Congress and the potential implications it might have on the outcomes. Page 19 of 29 The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) V. RISK TO SUSTAINABILITY OF DEVELOPMENT OUTCOMES 43. Pillar A: The lack of direct responsibility for reducing the risk of disasters within sectoral and territorial activities, services, and infrastructure is limiting the budget capacities and commitments. Without clear responsibilities, it becomes difficult to allocate sufficient resources for effective risk reduction. This issue is not solely attributed to the absence of a dedicated Disaster Risk Management (DRM) fund, but also lack of clarity and accountability regarding who is responsible for managing and reducing disaster risks in different sectors and territories which results in a failure of sectors and territories to take proactive actions in reducing their risk and ensuring the continuity of operations and the resilience of their infrastructure. 44. The National Coordination for Disaster Reduction (CONRED) – or any other instance in the National Control System - lacks the authority and capacity to sanction sectors and municipalities that do not comply with the required regulations. Furthermore, the Secretariat of Planning and Programming of the Presidency (SEGEPLAN) has highlighted the issue of low governance in municipalities, where political power often overrides effective decision-making. This, coupled with a lack of technical capacity, poses significant challenges to the implementation of disaster risk management initiatives. Another concern is the lack of binding technical standards for other entities involved in disaster risk management, such as INSIVUMEH and MARN. Although there are existing instruments, the absence of enforceable technical standards undermines their effectiveness. 45. The government is implementing a process for adopting a comprehensive Disaster Risk Management (DRM) Policy. This policy is being considered as a valid alternative to a law, considering the current political environment. While the policy may not have the same legal enforceability as a law, it can still provide a framework for guiding decision-making and resource allocation related to DRM. It can help ensure that different stakeholders are aware of their roles and responsibilities, and that efforts are coordinated and aligned towards reducing disaster risks. 46. Pillar B: The success of our financial strategy hinges on MINFIN's and the relevant sectoral agencies’ engagement, and the implementation of policy reforms to allocate funds at sectorial and territorial levels. In the current strategic framework, DRM financing relies heavily on the establishment of the National DRM Fund through legislation. Given the current political climate, as discussed in Pillar A, achieving this objective still carries a very high risk. Consequently, for the design of a Cat DDO III, it is advisable to explore alternative methods to ensure the inclusion of financing for prospective and corrective DRM measures within the Public Investment procedures. 47. The implementation of the budget classifier remains inconsistent across institutions. The usefulness of this tool becomes evident when sectors adopt it, realizing its advantages and integrating it into their institutional culture. Therefore, it is essential to reevaluate the commitment and vision of these institutions. VI. LESSONS AND NEXT PHASE A. Lessons Learned 48. The WBG is applying a novel approach in Guatemala, in the context of the design and preparation of operations envisioned in the CPF for FY24-27, to mitigate the risk of lengthy Congressional approval periods of said operations, Page 20 of 29 The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) which involves securing champions in Congress, and across the public and private sectors. The WBG’s Completion and Learning Review (CLR) covering the FY 2017-20 CPF implementation period, recognized that while the CPF was useful in promoting the dialogue around critical development issues, including disaster risk management, not all the key objectives of the CPF were attained due to a lack of political commitment to approve and/or implement the proposed operations. The current CPF for the FY24-27 period incorporated the lessons learned from the CLR to help avoid the challenges that arose under the implementation period of the FY 2017-20 CPF and FY 2021-23 gap years. These lessons include the need for strong leadership and political commitment as essential to ensure the WBG’s impact. While Congress approved all budget support operations (three DPLs, including this Cat DDO) submitted during the 2017-20 CPF period and the FY 2021-23 gap years, only one IPF (out of four planned operations) secured Congress approval, pointing at the importance to engage proactively and persistently during project preparation at the highest levels of the legislative and executive to ensure ownership and create the political space for approval. This same approach of identifying policy champions is being adopted at the project level, particularly for WBG operations supporting policy and/or regulatory changes that require legislative approval. In this regard, MINFIN’s senior authorities have adopted this designated champion role by successfully leading the design, implementation, and broad ownership of reforms aimed at mitigating the social and economic impact of natural disasters, enhancing public sector transparency, and increasing domestic resource mobilization,9 effectively contributing to the sustainability of the development objectives of and cumulative disaster risk reduction gains of the Cat DDO operations in Guatemala. 