The World Bank Honduras Second DRM Development Policy Credit with Deferred Drawdown Option (Cat DDO) (P177001) Program Information Document (PID) Concept Stage | Date Prepared/Updated: 09-Jan-2022| Report No: PIDC32878 Page 1 of 6 The World Bank Honduras Second DRM Development Policy Credit with Deferred Drawdown Option (Cat DDO) (P177001) BASIC INFORMATION A. Basic Project Data OPS TABLE Country Project ID Project Name Parent Project ID (if any) Honduras P177001 Honduras Second DRM Development Policy Credit with Deferred Drawdown Option (Cat DDO) (P177001) Region Estimated Board Date Practice Area (Lead) Financing Instrument LATIN AMERICA AND Jun 22, 2022 Urban, Resilience and Land Development Policy CARIBBEAN Financing Borrower(s) Implementing Agency Secretaria de Finanzas Comision Permanente de Contingencias (COPECO) (SEFIN) Proposed Development Objective(s) The PDO is to continue strengthening Honduras' institutional, regulatory and financial framework to manage the risk of adverse natural events including disease outbreaks. Financing (in US$, Millions) FIN_SUMM_PUB_TBL SUMMARY Total Financing 110.00 DETAILS -NewFin3 Total World Bank Group Financing 110.00 World Bank Lending 110.00 Decision The review did authorize the preparation to continue Page 2 of 6 The World Bank Honduras Second DRM Development Policy Credit with Deferred Drawdown Option (Cat DDO) (P177001) B. Introduction and Context Country Context 1. This proposed operation is a stand-alone US$110 million Disaster Risk Management Development Policy Credit (DPC) with a Catastrophe Deferred Drawdown Option (Cat DDO). This operation would be the second of its kind in Honduras. It is designed to further support the substantive efforts of the Government of Honduras (GoH) in managing the country’s exposure and vulnerabilities to adverse natural and health events in the wake of the compound crises of the COVID-19 emergency and the Tropical Storms Eta and Iota disasters. This second Cat DDO will support a second generation of reforms aiming at reestablishing the National Disaster Risk Management System (Sistema Nacional de Gestión de Riesgos, SINAGER) in its entirety and consolidating the role and mandate of the Ministry of Finance (Secretaría de Finanzas - SEFIN) and the Disaster Risk Management Ministry (Comisión Permanente de Contingencias - COPECO), while creating and substantiating the mandate of other critical institutional actors to mainstream resilience within their sectors of responsibility. 2. The Honduras Systematic Country Diagnostic (SCD)1, carried out in 2016 and currently being updated, found that the country’s high exposure to two main types of natural hazards—extreme climate events and disease outbreaks—threatens its economic stability and the safety and well-being of its population.2 According to the Global Climate Risk Index,3 Honduras was the country most severely impacted by extreme weather events between 1996 and 2015, with annual average losses equivalent to 2.1 percent of Gross Domestic Product (GDP), affecting critical sectors such as transportation, telecommunications, health, education, water and sanitation. Moreover, the European Commission’s 2020 INFORM Index4 identifies Honduras as the second-highest risk of disasters caused by natural hazards especially climate related ones, epidemiological events, and conflicts in the Central American region. Climate change is expected to increase mean temperatures, intensify floods, heatwaves and drought, and increase in sea level rise. The World Bank’s Country Climate and Development Report (currently in preparation) identifies that the country’s mean annual temperature is projected to rise by 1.9 °C within 30 years, with the largest increases in temperature expected to occur in the southwest regions. 3. As recently proved again with Tropical Storms Eta and Iota, the economic costs associated with catastrophic events far exceed the financial capacity of the GoH to recover and the resources assigned to finance development processes are redirected to attend to emergencies or disasters. On November 6 and 17, 2020, two consecutive tropical storms, named Eta and Iota, hit the country. They generated cataclysmic water discharges that led to widespread flooding, erosion and landslides and the consequent destruction and severe damage to critical public infrastructure, private homes and crops, and loss of life. The impact caused 99 deaths and the evacuation of more than 1 million people. More than 4.5 million people in Honduras were affected. The total Damage and Loss Assessment (GoH, Economic Commission for Latin America and the Caribbean, Interamerican Development Bank) amounts to about US$1.8 billion. The impact of the two consecutive catastrophic Tropical Storms Eta and Iota exacerbated the vulnerability of the country, which was already facing major setbacks due to the COVID-19 pandemic and the ongoing southern La Niña oscillation5. 