The World Bank Development Policy Financing with Cat DDO and Pandemic Emergency Financing Facility Document of The World Bank FOR OFFICIAL USE ONLY Report No: PGD11 INTERNATIONAL DEVELOPMENT ASSOCIATION PROGRAM DOCUMENT FOR A PROPOSED CREDIT IN THE AMOUNT OF SDR 3.7 MILLION (EQUIVALENT TO US$ 5 MILLION) AND PROPOSED GRANT IN THE AMOUNT OF SDR 3.7 MILLION (EQUIVALENT TO US$ 5 MILLION) TO REPUBLIC OF MALDIVES DEVELOPMENT POLICY FINANCING WITH A CATASTROPHE DEFERRED DRAWDOWN OPTION AND PANDEMIC EMERGENCY FINANCING FACILITY May 28, 2019 Social, Urban, Rural And Resilience Global Practice South Asia Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. . The World Bank Development Policy Financing with Cat DDO and Pandemic Emergency Financing Facility Republic of Maldives GOVERNMENT FISCAL YEAR January 1 – December 31 CURRENCY EQUIVALENTS (Exchange Rate Effective as of May 28, 2019) Currency Unit Maldivian rufiyaa US$1.00 MVR 15.41 ABBREVIATIONS AND ACRONYMS CPF Country Partnership Strategy JEE Joint External Evaluation CFAA Country Financial Accountability LDP Letter of Development Policy Assessment DPC Development Policy Credit MDG Millennium Development Goals DPF Development Policy Financing MEE Ministry of Environment and Energy DRM Disaster Risk Management ME Ministry of Environment GoM Government of Maldives MoD Ministry of Defence GDP Gross Domestic Product MoF Ministry of Finance HIPC Heavily Indebted Poor Countries MoH Ministry of Health HSERMF Health Sector Emergency Risk MoHI Ministry of Housing and Infrastructure Management Framework HPA Health Protection Agency NDMA National Disaster Management Authority HEOC Health Emergency Operations Center NDMC National Disaster Management Center HEOP Health Emergency Operations Plan NEOP National Emergency Operations Plan IBRD International Bank for Reconstruction PEF Pandemic Emergency Financing Facility and Development IDA International Development PER Public Expenditure Review Association IFC International Finance Corporation SDR Special Drawing Rights IHR International Health Regulations UNDP United Nations Development Program IMF International Monetary Fund WHO World Health Organization . Regional Vice President: Hartwig Schafer Country Director: Idah Z. Pswarayi-Riddihough Senior Practice Directors: Ede Jorge Ijjasz-Vasquez, Timothy G. Evans Practice Managers: Christoph Pusch, Rekha Menon Armando Guzmán Escobar, Francisca Ayodeji Akala, Rocio Task Team Leaders: Schmunis The World Bank Development Policy Financing with Cat DDO and Pandemic Emergency Financing Facility REPUBLIC OF MALDIVES DEVELOPMENT POLICY FINANCING WITH A CATASTROPHE DEFERRED DRAWDOWN OPTION AND PANDEMIC EMERGENCY FINANCING FACILITY TABLE OF CONTENTS SUMMARY OF PROPOSED FINANCING AND PROGRAM .......................................................................3 1. INTRODUCTION AND COUNTRY CONTEXT ...................................................................................5 2. MACROECONOMIC POLICY FRAMEWORK....................................................................................8 2.1. RECENT ECONOMIC DEVELOPMENTS............................................................................................ 8 2.2. MACROECONOMIC OUTLOOK AND DEBT SUSTAINABILITY .......................................................... 9 2.3. IMF RELATIONS ............................................................................................................................ 15 3. GOVERNMENT PROGRAM ........................................................................................................ 16 4. PROPOSED OPERATION ............................................................................................................ 17 4.1. LINK TO GOVERNMENT PROGRAM AND OPERATION DESCRIPTION .......................................... 17 4.2. PRIOR ACTIONS, RESULTS AND ANALYTICAL UNDERPINNINGS .................................................. 21 4.3. LINK TO CPF, OTHER BANK OPERATIONS AND THE WBG STRATEGY .......................................... 29 4.4. CONSULTATIONS AND COLLABORATION WITH DEVELOPMENT PARTNERS ............................... 30 5. OTHER DESIGN AND APPRAISAL ISSUES .................................................................................... 31 5.1. POVERTY AND SOCIAL IMPACT .................................................................................................... 31 5.2. ENVIRONMENTAL ASPECTS ......................................................................................................... 32 5.3. PFM, DISBURSEMENT AND AUDITING ASPECTS .......................................................................... 33 5.4. MONITORING, EVALUATION AND ACCOUNTABILITY .................................................................. 35 6. SUMMARY OF RISKS AND MITIGATION ..................................................................................... 36 ANNEX 1: POLICY AND RESULTS MATRIX .......................................................................................... 37 ANNEX 2: FUND RELATIONS ANNEX .................................................................................................. 39 ANNEX 3: LETTER OF DEVELOPMENT POLICY..................................................................................... 42 ANNEX 4: ENVIRONMENT AND POVERTY/SOCIAL ANALYSIS TABLE .................................................. 45 ANNEX 5: HOW PEF WORKS ............................................................................................................. 46 Page 1 This operation was prepared by an IDA team consisting of Armando Guzman Escobar (Task Team Leader, GSU18), Francisca Ayodeji Akala (Co-TTL, GHN19), Rocio Schmunis (Co-TTL, GHN05), Suranga Kahandawa (Sr. DRM Specialist, GSU18), Ahsan Tehsin (DRM Specialist, GSU18), Priyanka Dissanayake (DRM Specialist, GSU18), Shadiya Adam (Operations Analyst, SACSM), Atishay Abbhi (Young Professional, GSU18), Fernando Im (Sr. Country Economist, GMTSA), Christina Wieser (Economist, GPV06), Juliana Castaño (Natural Resources Management Specialist, GENLC) and Vidya Venugopal (Counsel, LEGES). This operation was undertaken under the general guidance of Idah Z. Pswarayi-Riddihough (Country Director, SACSL), Ede Jorge Ijjasz-Vasquez (Senior Director, GSURR), Timothy G. Evans (Senior Director, GHNDR), Sameh Wahba (Director, GSURB), Christoph Pusch (Practice Manager, GSU18), Rekha Menon (Practice Manager, GHN06), and Mukesh Chawla (Adviser, GHN03). Peer reviewers were Doekle Geert Wielinga (Senior Disaster Risk Management Specialist, GSU10), Gandham N.V. Ramana (Program Leader, AFCE2) and Ana Elisa Bucher (Senior Climate Change Specialist, GCCRA). The World Bank Development Policy Financing with Cat DDO and Pandemic Emergency Financing Facility SUMMARY OF PROPOSED FINANCING AND PROGRAM BASIC INFORMATION Project ID Programmatic P163939 No Proposed Development Objective(s) To enhance the Maldives financial capacity to effectively manage the human, physical and fiscal impact of climate change, natural disasters and disease outbreaks. Organizations Borrower: REPUBLIC OF MALDIVES Implementing Agency: MINISTRY OF FINANCE PROJECT FINANCING DATA (US$, Millions) SUMMARY Total Financing 10.00 DETAILS International Development Association (IDA) 10.00 IDA Credit 5.00 IDA Credit 5.00 INSTITUTIONAL DATA Climate Change and Disaster Screening This operation has been screened for short and long-term climate change and disaster risks Overall Risk Rating High Page 3 The World Bank Development Policy Financing with Cat DDO and Pandemic Emergency Financing Facility . Results Indicator Name Baseline (2019) Target (2022) The National Disaster Management Authority Readiness reports: 0 Readiness reports: 3 (NDMA) reports on NEOP readiness. The NDMP is drafted. No Yes The Building Code has been enforced through Compliance documents issued: Compliance documents issued: the issuance of compliance documents. 0 10 Early warning system is supported with an Existing meteorological observation Meteorological observation expanded meteorological observation network network with: 36 AWS network expanded to: 50 AWS with Automated Weather Stations (AWS). Water and sewerage coverage 51% and 67% 80% and 90% Health workers have been trained on Percentage of health workers Percentage of health workers implementation of the HEOP’s gender-specific responsible for implementing the responsible for implementing activities [Minimum Initial Service Package HEOP trained in MISP for RH: the HEOP trained in MISP for RH: (MISP) for reproductive health (RH)] in crisis 0% 100% situations. Simulation exercises on the activation and use of Simulation exercises: 0 Simulation exercises: 3 the HEOC are carried out . Page 4 The World Bank Development Policy Financing with Cat DDO and Pandemic Emergency Financing Facility IDA PROGRAM DOCUMENT FOR A PROPOSED CAT DDO AND PEF TO THE REPUBLIC OF MALDIVES 1. INTRODUCTION AND COUNTRY CONTEXT 1. This operation responds to the country’s need to enhance its financial capacity to address the economic impact of adverse natural events including health-related shocks by providing: (i) immediate liquidity in the aftermath of natural disasters, including public health emergencies, through an IDA US$10 million-Development Policy Financing (DPF) Catastrophe Deferred Drawdown Option (Cat DDO), and (ii) access to resources from the Pandemic Emergency Financing Facility (PEF) for surge response to address escalating disease outbreaks, before they reach pandemic proportions. 