49. Given the distinctive nature of DPL/Cat DDO, which involves the combination of a set of public policy reforms that should be approved before the negotiation and a structure of results/indicators, it is crucial to assess to what extent a draft law can be considered a suitable prior action. Because of the separation of powers, the government cannot guarantee the enactment of a law. 50. In the same sense, creating result indicators contingent on the approval of new laws carries a high political risk with limited mitigation capacity. 51. Several factors contributed to the successful achievement of the operation's PDO. While some indicators may not have been met, the flexibility of the objective permitted other actions to contribute to its fulfillment. 52. During implementation, if there is too much focus on the indicators rather than the Objectives and Pillars of the operation, it can lead to an underreporting of direct or indirect impacts that contribute to the achievement of the Project Development Objective (PDO) and the creation of conditions for reinforcing the regulatory and institutional framework. 53. It has been proven to be a key condition for successfully achieving a Cat DDO’s objective of providing immediate liquidity in the event of a qualifying catastrophic event, in Guatemala and elsewhere, to effectively manage expectations about the use of Cat DDO funds once they are disbursed to the Government. The Bank team, from the start of the preparation phase and throughout implementation, must make a determined effort to remind senior Government authorities from relevant agencies that Cat DDO funds are provided to the Government as unrestricted budget support, and it is the Government who determines how and when such funds will be used. In this regard, while not a Bank requirement for disbursement of funds, once a qualifying declaration of a national emergency has been issued according to the existing regulatory framework for this matter, it is highly advisable to encourage the leading 9 Country Partnership Framework for the Republic of Guatemala for FY 24-27, paragraph 29(i). Page 21 of 29 The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) government authorities and agencies responsible for funding and responding to national emergencies, to adopt and test a well-defined emergency response protocol and Standard Operating Procedures (SOP) that shall be activated for an effective, timely and proportionated response. Having clear SOPs in place will ensure that no time is lost in carrying out critical interventions to protect at-risk communities, vulnerable groups, and their assets and livelihoods. 54. The adoption of building regulations for educational facilities by MINEDUC had a cascading effect at the territorial level. As indicated in section “D. Other Unintended Outcomes and Impacts” Municipal Development Councils embraced the regulatory framework and actively implemented the construction of such facilities following the location and seismic-resistance criteria. This effort resulted in the completion of a total of 3,497 facilities, surpassing the initially targeted 220. This proactive approach not only enhanced the overall effectiveness of resilience efforts but also established a framework for sustained and impactful outcomes. 55. The Bank team responsible for the design and supervision of a Cat DDO operation must advise the beneficiary government on the Bank’s expectation regarding the sustainability of the DRM Program, even after a Cat DDO loan or credit has been fully disbursed. Once a Cat DDO has fully disbursed, the Bank, for administrative purposes, reclassifies such operation as closed, even if the entire withdrawal happens early during the expected 3-year implementation phase. As described in this ICR, such early withdrawals of the entire loan amounts have materialized twice in Guatemala. The first Cat DDO operation was fully withdrawn right after its approval by Congress to address the compounded emergency created by the passing of Tropical Storm Agatha and the eruption of the Pacaya volcano. Likewise, the second Cat DDO loan was fully withdrawn immediately after its approval by Congress to address the evolving Public Health emergency created by the COVID-19 pandemic. The Bank’s tagging these fully withdrawn operations as closed created challenges to the Bank teams’ efforts to continue supervising progress towards the completion of the operations’ Results Framework and their PDOs, as well as on the sustainability of the Government’s DRM Program. If it were not for TA funding associated with these Cat DDO operations, Bank’s adequate supervision would not have been feasible Therefore, as part of future Cat DDO operations, Bank teams must ensure that adequate funding for TA is available to continue providing effective supervision, even when the operation has been declared closed by the Bank. Along with Bank’s continued supervision of progress of implementation of the Government’s DRM Program, once a Cat DDO has been fully disbursed, the Government must demonstrate its continued commitment to said DRM program by, inter alia, providing periodic reports that reflect progress towards achieving the operation’s PDO. 56. The Bank’s teams shall advise beneficiary governments of potential issues related to the entire withdrawal of the Cat DDO proceeds and of the instrument’s revolving and renewal features. As earlier explained, a full withdrawal of a Cat DDO loan may affect the Bank’s ability to continue providing supervision to the Government’s DRM Program. Therefore, the Government shall be properly advised on the advantages of only withdrawing amounts that are proportionate to the immediate financial gap created by a