4. Consistently with the first Cat DDO, this second Cat DDO aims to further enhance Honduras’ programmatic 1 Report No. 100441-HN 2 Although Honduras has remained largely unaffected by the frequent earthquakes and volcanic activity that characterize other Central American countries, in 2009, a magnitude 7.1 earthquake killed seven people and caused estimated losses of US$100 million, including US$35 million in damage to infrastructure. (World Bank 2010). 3 Germanwatch 2017. 4 “Global Crisis Risk Index Report�. INFORM, 2020 5 La Niña oscillation is the ocean temperature cooling phase of an irregular periodic variation in winds and sea surface temperatures over the tropical eastern Pacific Ocean, affecting the climate of much of the tropics and subtropics. Page 3 of 6 The World Bank Honduras Second DRM Development Policy Credit with Deferred Drawdown Option (Cat DDO) (P177001) agenda for Disaster Risk Management (DRM) by upgrading the current DRM institutional framework (Pillar 1) and mainstreaming new DRM critical and strategic policies and norms in several sectors (Pillar 2) . The SINAGER is an overarching policy framework designed to coordinate the work of different agencies in charge of DRM, Climate Change Agenda (CCA), and disease response. The SINAGER framework is supported by comprehensive directives, policies and plans; however, following the performance of the SINAGER during the COVID-19 emergency and in the wake of the Tropical Storms Eta and Iota, the GoH has recognized that gaps remain and has undertaken a legal and institutional reform of the system to address these gaps. At the sectoral level, the GoH has also put through significant reforms aiming at mainstreaming DRM and CCA through specific institutional reforms, norms and policies, in particular regarding disaster risk financing, as well as in the water, environment and education sectors. 5. The Cat DDO also supports sustainable fiscal risk management, by securing access to immediate and affordable financing in case of an adverse natural event. The full disbursement of the first Cat DDO has left the GoH without fast disbursing resources for post-disaster financing, prompting it to subscribe for the first time in 2021, in a parametric insurance policy against disaster risks. Nevertheless, the GoH only subscribed one policy (excess rainfall) excluding (for the moment) Tropical Cyclone and Earthquake policies. A second Cat DDO as part of the countries risk financing strategy, would provide access to incremental fast disbursing resources as bridge financing for urgent response needs. Relationship to CPF 6. The proposed operation is consistent with the World Bank’s Country Partnership Framework (CPF) for Honduras FY16–20, which notes that Honduras is susceptible to extreme weather events which disproportionately impact the poor. Pillar 3 of the CPF, Reducing Vulnerabilities, includes “enhancing resilience to disasters and climate change� as one of its objectives. Priority actions under this objective include: (a) improving natural resource management as a cost- effective and long-term adaptive measure for climate change; (b) integrating disaster risk management (DRM) into subnational governments’ development planning and public investment decision-making; and (c) reducing the country’s financial vulnerability to disasters to protect its long-term fiscal balance. Also, policy reforms supported under this operation will contribute to the World Bank Group’s twin goals of ending extreme poverty and promoting shared prosperity in Honduras. The reforms are designed to further reduce disaster vulnerability and climate risks, which are constraining economic growth; reduce the high economic and fiscal costs of disasters; and stabilize the livelihoods of the most vulnerable. The reforms will also improve the effectiveness of development programs as well as the Government’s development strategy to reduce extreme poverty and increase shared prosperity. C. Proposed Development Objective(s) 7. The Program Development Objective (PDO) of this proposed Disaster Risk Management Development Policy Credit (DPC) with a Cat-DDO is to continue strengthening Honduras' institutional, regulatory and financial framework to manage the risk of adverse natural events including disease outbreaks. This objective will be achieved through strategic support to policy, regulatory and institutional reforms. Consistently with the