2. The Maldives is highly vulnerable to natural hazards and extreme climatic events with considerable economic consequences. With a fragile ecological profile and low elevation, and sea levels that are expected to rise and extreme weather events that are likely to increase in frequency and intensity, located in the central Indian Ocean the Maldives is considered one of the world’s most vulnerable countries1. High frequency events such as monsoonal flooding, coastal erosion, salt-water intrusion, sea level rise, as well as less frequent events such as earthquakes, thunderstorms, flash floods and prolonged dry periods pose a real threat to lives and the economy of Maldives. The 2004 Indian Ocean tsunami, that battered the islands and claimed approximately 100 lives, damaged or destroyed almost 9,000 houses and caused severe damage to physical infrastructure of many islands. Total damages were estimated at US$470 million or 62 percent of GDP2 and direct losses totaled US$298 million. Since 2008, The Government of the Republic of the Maldives (GoM) has spent MVR 459 million (US$29.8 million) (2008-2017) in response to natural disasters. The effects of climate change, if poorly managed, could cause annual economic losses of more than 12 percent of GDP by 21003. Insufficient liquidity to cope with high-impact natural events affects the country’s ability to continue implementing its development plans, its efforts to become more resilient and to recover from disasters in a timely manner. 3. Climate variability and change have also been linked to the emergence and re-emergence of infectious diseases4. The frequency and severity of extreme climate events can affect disease incidence, transmission, and outbreaks. Variations in climate may also establish the environmental conditions for the development of e.g. avian influenza—a disease with catastrophic financial impacts that span sectors as diverse as livestock, tourism, trade, and health care. 4. As coastal erosion and pressure on scarce land increase, the physical vulnerability of island populations, infrastructure, and livelihood assets will increase as well. Eighty percent of the total land area of Maldives, less than 300 square km, is lower than 1m above mean sea level (MSL). The highest point is in Wilingili Island in Addu atoll barely measuring up to 2.4m above MSL5. The country is formed by 1,190 small coral islands, of which 188 are inhabited by a local population of 407,000 1 The World Bank (2014). GFDRR Understanding Risk in an Evolving World. 2 UNDP. Tsunami Recovery in the Maldives 2004-2006. 3 ADB (2014). 4 Intergovernmental Panel on Climate Change’s Fourth Assessment Report. 5 The World Bank Group, 2017. Climate Risk and Adaptation Country Profiles. Page 5 The World Bank Development Policy Financing with Cat DDO and Pandemic Emergency Financing Facility individuals (resort islands are not considered as ‘inhabited’ by the authorities)6. The capital, Male, is home to about 40% of the population, residing on a congested two square km island, while the rest of the population is thinly spread out over the archipelago which stretches 750 kilometers from north to south. The islands are small, low-lying, and highly prone to flooding and coastal erosion. 5. The country’s success in high-end resort-based tourism and increase in infrastructure assets has also increased its exposure level. The coral reefs surrounding the Maldives, which have been the country’s economic base for the tourism and fisheries industries, are at risk due to gradual warming of sea water7. New government construction for housing and large infrastructure projects has taken over as the main driver of growth since late 20148, bringing new economic opportunities but also increasing the assets exposure to disaster risk. 6. While Maldives has made substantive progress in reducing communicable diseases, it continues to be highly exposed to public health threats. The Maldives received an average 1.25 million tourists per year between 2014-17 and almost a third of the population are international workers. These are ideal population dynamics for importation of noble diseases or re-emergence of diseases either eliminated or persisting in low transmission levels. In 2017, Maldives reported cases of Zika, which led the US Centers for Disease Control and Prevention (CDC) to issue a travel advisory on March 10, 2017. Between January 1 and March 18, 2017, 144 Severe Acute Respiratory Illness (SARI) cases were recorded and authorities advised against non-essential travel to islands outside Male. Despite Maldives being a malaria-free country9, Aedes mosquitos, prevalent throughout the country, are the principal vectors of Dengue, Zika and Chikungunya. These vector-borne diseases are particularly sensitive to climate change, as the prevalence of vectors fluctuates depending on key weather and climate variables such as temperature and humidity. Cognizant of the country’s increasing vulnerability to new pathogens and vector-borne outbreaks, one of the Maldives’ 10 National Health Policy Goals is to “enhance the response of the health system in emergencies” which includes natural disasters and disease outbreaks. A 2017 Joint External Evaluation (JEE) of the International Health Regulations (IHR) found that there is limited government capacity to deal with severe disease outbreaks, especially in terms of financing and human resources. 7. Gender Analysis: While the population’s health deteriorates during disasters and disease outbreaks, women and girls are often disproportionately affected by these events10. The Bank Systematic Country Diagnostic (SCD) and Country Partnership Framework (CPF) highlight that Maldives “performs better than the other countries in South Asia with respect to different socioeconomic indicators and gender equality.” In terms of basic health indicators women and girls fare as well as or better than men and boys. Unlike the rest of South Asia, Maldives does not exhibit gender differentials in childcare and mortality. Sex ratios at birth and in early childhood are egalitarian, and more than 90 percent of girls and boys are fully vaccinated.11 However, situations of disaster tend to place undue burden on women 6 Projection based on Ministry of Finance and Treasury, National Bureau of Statistics (2014), 2014 Maldives Census. 7 Adaptation Partnership, Review of Current and Planned Adaptation Action: South Asia (2011). 8 World Bank, Macro Poverty Outlook. (http://macropovertyoutlook.worldbank.org/) 9 In 2015, WHO declared Maldives being a malaria-free country9, with its last local case recorded in 1984. 10 http://www.undp.org/content/dam/undp/library/crisis%20prevention/disaster/7Disaster%20Risk%20Reduction%20- %20Gender.pdf 11 World Bank, 2016. Understanding Gender in Maldives Page 6 The World Bank Development Policy Financing with Cat DDO and Pandemic Emergency Financing Facility and girls who are responsible for unpaid work such as providing care, water and food for households.12 Moreover, access to basic health services, including sexual and reproductive health services, is often reduced during and after a disaster. This is also true during disease epidemics, when health systems are overwhelmed with infection control and treatment and are unable to provide other basic health services. Disaggregating national averages, where data allows, suggests that rural women and those in more remote atolls are likely to be particularly disadvantaged. Constraints in accessing reproductive health services pose disadvantages for women. The MOH, together with the Ministry of Gender and Family, have collaborated with the Society for Health Education (a national NGO) in efforts to strengthen national preparedness for sexual and reproductive health (SRH) in crisis situations, including integrating the Minimum Initial Service Package (MISP) 13 into preparedness and response plans in order to adequately address SRH in crisis situations. 8. Sustained investment in the health sector has led to significant outcomes but some fiscal challenges persist. The country’s health expenditure as a percentage of GDP increased from 7.9% in 2010 to 13.7% in 201414 which is considered high for low-and middle-income countries. The sector depends heavily on external funding for capital investment and human resource development. Maldives is already facing high health care costs and trying to address health sector fiscal sustainability. Delayed response to even a small disease outbreak could have significant consequences on the sector and the economy as a whole. Maldives therefore needs to continue investing in improved emergency preparedness and to secure access to resources, such as those made available through this operation. 9. The proposed operation will include: (i) the Cat DDO, an instrument made available under IDA 18, that can provide immediate liquidity to the country in the aftermath of a disaster resulting from a natural disaster including public health emergencies and, (ii) the PEF, an innovative mechanism that can provide resources through its Cash and Insurance Windows, for countries to respond to high- severity disease outbreaks and to prevent them from becoming pandemics. The Cat DDO and PEF complement each other and will support the GoM’s efforts to address climate and disaster risk. 10. In general, poverty incidence is low and substantially in line with that of upper middle-income countries with 6.6 percent of Maldivians living on less than US$5.50 a day (upper middle-income poverty line) and 8.2 percent living on less than the national poverty line of MVR 74 per day. The poverty headcount rate in the Maldives is 8.2 percent using the low poverty line (half the median of total expenditures) and 46.5 percent using the high poverty line (median total expenditures) in 2016. This large difference in poverty headcount rates indicates that many Maldivians are vulnerable to falling into poverty if their household situation changes or a negative shock occurs. Results on the international poverty line of upper middle-income countries are similar to results using the low poverty line, with an incidence of poverty of 6.6 percent. Poverty is unequally distributed across the Maldives with higher poverty rates in Atolls outside of Male. Despite the fact that 58 percent of Maldivians live in Atolls, the large majority—91.1 percent—of those living below the low poverty line live in the Atolls. The number of poor in the Atolls is seven times higher