qualifying national emergency. However, even if the immediate liquidity gap created by the emergency were to require access to the entire Cat DDO amount, the Bank team shall advice the Government on the benefits of maintaining a small amount of the loan proceeds undisbursed to ensure that the Bank will keep the operation categorized as active, and consequently eligible for supervision support and targeted TA. Furthermore, the Government should also be properly informed on the key aspects that should be considered when exploring the revolving feature of the IBRD Cat DDO, which should not be treated as an afterthought during the design of the operation. Page 22 of 29 The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) 57. The DPL with Cat DDO operation, as part of the Government’s ex-ante disaster risk financing instruments, has played an important role as a quick source of immediate liquidity to the Government in the aftermath of a materialized catastrophic event. However, while both the Executive and Legislative branches of the GoG recognize the importance of having ex-ante instruments in place as to support efforts aimed at building fiscal resilience against external shocks, securing congressional approval of the first and second DPL with Cat DDO operations took longer than in other countries with similar disaster and financial profiles within the Central America and the Caribbean Region. After the first DPL with Cat DDO operation was ready for approval by Congress, such approval was delayed until the concurrent eruption of the Pacaya Volcano and the passing of Tropical Storm Agatha materialized as a compound disaster. Likewise, the approval by Congress of this second DPL with Cat DDO operation happened after a lengthy wait. Such approval was by unanimous consent, in the aftermath of the sudden eruption of the Fuego Volcano. Hence, while the DPL with Cat DDO operations have fulfilled their development objective of providing critical liquidity to the Government in the aftermath of a qualifying national emergency, rushing its approval by Congress, after unnecessary delays underlines the importance of ensuring that the instrument is well-understood by representatives of both relevant government branches, and senior representatives within these government branches are identified as champions. Therefore, it will be important to have the ex-ante disaster risk financing instrument in place for future extreme events, but also work with Parliamentarians to understand the value of its prompt approval, precluding avoidable delays. B. Next Phase 58. The Government of Guatemala submitted to the Bank a formal request for a third DRM DPL with Cat DDO operation. In the context of the ongoing DRR and resilience building dialogue with the GoG, and in response to the GoG’s formal request for a third DPL with Cat DDO, during the last supervision mission, conducted on 25-27 April 2023, the Bank and senior Government authorities held several meetings to further advance in the preparatory phase for a third DPL with Cat DDO operation. The design of the proposed third Cat DDO takes into consideration relevant topics discussed during a bilateral meeting with the Minister of Public Finance, held during the World Bank’s 10-16 April 2023 Spring Meetings in Washington DC. LCR DRM team members participated in a side technical workshop convened by Guatemala’s SECONRED in which the GoG agency introduced the proposed update to the country’s National Disaster Risk Reduction Policy. The Bank has been actively supporting, through technical assistance, the Government’s efforts to develop and adopt the updated DRM policy. The adoption of the revised DRM policy by the GoG is foreseen as a relevant Prior Action, as part of the requirements for the potential approval of the third DRM DPL with Cat DDO, currently under preparation, by the Bank. 59. As mentioned in paragraph 24, building resilience against disaster risk, continues to be highly relevant to the World Bank’s engagement in Guatemala. Under the CPF 24-27, the Bank is committed to continue supporting Guatemala in addressing its development challenges, including supporting actions aimed at reducing or mitigating the risk to the country’s development path resulting from catastrophic events triggered by materialized natural hazards. Under the CPF High-Level Outcome (HLO) 2’ Objective 3, “improving capacity for the management of disaster risk, and natural capital under a changing climate,” the Bank explicitly commits to “support the Government to enhance disaster risk and natural capital management capacity as well as resilience to climate shocks through improved disaster response policies, forestry management and better infrastructure.“ Additionally, the CPF, recognizing its relevance to the Government’s resilience building agenda and its contribution to the achievement of the CPF’s development Page 23 of 29 The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) objectives, explicitly endorses a third DPL with Cat DDO as a key operation in the Bank’s portfolio pipeline in Guatemala, for the CPF implementation period. 