first Cat DDO, this second Cat DDO aims to further enhance Honduras’ programmatic agenda for DRM by upgrading the current DRM institutional framework and mainstreaming new DRM critical and strategic policies and norms in several sectors. Key Results 8. The proposed operation will support the GoH’s ‘second generation’ of reforms related to DRM and CCA. The program has two pillars: − Pillar 1. Strengthening the institutional framework for improved disaster risk management and climate resilience, response and recovery. − Pillar 2. Mainstreaming DRM and Climate Change Resilience through policy reform and upgraded norms in socio- Page 4 of 6 The World Bank Honduras Second DRM Development Policy Credit with Deferred Drawdown Option (Cat DDO) (P177001) economic sectors. D. Concept Description 9. Pillar 1. Strengthening the institutional framework for improved disaster risk management and climate resilience, response and recovery. The prior actions supported under this pillar are legislative reforms aiming at upgrading the legal, institutional and operational framework for improved disaster risk management, response and recovery, as well as modernizing the water sector institutional framework. 10. Pillar 2. Mainstreaming DRM and Climate Change Resilience through policy reform and upgraded norms in socio-economic sectors. The prior actions supported under this pillar are regulatory and policy reforms aiming at mainstreaming disaster risk management and climate resilience in the following areas: − Public financial management and fiscal resilience through the adoption of the first Disaster risk Financing Strategy and Implementation Plan − Water resources and wetlands governance through the adoption of the National Plan for potable water and sanitation as well as the national policy for the protection of wetlands and costal zones − Education Infrastructure through the reforms of planning and design norms that further include resilience and adaptation to Climate Change. E. Poverty and Social Impacts, and Environmental, Forests, and Other Natural Resource Aspects Poverty and Social Impacts 11. This DPC with Cat DDO is expected to have a positive impact on poverty, vulnerability and equity reduction. In Pillar 1, higher capacity to manage a coordinated response in a reliable and timely fashion can minimize the adverse welfare effects of natural hazards in areas already lagging behind. Poverty in Honduras is concentrated in the rural and southwestern areas of the country. The rural poor in these areas overwhelmingly rely on agriculture as their principal livelihood -with most of the extreme poor living on subsistence farming- making them extremely vulnerable to natural hazards (drought and flooding). Pillar 2 have the potential to improve human capital, particularly among the poor, in the long term. Early-life exposure to weather-related shocks can have negative impacts on infant mortality, nutrition, and health, as well as long-term impacts on education and labor market outcomes. Improved financial resources to manage risk disasters are expected to provide the necessary liquidity to react immediately in case of a disaster and promptly reach affected households to provide financial support and deter human capital loss. Environmental, Forests, and Other Natural Resource Aspects Prior actions selected for the proposed operation are expected to have a substantial, positive and indirect impact on Honduras’s environment and other natural resources. By taking steps to strengthen institutions and plans for disaster risk reduction and responseHonduras is indirectly reducing potential stressors on the land and forests. In times of widespread disaster, a country’s natural resource stock provides a safety net of last resort for poo r and vulnerable populations without access to credit or financial resources, particularly if they are cut off from basic services. In Honduras, this translates to the potential for disasters to increase the stress on forests and other natural resources. . Page 5 of 6 The World Bank Honduras Second DRM Development Policy Credit with Deferred Drawdown Option (Cat DDO) (P177001) CONTACT POINT World Bank Eduardo Ereno Blanchet Senior Disaster Risk Management Specialist Borrower/Client/Recipient Secretaria de Finanzas (SEFIN) Liliam Rivera Ochoa Viceministra de Inversiones Publicas lorivera@sefin.gob.hn Implementing Agencies Comision Permanente de Contingencias (COPECO) Max Gonzales Ministro max.gonzaleshn@gmail.com 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 Task Team Leader(s): Eduardo Ereno Blanchet Approved By APPROVALTBL Country Director: Oyebimpe Olufunmilayo Adepoju 10-Jan-2022 Page 6 of 6