than in Male. 12 http://www.undp.org/content/dam/undp/library/crisis%20prevention/disaster/7Disaster%20Risk%20Reduction%20- %20Gender.pdf 13 https://www.unfpa.org/resources/what-minimum-initial-service-package 14 World Bank, Health, Nutrition and Population Statistics http://databank.worldbank.org/data/reports.aspx?source=health- nutrition-and-population-statistics Page 7 The World Bank Development Policy Financing with Cat DDO and Pandemic Emergency Financing Facility 2. MACROECONOMIC POLICY FRAMEWORK 2.1. RECENT ECONOMIC DEVELOPMENTS 11. Macroeconomic performance has been strong in recent years. Real GDP growth averaged 6.3 percent between 2013 and 2017, driven by strong performance of the tourism and construction sectors. It slowed down to 6.1 percent in 2018 (compared to 6.9 percent in 2017). Tourism contributed 1.7 percentage points (pp), followed by construction (0.8pp), wholesale and retail trade (0.4pp) and financial services (0.4pp). Tourist arrivals and bed nights increased by 6.8 percent and 10.2 percent respectively (year-on-year change, or y/y), supported by infrastructure investments for the international airport, the opening of new resorts, and expansion in the guest houses’ sector.15 12. The overall consumer price index declined marginally by 0.1 percent in 2018, compared to an increase of 2.8 percent in 2017.16 This was driven mainly by a decrease in prices of staple food items and electricity, due to policy changes in food subsidies and electricity charges. The decline in prices was more pronounced in the atolls, averaging -1.4 percent for the year. Two major contributors were food and non-alcoholic beverages (-0.9 percent y/y) and housing and utilities (-9.4 percent y/y). 13. The current account deficit is estimated to have widened to 24.1 percent of GDP for 2018, from 22 percent in 2017. The deterioration happened on the backdrop of subdued goods exports (a contraction of 1.6 percent y/y) and rapid growth of goods imports (16.1 percent y/y) linked to investment projects. Higher imports were associated with infrastructure related projects such as the airport runaway, the bridge connecting Male to Hulhule-Hulhumale, the new airport terminal, and housing developments. The housing development projects and the new bridge are part of the ongoing development of Hulhumale Island, and are expected to make the country more resilient to natural disasters and climate change, while reducing the cost of service delivery. The large public investment boom has led to large debt-financed current account deficits since 2015. On the services side, exports performed strongly (10.7 percent y/y) thanks to strong tourism receipts. The current account deficit was financed mainly through debt flows and direct investment.17 Gross official reserves increased to US$758 million in December 2018, up from US$586 million a year before (representing 2.3 month of good and services imports). 14. Maldives maintains a de facto stabilized arrangement, using the US dollar as the exchange rate anchor. After the 2011 devaluation, the monetary authority kept the exchange rate stable at close to MVR 15.4 per USD. The fixed exchange rate is not a concern for Maldives, where the tourist economy is largely dollarized, and the lack of manufacturing exports reflects structural constraints rather than price competitiveness.18 Exchange rate pass-through to domestic prices is high.19 The Maldives Monetary authority (MMA), the country’s central bank, used to conduct its monetary policy through 15 Tourism accounted for about 25 percent of nominal gross value added between 2013-17. 16 Averaged for the period, as opposed to end-of-period reported in Table 1. 17 FDI inflows stood at 8.6 percent of GDP in 2018 and they averaged 9.2 percent of GDP between 2015 and 2017. 18 One factor that could trigger a shortage of FX is linked to the bullet payments of the sovereign bonds in 2022/23, for which risks are mitigated by the proceeds accumulated in the SDF. In addition, the surge of imports due to large capital projects is expected to decline in the medium-term. As a result, reserve coverage is expected to improve. 19 This is just a reflection of Maldives’ being a small island state and limited opportunities for diversification. Page 8 The World Bank Development Policy Financing with Cat DDO and Pandemic Emergency Financing Facility open-market operations. However, open-market operations were suspended in May 2014 and the overnight deposit rate has been kept at 1.5 percent. The reserve requirements have stayed at 10 percent since August 2015. Given limited profitable lending opportunities in the private sector, other than construction, real estate and tourism, banks have been buying T-bills at the relatively low rate offered and place the surplus at the MMA or abroad. 15. After an extraordinary fiscal consolidation in 2017, fiscal outcomes are expected to worsen temporarily before initiating a steady improvement. In 2017, the overall fiscal deficit was brought down to 3 percent of GDP, improving by 7.2 percentage points relative to 2016. Fiscal consolidation efforts included increases in import duties and the introduction of the Airport Development Fee, and containing recurrent spending, notably the public wage bill. However, both the overall and primary fiscal deficits widened to 4.7 and 3.0 percent of GDP respectively in 2018.20 On the expenditure side, recurrent spending increased by 2.2 percentage points as a share of GDP to 22.2 percent. This was driven by subsidies (increasing by 1 percent of GDP),21 and spending on the health program Aasandha (increasing by 0.6 percent of GDP), partly due to the settlement of arrears.22 Public salaries and wages remained unchanged, at about 5.3 percent of GDP. Interest costs increased by 0.3 percentage points, to 1.8 percent of GDP, as a result of the earlier borrowing to finance the large infrastructure investments. Capital expenditure remained high at 9.3 percent of GDP, hence continuing to exert pressure on the fiscal position. 16. Public debt (excluding guarantees) stood at 59.1 percent of GDP in 2018, down from 59.5 percent in 2017.23 Domestic debt amounted to 33.5 percent of GDP, while external debt accounted for the balance of 24.6 percent. The share of external debt in total public debt has been increasing since 2015, mainly due to housing projects, airport development –including the new airport runaway for Velana International Airport— and the bridge connecting Male to Hulhule-Hulhumale. In addition, Maldives placed two sovereign bonds in 2017 and 2018, totaling USD 350 million, representing 26.5 percent of total external debt in 2018.24 Redemption of the first USD 250 million sovereign bullet bond is due in 2022. The GoM has set up a Sovereign Development Fund (SDF) collecting the recently introduced Airport Development Fee and dividends from the state-owned airport operator to repay the external loans related to the expansion of the international airport. As of end-February 2019, the SDF has accumulated USD 124 million 2.2. MACROECONOMIC OUTLOOK AND DEBT SUSTAINABILITY 17. Growth is expected to remain strong at around 5.4 percent in the medium term. The relative decline is expected to be driven by the gradual tapering-off of investment projects25 and the related slowdown in construction activity. Tourism is expected to remain vibrant as recent infrastructure 20 The primary deficit stood at 1.5 percent in 2017 and 3.0 percent in 2018. 21 A reflection of higher diesel prices for electricity generation and electricity tariff harmonization across the country (electricity tariffs were adjusted downwards in the Atolls). 22 About MVR 500 million of outstanding arrears were cleared (or 0.6 percent of GDP). 23 Total public debt (including guarantees) is estimated at about 72 percent of GDP in 2018. 24 The 2018 bond (USD 100 million) was privately placed with the UAE. 25 Including the development of the airport and Hulhumale Island Phase I and Phase II Page 9 The World Bank Development Policy Financing with Cat DDO and Pandemic Emergency Financing Facility investment26 will help relieve supply bottlenecks in the sector. Tourism arrivals are projected to grow at about 5 percent per year, also facilitated by the opening of new resorts and the expansion of the guest houses’ sub-sector. Table 1: Key Macroeconomic Indicators 2015 2016 2017 2018e 2019f 2020f 2021f 2022f Real economy Annual percentage change, unless otherwise indicated GDP (nominal--local currency) 63,147 67,837 74,866 81,145 87,961 95,191 102,889 111,296 Real GDP 2.9 7.3 6.9 6.1 5.7 5.5 5.4 5.4 Per capita GDP (In US$ Atlas Method) 8,510 9,290 10,120 .. .. .. .. .. Unemployment rate (ILO definition) .. 