60. While the GoG has taken important steps towards enhancing its disaster risk management (DRM) system, several challenges persist that hinders the on-the-ground implementation of disaster risk reduction (DRR) measures. A key issue that hampers the strengthening and scaling up of DRR as a key component of the country’s sustainable development processes is the lack of a well-articulated regulatory framework that establishes and clarifies central and local government and other relevant stakeholders’ responsibilities and accountabilities regarding DRM. Addressing remaining challenges in the existing DRM regulatory framework, including effective enforcement of regulations, may involve the approval of a new, forward-looking, DRM bill, properly informed by internationally recognized best practices, which adopts a comprehensive, multisectoral approach across all levels of government administration. In this regard, it is important to recognize that effective DRM is not the sole responsibility of the central government but a shared responsibility by all levels of government administration. For example, ongoing government decentralization efforts, along with the enforcement of the municipal codes can provide the enabling environment for delegating location-specific DRM responsibilities to local governments. Another issue that needs to be effectively addressed, preferably as part of strengthened DRM regulations, is the ex-ante design and effective implementation of multi- sectoral, inter-institutional, recovery plans that are actionable as they establish clearly defined responsibilities and accountabilities to the involved agencies and other relevant stakeholders. 61. The transition to a new government administration opens a window of opportunity for reframing the scope of cooperation, guided by an understanding of the new government's stance on disaster risk management. Engaging in dialogue with the new authorities will be of paramount importance to adapt, scale up, and consolidate the existing approaches, and ensure effective coordination across government and with the Parliamentary Commission. Page 24 of 29 ANNEX 1. RESULTS FRAMEWORK RESULTS INDICATORS See Table 1. Cat DDO II Pillars and Expected Results. Page 25 of 29 ANNEX 2. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION PROCESSES A. TASK TEAM MEMBERS Name Role Preparation Lizardo Narvaez Marulanda, Zoila Victoria Navarro Task Team Leader(s) Portocarrero Daniel Jorge Arguindegui, Monica Lehnhoff Procurement Specialist(s) Jose Simon Rezk Financial Management Specialist Katherine M. Scott Team Member Enrique Pantoja Peer Reviewer Armando Eduardo Guzman Escobar Team Member Osmar Eleazar Velasco Lopez Team Member Tiguist Fisseha Peer Reviewer Eric Dickson Peer Reviewer Concepcion Aisa Otin Team Member Simon Davies Team Member Mirtha Liliana Escobar Saenz Team Member Luis Alberto Aviles Team Member Abigail C. Baca Team Member Escarlata Baza Nunez Counsel Gabriela Grinsteins Team Member Claudia Patricia Pacheco Florez Team Member Ana Isabel Aguilera De Llano Team Member Page 26 of 29 Jessica Carolina Grisanti Bravo Team Member Rodrigo Andres Donoso Arias Team Member Gabriel Roberto Zaourak Team Member Sebastian Wilhelm Forsch Team Member Supervision/ICR Jack Campbell, Zoila Victoria Navarro Portocarrero Task Team Leader(s) Jose Simon Rezk Financial Management Specialist Rodrigo Donoso Task Team Leader Luis Rolando Durán Vargas Team Member / ICR Osmar Eleazar Velasco Lopez Team Member Armando Eduardo Guzman Escobar Team Member Eric Dickson Peer Reviewer Concepcion Aisa Otin Team Member Mirtha Liliana Escobar Saenz Team Member Luis Alberto Aviles Team Member Abigail C. Baca Team Member Escarlata Baza Nunez Counsel Gabriela Grinsteins Team Member Claudia Patricia Pacheco Florez Team Member Ana Isabel Aguilera De Llano Team Member Lizardo Narvaez Marulanda Team Member Rodrigo Andres Donoso Arias Team Member Gabriel Roberto Zaourak Team Member Enrique Pantoja Peer Reviewer Luis Corrales Team Member / ICR Natalia Víquez Team Member / ICR . Page 27 of 29 B. STAFF TIME AND COST Staff Time and Cost Stage of Project Cycle No. of staff weeks US$ (including travel and consultant costs) Preparation FY16 5.528 102,560.69 FY17 13.955 255,779.98 FY19 4.802 51,146.64 FY20 0 0.00 Total 24.29 409,487.31 Supervision/ICR FY20 12.124 72,851.55 Total 12.12 72,851.55 . Page 28 of 29 ANNEX 3. BORROWER, CO-FINANCIERS, AND OTHER DEVELOPMENT PARTNERS’/STAKEHOLDERS’ COMMENTS 62. An advanced draft of the ICR report for the Second Guatemala’s Disaster Risk Management Development Policy Loan with a Cat DDO operation, P159710, incorporating recommendations from the World Bank Review meeting (held virtually during November 10 to 27, 2023) was shared, on December 08, 2023, with relevant authorities of the Government of Guatemala (GoG, the Borrower), particularly those directly involved in the design, implementation, and/or reporting on the progress of implementation of the operation’s PDO/ Results Framework for their final review. 63. The Bank’s team provided an electronic copy of the official English version of the ICR report, along with an unofficial Spanish-language translation of said document. The Spanish-language document was provided to the Government as an aid to ensure that the official language of the ICR report, as it is written in English, would not hinder the Government authorities’ ability to provide meaningful and timely input. On December 22, 2023, the GoG provided minor editing comments to the Spanish-version of the report, indicating that there were not critical edits or comments that could affect the ratings given by the World Bank team, confirming its endorsement to the report. 64. The Bank’s team took on-board, as appropriate, the GoG’s recommendations to the Spanish-version of the report, and incorporated them, as relevant, into the English version of the ICR report. In large part, the GoG’s recommendations only involved changes to the wording of a few sentences or choosing different words to better reflect their meaning in English. The input provided by the GoG was compiled by the senior authorities of the Ministry of Finance’s Public Credit Department and sent to the Bank through official their official email system. Page 29 of 29