6.1 .. .. .. .. .. .. GDP deflator 7.9 0.1 3.2 2.2 2.5 2.6 2.6 2.6 CPI (end-of-period) 0.9 2.3 1.3 -0.9 1.3 1.8 2.0 2.0 Fiscal Accounts Percent of GDP, unless otherwise indicated Expenditures 34.0 37.3 30.1 31.4 31.8 32.1 30.7 29.4 Revenues and grants 27.1 27.1 27.1 26.7 26.4 26.2 25.7 25.5 Fiscal balance -6.8 -10.2 -3.0 -4.7 -5.4 -5.9 -5.0 -3.9 Public debt, PPG (end-of-period) 53.4 59.4 61.6 72.2 77.8 82.0 84.5 82.8 Selected Monetary Accounts Annual percentage change, unless otherwise indicated Base Money -17.8 -12.6 19.0 7.9 .. .. .. .. Credit to private sector 2.8 11.7 10.5 11.5 .. .. .. .. Interest (overnight deposit facility) 1.5 1.5 1.5 .. .. .. .. .. Balance of Payments Percent of GDP, unless otherwise indicated Current Account Balance -7.3 -23.4 -22.0 -24.1 -19.6 -15.2 -11.2 -10.3 Imports 67.4 72.4 72.1 75.0 69.9 63.5 61.6 60.7 Exports 76.5 71.3 67.5 68.4 68.4 66.6 66.6 66.5 Foreign Direct Investment 7.3 10.4 10.1 8.6 9.3 9.4 9.8 9.8 Gross Reserves (in US$, end-of-period) 564 467 586 758 .. .. .. .. In months of next year's imports 2.1 1.6 1.8 2.3 .. .. .. .. As % of short-term external debt 64.6 57.2 64.8 62.9 .. .. .. .. Exchange Rate (average) 15.4 15.4 15.4 15.4 .. .. .. .. Other memo items GDP nominal in US$ 4,110 4,415 4,872 5,272 5,714 .. .. .. Source: Ministry of Finance, National Bureau of Statistics, Maldives Monetary Authority and Staff Calculations 26Notably the expansion of the main international airport runway and terminal; Staff projects that tourism arrivals will reach 1.5 million by 2019, which is the capacity of the airport. The expansion of the airport will increase capacity to 7.5 million arrivals per year. Page 10 The World Bank Development Policy Financing with Cat DDO and Pandemic Emergency Financing Facility 18. The real exchange rate and the current account are expected to gradually converge towards fundamentals with the winding down of large infrastructure projects. The IMF’s external sector assessment indicates that the exchange rate is weaker than what fundamentals suggest (IMF, 2019). However a realignment is expected to follow from the tapering-off of large investment projects. In addition, fiscal consolidation measures supported by this operation, together with the strengthening of public investment management, are expected to foster exchange rate stability and reduce vulnerability to external shocks. As Maldives maintains a de facto peg, there is limited scope for monetary policy. Inflation is projected to remain low, with its trajectory highly dependent on the pass- through from import prices. Table 2: Key Fiscal Indicators 2015 2016 2017 2018e 2019f 2020f 2021f 2022f Overall Balance -6.8 -10.2 -3.0 -4.7 -5.4 -5.9 -5.0 -3.9 Primary Balance -4.7 -8.4 -1.5 -3.0 -3.3 -3.4 -2.6 -1.7 Total revenues and grants 27.1 27.1 27.1 26.7 26.4 26.2 25.7 25.5 Tax revenues 19.4 19.6 19.7 19.5 19.5 19.5 19.4 19.3 Of which: Import duties 3.7 3.7 3.7 3.8 3.8 3.8 3.7 3.6 Business Profit Tax 4.2 3.3 2.8 2.6 2.6 2.6 2.6 0.0 General Goods and Services Tax 3.0 3.4 3.6 3.6 3.6 3.6 3.6 3.6 Tourism Goods and Services Tax 6.6 5.8 5.6 5.9 6.0 6.1 6.1 6.2 Green Tax 0.1 0.9 0.9 1.0 1.0 1.0 1.0 0.9 Airport Service Charge 0.8 0.8 0.9 0.8 0.8 0.7 0.7 0.7 Non-tax revenues 6.9 7.4 7.0 6.8 6.5 6.2 6.0 5.9 Of which: Airport Development Fee 0.0 0.0 0.4 0.8 0.8 0.8 0.7 0.7 Rent from Resorts 2.0 2.0 2.0 1.9 2.1 2.0 1.9 1.9 SOE Dividends 0.8 0.9 1.0 1.0 0.9 0.9 0.9 0.9 Grants 1.0 0.4 0.5 0.5 0.6 0.6 0.5 0.5 Expenditures 34.0 37.3 30.1 31.4 31.8 32.1 30.7 29.4 Current expenditures 26.5 23.8 20.0 22.2 22.2 22.3 21.8 21.3 Salaries and Wages 6.2 5.9 5.3 5.3 5.1 5.1 5.1 5.0 Allowances to Employees 4.6 4.2 4.0 4.2 4.1 4.1 4.0 4.0 Goods and Services 6.1 4.9 4.1 4.2 4.2 4.2 4.1 4.1 Pensions, Retirement Benefits and Gratuities 2.3 2.1 2.0 1.9 1.8 1.7 1.7 1.6 Grants, Contributions and Subsidies 4.5 4.1 2.7 4.1 3.3 3.1 3.0 2.9 Of which: Aasandha 1.2 2.2 1.2 1.8 1.1 1.0 1.0 0.9 Subsidies 2.0 0.7 0.4 1.4 1.3 1.3 1.2 1.2 Interest payments 2.1 1.7 1.5 1.8 2.2 2.6 2.4 2.2 Capital expenditures 7.5 13.5 10.1 9.3 9.5 9.7 8.8 8.0 Of which: Public Sector Investment Program 4.9 10.4 7.8 7.1 6.7 6.9 6.2 5.5 Source: Ministry of Finance, National Bureau of Statistics and Staff Calculations 19. The current account deficit is projected to narrow gradually to 10.3 percent of GDP by 2022 as capital investment gradually declines. The merchandise trade balance is projected to improve, as Page 11 The World Bank Development Policy Financing with Cat DDO and Pandemic Emergency Financing Facility investment-related imports slow down, while global oil prices are not expected to rise significantly. Tourism receipts are projected to continue growing. The external financing needs are mainly generated by the current account deficit as opposed to debt repayments. Financing is expected to come mainly from FDI, project loan disbursements and other investment inflows. 20. The fiscal deficit is projected rise in 2019 but to narrow gradually thereafter, partly as the result of reform efforts –included those supported by this operation— and positive debt dynamics from growth. Public investment has been high since Maldives embarked on its ambitious infrastructure program to resolve bottlenecks in tourism and promote the development of Hulhumale Island. Large- scale infrastructure investments are expected to gradually decline towards the end of the forecast period, but capital expenditure should remain sizeable, at around 8-9 percent of GDP. Interest rates payments, from past borrowing related to the infrastructre investments, will continue to put pressure on the fiscal position going forward. However, tourism sector revenues (airport development fee, airport service charge, green tax) are expected to grow in line with tourist arrivals. Other taxes (business profit tax, general and tourism GST) are also expected to rise in line with nominal GDP. Revenue from import duties, however, is expected to decline as imports growth slows. As a result, on balance, the tax-to-GDP ratio is projected to remain broadly unchanged over the forecast period.27 Table 3: BOP Financing Requirements and Sources (USD, millions) 2017 2018e 2019f 2020f 2021f 2022f Financing requirements (USD) Current account deficit 1,073 1,270 1,122 942 746 745 Amortizations 190 181 203 260 300 520 Of which Sovereign Bond - - - - - 250 Total financing needs 1,263 1,451 1,325 1,202 1,046 1,265 Financing Sources (US$) FDI investments (net) 492 454 533 579 653 709 Project loans 247 927 429 500 83 55 Other external financing 393 143 400 149 300 501 Sovereign bonds 250 100 - - - - Total financing sources 1,382 1,623 1,362 1,228 1,036 1,264 Memo item: Change in reserves 119 172 37 26 (10) - Source: Staff Calculations 21. The GoM has initiated reforms to improve its fiscal stance and mitigate risks. To contain recurrent spending, the GoM has adopted changes to the health insurance program Aasandha, aimed at: 27In addition, the GoM is exploring the introduction of a personal income tax in the next budget cycle (not factored in the forecasts). Page 12 The World Bank Development Policy Financing with Cat DDO and Pandemic Emergency Financing Facility reducing the cost paid on account of drug reimbursement and overseas care; making health care spending more efficient, and; enhancing governance and accountability of the program. Measures were also taken to boost revenues, including: the Airport Development Fee and increases in import duties for soft and energy drinks, and cigarettes. Reforms to strengthen public financial management, budget credibility, debt reporting and SOE governance are expected to lead to efficiency gains while enhancing transparency and accountability. Finally, an assessment of housing projects (which have been one of the key drivers of the increase in capital spending) is under way, and its findings are expected to reduce and improve spending on the program. Taken together, this reform package is expected to lead to a steady improvement in fiscal outcomes over the medium term. 22. Debt repayments should be covered by SDF proceeds. The USD 250 million international sovereign bond issued in 2017 will mature in 2022 and the USD 100 million sovereign bond issued in 2018 will mature in 2023. However, the SDF has already accumulated more than half of the financing needed to repay the USD 250 million bullet payment, and it is expected to generate an excedent by 2022 that can be used to cover the USD 100 million bullet payment due in 2023 as well for amortization of other debts (see Figure 2). Although Maldives recently contracted non-concesional loans and issued guarantees the bulk of external debt is still largely concessional with smooth repayments. Figure 1: Debt Sustainability Analysis PV of debt-to GDP ratio PV of debt-to-exports ratio 60 160 140 50 120 40 100 30 80 60 20 40 10 20 Most extreme shock is Exports Most extreme shock is Exports 0 0 2018 2020 2022 2024 2026 2028 2018 2020 2022 2024 2026 2028 Debt service-to-exports ratio Debt service-to-revenue ratio 18 45 16 40 14 35 12 30 10 25 8 20 6 15 4 10 2 Most extreme shock is Exports 5 Most extreme shock is One-time depreciation 0 0 2018 2020 2022 2024 2026 2028 2018 2020 2022 2024 2026 2028 Baseline Historical scenario Most extreme shock 1/ Threshold Source: World Bank-IMF Joint LIC-DSA (2019) Customization of Default Settings Borrowing Assumptions for Stress Tests* Size Interactions Default User defined Shares of marginal debt No No External PPG MLT debt 100% Page 13 Tailored Tests Terms of marginal debt Combined CLs No Avg. nominal interest rate on new borrowing in USD 3.0% 3.0% Natural Disasters No No USD Discount rate 5.0% 5.0% Commodity Prices 2/ n.a. n.a. Avg. maturity (incl. grace period) 20 20 Market Financing No No Avg. grace period 6 6 The World Bank Development Policy Financing with Cat DDO and Pandemic Emergency Financing Facility 23. According to the 2019 World Bank-IMF Debt Sustainability Analysis, Maldives remains at high risk of external debt distress. Total public debt (public and publicly guaranteed, or PPG) increased to 72 percent of GDP in 2018: it rose by 10 percentage points of GDP (y/y) with new borrowing to finance the end of the connecting bridge, the airport runaway, housing developments in Hulhumale, and the new airport passenger terminal. External public and publicly guaranteed debt stood at 35 percent in 2018; it is expected to further rise to 41 percent of GDP by 2021 before declining to 33 percent of GDP in 2028. Despite favorable growth dynamics, the primary deficit is expected to contribute to an increase in public debt (including guarantees) that is projected to reach 83 percent of GDP in 2021.28 All external indicators breach their thresholds except the PV of debt-to-exports ratio. Recommendations included in the DSA include: (i) fiscal consolidation; (ii) developing the domestic debt market to allow for longer tenors; (iii) selectivity for externally-financed projects; and (iv) new external debt to be contracted on concessional terms, to the extent possible. 24. However, there are important mitigating factors. The GoM has earmarked the proceeds from the airport development fee (ADF) and dividends from the state-owned airport operator, MACL, for debt repayment. Accumulation of the ADF in the SDF over the next few years (see Figure 2) is expected to suffice to meet the debt repayment obligations coming due in 2022 (USD 250 million sovereign bond) and in 2023 (USD 100 million sovereign bond). Moreover, the reforms supported by the DPF are fully in line with the DSA’s recommendations. 25. In spite of the risks, the macroeconomic framework is considered adequate for development policy financing, with the program design being an important mitigation factor. First, strong growth is expected to mitigate adverse debt dynamics. Recent investments, to address key supply-side bottlenecks, are expected to yield important growth and fiscal returns going forward. Second, the winding down of large infrastructure projects is also expected to lead to an improvement in the fiscal and external position. Third, the GoM has earmarked the proceeds from the airport development fee (ADF) and dividends from the state-owned airport operator, MACL, for debt repayment. While the DPF mainly supports mitigating fiscal risks, the DPF with Cat-DDO and PEF will improve GoM’s capacity to manage the human, physical and fiscal impact of climate change and natural disasters, including disease outbreaks. The inclusion in all projects of Contingency Emergency Response Components (CERC, or zero components) that can be triggered by disasters will provide an initial layer of support. Finally, the World Bank has established itself as a trusted advisor to the Ministry of Finance, which gives it scope to provide advice on new policy initiatives, including to ensure their alignment with prudent fiscal management. 28 Joint World Bank-IMF Debt Sustainability Analysis (2019) Page 14 The World Bank Development Policy Financing with Cat DDO and Pandemic Emergency Financing Facility Figure 2: Receipts deposited in the Sovereign Development Fund (2017-23), USD million 356 301 249 199 152 123 115 107 103 100 97 88 80 72 64 54 45 35 25 22 10 8 Source: Ministry of Finance and Staff calculations 2.3. IMF RELATIONS 26. The Fund carries out regular Article IV Consultations. The Staff report for the most recent (February 2019) Consultations is expected in May 2019. Maldives had a financing arrangement, which was a blend of Stand-By Arrangement (SBA) and Exogenous Shocks Facility High Access Component (ESF- HAC), approved in December 2009, but it was not brought to full completion. The Fund has a long history of providing Technical Assistance to Maldives, covering topics such as public finance management (with particular emphasis on cash management, revenue administration and public investment management), banking supervision, monetary and foreign exchange operations and reserve management, statistics (national accounts, external sector and government finance), and economic modelling. Such TA has been well received and continues to be influential in building technical capacity and strengthening institutions. Page 15 The World Bank Development Policy Financing with Cat DDO and Pandemic Emergency Financing Facility 3. GOVERNMENT PROGRAM 28. The Disaster Management Act of 201529 is the cornerstone of the GoM’s Disaster Risk Management (DRM) program which is led by the National Disaster Management Authority (NDMA)30. The NDMA has moved from coordinating relief efforts to a more holistic model of mainstreaming disaster risk reduction and preparedness in the national development agenda. The GoM’s DRM Program was originally based on the Hyogo Framework for Action (HFA). This Program is now carried out in line with the 2015-2030 Sendai Framework for Disaster Risk Reduction31, which was adopted by UN member states in March 2015 at the World Conference on Disaster Risk Reduction. The Program is also implemented in line with the country’s climate change agenda and its commitments before the UNFCCC (including the Paris Agreement), as well as its commitment to ensure a timely and efficient response to public health threats, in line with the WHO International Health Regulations (IHR). 29. In line with HFA’s Goal 1, disaster risk considerations have been integrated in the Government’s National Development Plan, as reflected in the 2011 Strategic National Action Plan on Climate Change Adaptation and Disaster Risk Reduction (DRR) for 2010-2020. The plan was designed to promote collaboration among Maldives’ DRR and climate change adaptation stakeholders to develop a comprehensive disaster risk management approach across all key sectors. The GoM will identify a consolidated set of programs and projects once policies, plans and sustainable development strategy are harmonized with the 2015 Disaster Management Act. These programs and projects may be undertaken with its own budget and/or donor assistance through disaster risk financial mechanisms such as those offered under this Cat DDO-PEF operation. 30. The GoM has developed sound policies and plans to change its focus from a traditional reactive approach to a more comprehensive approach to manage climate and disaster risk, beginning with the 2015 Disaster Management Act. These include: (i) the 7th National Disaster Management Plan (NDMP); (ii) the National Emergency Operations Plan (NEOP); (iii) the second National Environmental Action Plan (NEAP); (iv) the National Adaptation Programme of Action (NAPA) and Nationally Determined Contributions (NDC) Implementation Plan; (v) the Climate Change Policy Framework 2015; (vi) the Health Master Plan 2016-2025; (vii) the Construction Act 2017; and (viii) the Government’s Telecom Policy that emphasizes on an Emergency Communication Plan. The NDMA is promoting a Community-based approach to disaster risk reduction through its Community Based Disaster Risk Reduction (CBDRR) Framework. 31. In line with HFA Goal 2 on strengthening institutional capacity for building hazard resilience, the full implementation of the Disaster Management Act is expected to facilitate the development of institutional mechanisms for effective coordination and enforcement of laws, guidelines and 29 Originally drafted as a bill in 2006. 30 Formerly the National Disaster Management Center (NDMC), an entity established in the aftermath of the 2004 tsunami. In December 2018, NDMA took over the NDMC’s mandate. 31 The Sendai Framework for Disaster Risk Reduction 2015-2030 succeeded the HFA 2005-2015, and has four specific priorities for action: (i) understanding disaster risk; (ii) strengthening disaster risk governance to manage disaster risk; (iii) investing in disaster risk reduction for resilience; and (iv) enhancing disaster preparedness for effective response, and to "Build Back Better" in recovery, rehabilitation and reconstruction. Page 16 The World Bank Development Policy Financing with Cat DDO and Pandemic Emergency Financing Facility standards that incorporate disaster risk considerations. In the absence of a consolidated DRR framework and sufficient funding, government agencies have collaborated on an ad hoc basis to implement programs. The approach has mobilized trained staff at the national and international level in disaster management, risk reduction and other related fields to various Ministries and institutions but their skills are yet to be fully utilized. Civil society organizations have made good progress in conducting trainings to strengthen capacities of government agencies, private sectors and communities. 32. Since the 2004 tsunami, NDMC’s (now NDMA) mandate broadened, whereby the processes of hazard identification and mitigation, community preparedness, integrated response and recovery are planned for and undertaken within a climate and disaster risk management context. More than 200 staff representing ministries in the government have been trained on basic concepts of disaster management. Community preparedness plans have been developed in 30 islands and disaster management task forces instituted with training on basic emergency response as part of the Community Based Disaster Program. 33. In line with HFA Goal 3 to systematically incorporate DRR approaches into the design and implementation of emergency preparedness, response and recovery, “building back better” has been a guiding principle in the post-tsunami recovery and reconstruction program as reflected in the National Recovery and Response Plan (NRRP) as well as the 2017 Construction Act. School level SOPs were completed for most schools in the country with staff being trained on emergency preparedness and decentralized management, including regular mock drills being conducted within the schools as well as activities carried out for community awareness on DRR with the involvement of parents. The MoH has specific SOPs for the health sector that has informed the Health Emergency Operations Plan (HEOP), while the Ministry of National Defense Force, Ministry of Tourism, Arts and Culture also have SOPs in place for their respective sectors. Community-based Disaster Preparedness Plans have been developed for affected communities with guidance on preparedness, response and recovery based on Vulnerability and Capacity Assessments (VCA). During the process, training for response (including for First Aid), search and rescue, psycho-social support and early warning have been provided as well as simulation exercises conducted for some islands. 4. PROPOSED OPERATION 4.1. LINK TO GOVERNMENT PROGRAM AND OPERATION DESCRIPTION 34. The overall Program Development Objective (PDO) of this operation is to enhance the Maldives ’ financial capacity to effectively manage the human, physical and fiscal impact of climate change, natural disasters and disease outbreaks. The PDO takes into account the Maldives’ fast development pace in the last half century and the country’s vision that adverse natural events and adaptation to climate change are now national security issues, and that the country’s future development must effectively address disaster risk while increasing resilience and sustainability32. Moreover, the PDO is a direct response to the country’s recognition that “every disaster presents financial challenges”, and 32 2015 Disaster Management Act. Page 17 The World Bank Development Policy Financing with Cat DDO and Pandemic Emergency Financing Facility the government commitment to mainstream disaster risk reduction and climate change adaptation into the budgeting process33. The PDO will be achieved by supporting policy reforms under the following three pillars: • Pillar A: Enhancing the institutional and regulatory framework to manage the impact of climate and disaster risk. • Pillar B: Integrating climate and disaster risk reduction in key sectors. • Pillar C: Enhancing the capacity to manage human health crisis preparedness and response. 35. The proposed Cat DDO will incorporate ex-ante arrangements for co-financing from the PEF. This risk financing product is consistent with the Bank’s emphasis on disaster prevention, as opposed to only disaster response. The country’s establishment of an adequate macroeconomic policy framework and the existence of a satisfactory DRM program make the Maldives eligible for the Cat DDO. As an IDA country, Maldives is also eligible to benefit from PEF funds, in the form of grant funds, when the emergency experienced by the country is one that meets the activation criteria for PEF and will flow to a country through this operation. The Cat DDO, which in the case of Maldives fully addresses pandemic risk as part of the country’s hazard risk management program, makes available PEF funds to the country for a public health emergency or disaster of epidemic nature. Similar to Cat DDOs in other countries, the implementation of this Cat DDO is expected to be supported by technical assistance on e.g. disaster risk assessment, disaster risk financing and disaster preparedness. 36. Since the introduction of the Cat DDO in 2008, the World Bank has approved Cat DDOs in 16 countries for a total value of over US$3.2 billion. Lessons learned from DRM operations and Implementation Completion and Results (ICR) reports of Cat DDOs were taken into account in the design of this operation. 37. Where possible, this Cat DDO-PEF operation will complement and will be complemented by other Bank funded DRM and health projects. The proposed Urban Development and Resilience project (MUDRP) for example will support enhancing services and strengthening resilience in selected urban centers of Maldives, and it is expected to have a technical assistance component to support, among other things, Government’s capacity to incorporate risk reduction considerations into future developments, especially in housing construction, strengthen emergency preparedness and response systems, and support in resilient urban planning. The inclusion of a Contingency Emergency Response Components (CERC, or zero component) in the MUDRP that can be triggered by natural and man- made disasters will provide an initial layer of support by rapidly unlocking financing in case a disaster occurs. Moreover, the improved disaster preparedness achieved by the Cat DDO-PEF and MUDRP operations will in turn contribute to the budget credibility and fiscal sustainability policies supported under the upcoming Development Policy Financing Operation. An ongoing GFDRR34 funded TA through the Global Program on Building Regulation for Resilience, is also supporting the GoM to strengthen their capacity of implementing building regulations for improved safety of the built environment. The TA includes a Building Regulatory Capacity Assessment (BRCA)35 to understand the 33 The Republic of Maldives, Strategic National Action Plan for Disaster Risk Reduction and Climate Change Adaptation 2010- 2020. 34 Global Facility for Disaster Reduction and Recovery 35 https://www.gfdrr.org/en/building-regulation-for-resilience/knowledge Page 18 The World Bank Development Policy Financing with Cat DDO and Pandemic Emergency Financing Facility current status of regulatory implementation capacity of relevant government stakeholders, and to identify the areas of improvement. The proposed recommendations from the BRCA will inform the design of MUDRP activities, aiming to avoid the creation of new risks in the development of Hulhumale. 38. The design of this operation is built on conclusions from several pieces of analytical work, including the Independent Evaluation Group (IEG) Report “Hazards of Nature, Risks to Development, an Evaluation of World Bank Assistance for Natural Disasters”36, “Natural Hazards, UnNatural Disasters ‐ The Economics of Effective Prevention”37, the “Sendai Report”38, and “Financial Protection against Natural Disasters”39. The conclusions of these pieces include the following: (i) disasters must be managed instead of being treated as exogenous shocks to development that cannot be proactively addressed, (ii) DRM is most efficient when it is based on adequate risk identification, (iii) an ex-ante strategy to finance reconstruction is essential for faster recovery after a disaster event, (iv) prevention pays and governments can take many actions to reduce disaster risk without incurring in additional costs, (v) it is important to secure the availability of a flexible source of funding to cover early recovery in case of a natural disaster, (vi) the implementation of a Cat DDO should be set as part of a broader disaster risk financing strategy, (vii) improvements in budget execution mechanisms are critical to successful implementation, and (viii) proactively managing the contingent liabilities from disasters can protect the country’s budget and fiscal balance. The lessons from the most recent DPC in the Maldives (2010) also suggest that operations must limit the scope of the reforms to only the most urgent and essential areas, and highlights the importance of focusing on building technical capacity. 39. Cat DDO • Drawdown triggers. Funds may be drawn down based on evidence satisfactory to the Bank, that a State of Disaster has been declared by the Recipient either (a) by the Chairperson of the NDM Council on the recommendation of the National Disaster Management Authority as per the provisions of the Disaster Management Act read with section 3, Volume 1 of the National Emergency Operations Plan; or (b) by the Recipient’s Minister of Health as per the provisions of the Public Health Protection Act, read with Section 1 of the HEOP; or (c) by the President under Article 253 of the Constitution, each through the form of a public notice/announcement in such manner as the Recipient deems fit, to respond to an imminent or occurring natural catastrophe (including any health-related shock). • Emergencies at the National and Atoll or Island level. The NEOP provides an alert level system that includes emergencies at the national and atoll or island level. The NDMA recommendation for the declaration of a state of disaster can be based on this alert level system, when the level is significant (level 3) or catastrophic (level 4) due to the occurrence or anticipation of hazardous events including those at the atoll or island level. 36 Hazards of Nature, Risks to Development: An IEG Evaluation of World Bank Assistance for Natural Disasters. 2006. World Bank Independent Evaluation Group, World Bank, Washington, DC. 37 Natural Hazards, UnNatural Disasters ‐ The Economics of Effective Prevention. 2010 WB and UN. 38 The Sendai Report: Managing Disaster Risks for a Resilient Future. 2012. World Bank. 39 Financial Protection against Natural Disasters: An Operational Framework for Disaster Risk Financing and Insurance. 2014. World Bank. Page 19 The World Bank Development Policy Financing with Cat DDO and Pandemic Emergency Financing Facility • Drawdown period and renewals. The drawdown period for the proposed operation will be three years and may be renewed once, for a total drawdown period of six years. The World Bank will periodically monitor the satisfactory implementation of the disaster risk management program during the project implementation period. If the Bank concludes that the disaster risk management program is not being implemented in a satisfactory manner, the Bank would promptly advise the borrower of the need for a subsequent review to confirm that the program is implemented satisfactorily before it would be able to grant any request for drawdown. Renewal would require that the original DRM program remain largely in place. The adequacy of the macroeconomic framework is assessed at effectiveness and reconfirmed at renewal. Renewal would take place no earlier than one year and no later than six months before the expiration date. The renewal would be aligned with World Bank procedures for extension of closing dates beyond two years. 40. PEF. As described in more detail in Annex 5, the Pandemic Emergency Financing Facility (PEF) is a mechanism that can provide surge financing, in the form of non-reimbursable trust fund grants, to countries experiencing outbreaks with pandemic potential. It does so through two complementary windows with distinct activation criteria: the cash window for early or emergency stage of large-scale disease outbreaks and the insurance window, for established larger-scale, specific high severity disease outbreaks. As an IDA country, Maldives is eligible to receive PEF funds, contingent on the following conditions: (i) having the disease outbreak affecting Maldives meet the activation criteria of the PEF (the PEF Operations Manual sets out guidelines related to the operating arrangements and procedures, including the activation criteria of the facility and the processes for fund allocations); and (ii) the PEF being operational and having sufficient resources available. The PEF has been established for an initial operational period of 3 years (from July 2017 to June 2020). Work is already underway to extend the PEF for a second period, starting in July 2020. 41. Upon the occurrence of a large-scale disease outbreak and declaration of a disaster or of a public health emergency as described in paragraph 39, Maldives may access resources from two different funding sources, IDA and/or PEF (Figure 3). The GoM may drawdown funds from its IDA financing or, if conditions (i) and (ii) described in paragraph 39 for accessing PEF funds have been met, the GoM may submit a request for funds to the PEF for their approval and release of funds. Access of PEF grant funds may happen before, after, or at the same time of drawing down funds from the IDA financing, if any (Table 4). Page 20 The World Bank Development Policy Financing with Cat DDO and Pandemic Emergency Financing Facility Figure 3. Cat DDO and PEF Integration* *The types of events listed are only illustrative and do not represent the full range that can be covered with the Cat DDO. Table 4: Use of PEF and Cat DDO resources for disease outbreaks A B C Sources of Neither Cash nor Insurance PEF Cash Window has been activated; Insurance PEF Insurance Window has funds Window has been activated Window has not been activated been activated PEF Insurance Not available Not available AVAILABLE Window Use: for eligible larger scale disease outbreaks that constitute an emergency Cash Not available AVAILABLE Not available Window Use: for eligible large scale disease outbreaks that constitute an emergency Subject to: PEF SB approval CAT DDO AVAILABLE AVAILABLE AVAILABLE Use: for large scale disease Use: for large scale disease outbreaks that Use: for larger scale disease outbreaks that constitute an constitute an emergency outbreaks that constitute emergency an emergency 4.2. PRIOR ACTIONS, RESULTS AND ANALYTICAL UNDERPINNINGS 42. Prior actions under this operation reflect the GoM’s commitment to policy reform, to reduce its physical and fiscal impacts from disasters and climate change. The Cat DDO-PEF operation will support the GoM’s efforts to advance and consolidate its ongoing DRM agenda, and to increase the country’s resilience. Page 21 The World Bank Development Policy Financing with Cat DDO and Pandemic Emergency Financing Facility Pillar A: Enhancing the institutional and regulatory framework to manage the impact of climate and disaster risk. 43. Implementation of reforms under this pillar provide the regulatory and institutional basis to increase the government’s capacity to ensure the protection of the country’s natural and built up environment from disasters. The GoM’s approach to respond to DRR needs across all key sectors was originally documented in a 2010-2020 Strategic National Action Plan (SNAP) for DRR and Climate Change Adaptation. However, this approach is now being revisited and expected to be laid out in a National Disaster Management Plan (NDMP), that would provide guidance to address all aspects of disaster risk management, in alignment with the Sendai Framework for Disaster Risk Reduction (2015-2030). 44. The GoM has been focused on the adoption of a robust strategic and operational policy instrument for disaster response, in the form of a National Emergency Operations Plan (NEOP), and the establishment of the National Disaster Management Authority (NDMA). The GoM has also developed and approved a Building Code to foster development of resilient infrastructure in the wake of construction being one of the main drivers of growth in Maldives. Prior Action 1 45. The borrower has established the National Disaster Management Authority (NDMA) which will focus on mainstreaming disaster risk reduction in national planning, processes, standards and policies. 46. Legal evidence. Issuance of Presidential decree 2018/24 of December 30, 2018 as per the Disaster Management Act 28/2015. 47. In addition to preparedness and mitigation, a robust DRM system requires a strong response mechanism. DRM in Maldives has traditionally been reactive and response-based, with the Maldives National Defence Force and the NDMC (now NDMA) leading the response efforts when required. The GoM is now bolstering its response capabilities through improved coordination between primary and secondary responders. The erstwhile NDMC developed the NEOP, which provides a roadmap for response, assigns responsibilities during disasters and serves as a strategic framework of actions, policies and regulations, with an aim to effectively implement a response operation. 48. The NDMA will be responsible for carrying out a more holistic model of disaster risk identification, reduction and mitigation, preparedness, and integrated disaster response efforts and recovery. One of the most important objectives of NDMA is to mainstream disaster risk reduction at the national level, including planning processes, establishing standards and developing, implementing and enforcing policies and procedures such as the National Emergency Operation Plan (NEOP). As the main coordinating body for disaster management activities at the national level, NDMA is also to play an active advocacy role by, for example, implementing risk reduction activities at community level and in the private sector, while making disaster preparedness a national priority. NDMA’s work is supported by UNDP, UNICEF, UNISDR, the Asian Disaster Preparedness Center (ADPC) and the World Bank. Page 22 The World Bank Development Policy Financing with Cat DDO and Pandemic Emergency Financing Facility 49. The NEOP is a multi-hazard policy instrument that introduces a classification for small, medium, and large-scale natural and manmade disasters in the country, and identifies corresponding response mechanisms and procedures. Key features of NEOP are the inclusion of Alert Levels and the Standard Operating Procedures (SOPs) for disaster response, along with institutional roles for leading and supporting agencies. Prior Action 2 50. The borrower enacted the Building code as per the Construction Act 2017, to ensure buildings are safe, healthy and durable for the people who use them. The current government, after taking office in November 2018, added and restructured a number of ministries and departments, including the Ministry of Housing and Infrastructure (MOHI). The MoHI’s housing and infrastructure mandate was bifurcated by the GoM. The urban development mandate was added to MoHI, changing MOHI to Ministry of Housing and Urban Development. It’s infrastructure mandate was given to a new ministry, the Ministry of National Planning and Infrastructure (MNPI). The MNPI is now the implementing ministry for the implementation of the Building Code among other regulations under the Construction Act. 51. Legal evidence. The Building Code has been enacted as per the Construction Act 2017, in the Maldives Official Gazette dated March 30, 2019. No.2019/R-1020. 52. Male and its surrounding atolls represent the most populated region in the country . It houses all critical infrastructure installations, including the harbor, airport, government offices and tertiary hospitals, which is a major factor when assessing the area’s vulnerability. Climate change impacts, rapid urbanization and increasing congestion in the Greater Male region are placing a strain on delivery of basic services and significantly increasing risks to natural and man-made disasters. As part of the development of the Greater Male region, the GoM is undertaking an ambitious program of developing a reclaimed island – Hulhumale – to meet existing and future housing, industrial and commercial needs of the country. 53. In this context, the GoM recognizes the importance of ensuring the safety of the built environment to disaster and climate impacts. The GoM passed the Construction Act in 2017 which contains the provisions for regulating all aspects of the construction industry, e.g. building professional regulation, Building Code, health and safety regulation, materials testing, contractor’s regulation, etc. 54. The Building Code sets out performance criteria that building construction must meet. It covers aspects such as structural stability, fire safety, access, moisture control, durability, services and facilities, and energy efficiency. The implementation of the Building Code is expected to safeguard people inside and outside of buildings during an earthquake or any type of disaster. It serves to guide the design and construction of buildings to ensure sustainability and to make sure the buildings are built with safety precautions against incidents, disasters and emergencies. The MNPI has started the process of completing around 20-30 compliance documents40 to fully implement the Building Code, with the expectation that all building activities in Maldives meet or exceed the minimum performance standards. 40 Guidelines detailing technical specifications required to comply with the Building Code. Page 23 The World Bank Development Policy Financing with Cat DDO and Pandemic Emergency Financing Facility Pillar B. Integrating climate change and disaster risk reduction in key sectors 55. This pillar supports the Government’s plans to implement adaptation activities designed to reduce, to acceptable levels, the risk associated with the full spectrum of weather, climate and oceanic hazards and to address the consequences of long-term climate change and extreme events. The reforms under this pillar recognize the complementarity between disaster risk reduction (DRR) and climate change adaptation (CCA) in the context of the Maldives41. The Pillar’s focus is on supporting the government efforts to increase its technical capacity, therefore strengthening both the implementation of climate change adaptation and risk reduction policies. 56. The selected prior actions reflect the country’s global and national climate commitments with (i) the Paris Agreement by the development and adoption of the NDC Implementation Plan, which will help to monitor and evaluate the application of the actions proposed in the NDC; and (ii) the need to provide adequate water and sewerage services in the country, guided by the National Water and Sewerage Policy (NWSP), which aims to enhance the standard of living of all Maldivians while addressing the risk of drought in the country. Prior Action 3 57. The borrower approved and adopted an Implementation Plan for Maldives’ Nationally Determined Contribution (NDC), that was communicated to the Paris Agreement by the GoM. The plan outlines the institutional actions as well as the assistance required for the Maldives NDC. The NDC plan was conceived to support the government efforts to achieve low emission development and climate resilient future for the country. 58. Legal Evidence. Implementation Plan for NDC endorsed by the Ministry of Environment and Energy (MEE, now ME) through a letter from the MEE’s Permanent Secretary dated February 13, 2018 and published on its website. 59. The Paris Agreement, adopted in December 2015 in New York, which Maldives signed and ratified on April 22, 2016, includes the NDC. The NDC implementation plan is an instrument designed to monitor and evaluate the application of the actions proposed in the NDC. The Plan, developed by the ME, identifies 9 priority areas with potential for adaptation. These include coastal protection, safeguarding coral reef and its biodiversity, tourism, fisheries, early warning and systematic observation and cross cutting Issues. In order to overcome the limited climatological measurements and to improve climate data collection, management and forecasting, the GoM is planning to expand and strengthen the existing meteorological observation network to cover all communities of the Maldives. The network will be expanded with new data collection and automated weather stations (AWS), including distribution in remote areas of the territory, in order to implement a prompt early warning action, alert the population and prevent catastrophes. 60. The NDC Plan benefits from the 2015 Maldives Climate Change Policy Framework (MCCPF) which 41 DRR refers to natural and human induced hazards, while CCA refers to longer term impacts in terms of biodiversity, changes in ecosystem services and climate induced disease. Page 24 The World Bank Development Policy Financing with Cat DDO and Pandemic Emergency Financing Facility facilitates the mainstreaming of climate change into national planning and development. The MCCPF (launched on August 10, 2015) is based on a set of principles to guide climate change related activities based on national laws, national development plans, strategies, action plans, policies and NAPA. The MCCPF prescribes strategic policies for the Government to respond to climate change impacts over ten years (2015-2025). Prior Action 4 61. The borrower drafted the Water and Sewerage Regulations in May 2019, in recognition of the strategic importance of the sector in the country’s economic and social development. The draft WS Act and draft water and sewerage regulations, take into account the country’s need for a legal framework to govern the quality and assurance of the WS services from project design to management and operation of systems, and to optimize these services towards the benefit of the island communities. 62. Legal Evidence. Adoption of Water and Sewerage Regulations by the Ministry of Environment through a Permanent Secretary’s letter dated May 22, 2019. 63. Groundwater and rainwater are the main water sources in most of the islands except Male where desalination is the main source (which is expensive and requires a significant amount of energy). On December 4, 2014, suspension of all water supply to Male due to a fire incident led the GoM to declare a state of disaster and set up a task force to coordinate the distribution of safe drinking water. This 10-day water crisis cost the country a staggering US$20 million in relief operations. Maldivian island communities face hardships with access to safe drinking water, especially during the dry season. Given that climate change can further exacerbate such water stresses in the future, the Government has taken significant steps to improve water and sewerage services to its communities. Various studies predict that climate change will affect disaster risks through increase in weather and climate hazards and vulnerability of communities to natural hazards, due to ecosystem degradation, reduction in water and food availability, and changes in livelihoods. Therefore, water security is critical to enhance climate and disaster resilience in the country. 64. In order to provide access to safe water supply and adequate sewerage services to the country, and to ensure their sustainability, the GoM has reviewed and revised the draft Water and Sewerage Regulations, along with the Water and Sewerage Act, to incorporate current government’s visions and policies. While both Water and Sewerage Act and the draft Regulation documents are completed by the Ministry of Environment (ME), the current administration is fast tracking the Regulation to be enforced under the umbrella of the Public Services Act in order to strengthen the sector institutional framework. These regulatory instruments are aligned with the article 22 and 23 of the Constitution of Maldives i.e. protection of the environment and economic and social rights respectively. 65. Given the high priority of the sector in the government’s agenda, the Ministry of Environment in coordination with the implementing agency, Ministry of National Planning and Infrastructure, is committed in improving access to the water and sanitation services. Their implementation will address the GoM’s aspiring goal to provide access of safe water supply and adequate sanitation to all the islands’ residents regardless their social, geographic and economic situation, and take into consideration the specific conditions of each island to offer adequate and affordable service by the Page 25 The World Bank Development Policy Financing with Cat DDO and Pandemic Emergency Financing Facility end of the year 2023. Historically, the provision of water and sewerage facilities to the islands has been a very costly commodity, e.g. the average cost of developing water supply and sewerage facility in an isolated island with population size of 1,500-2,000 may cost approximate US$5 million, but ME authorities are resolved to apply new technologies and accumulated experience to achieve its goal. Taking into account the progress made by ME towards achieving the goal, the 2019 water and sewerage service coverage/person baseline is 51 and 67 percent respectively, and the conservative target for 2022 WS service coverage/person target is approximate 80 and 90 percent per person respectively. Pillar C: Enhancing the capacity to manage human health crisis preparedness and response. 66. The reforms under this pillar focus on increasing the Government’s preparedness and response capacities for public health threats (that include direct health emergencies such as high-severity disease outbreaks). Under the IHR, Maldives has committed to ensure their capacity to effectively prevent, detect, assess, notify, report and respond to public health threats. To this effect, the MoH developed an Emergency Risk Management (ERM) Framework in 2014, integrated with a pandemic emergency response plan and standard operating procedures and guidelines. Public health core capacities under the IHR are considered to be indispensable and fundamental for achieving national health security and preventing the spread of diseases. 67. In March 2017, and in line with the IHR, the Maldives underwent a Joint External Evaluation (JEE) to assess the country’s capacity to prevent, detect and respond to public health risks. The evaluation concluded that the Maldives has a number of capabilities to prepare for and respond to public health emergencies but also identified several areas for strengthening such as: (i) revising/updating its pandemic emergency response plan, and (ii) establishing a fully functioning Health Emergency Operations Center (HEOC) at the MoH. Prior Action 5 68. The borrower developed and endorsed the Health Emergency Operations Plan (HEOP) which specifies the processes and procedures to be taken by the Government to respond to disasters and health emergencies, including disease outbreaks and epidemics. 69. Legal evidence. The Health Emergency Operations Plan was published and endorsed by the MoH Permanent Secretary through a letter dated May 30, 2018. 70. On 17 December 2012, the Public Health Protection Act was ratified by the President of Maldives and published in the Government Gazette. The objectives of the Public Health Act are to: (i) Protect and promote public health; (ii) Control the risk to public health; (iii) Promote the control of infectious diseases; (iv) Prevent the spread of infectious diseases; and (v) Recognize the role of island councils, atoll councils and city councils in protecting public health. One of the main provisions under the Act are the main policies and regulations to protect public health in Maldives, including procedures to identify communicable, dangerous and notifiable diseases and to respond to public health emergencies. 71. In line with the Public Health Protection Act and building on its existing ERM Framework and pandemic emergency response plan, the country developed the Health Emergency Operations Plan Page 26 The World Bank Development Policy Financing with Cat DDO and Pandemic Emergency Financing Facility (HEOP) that establishes a single, comprehensive policy framework for the management of public health emergencies and disaster related health incidents within the Maldives. The HEOP provides a strategic framework of actions, policies, and regulations that contain a blueprint of how to elaborate, implement, and execute a response operation for public health emergencies and disasters with public health impacts. The HEOP establishes the MoH’s and HPA’s response activities during a public health emergency. This HEOP also informs the public health and medical care component in the National Emergency Operations Plan (NEOP). After its publication, the HEOP was used to guide the response to outbreaks of influenza and dengue in 2018. This response included the activation of the Health Emergency Coordination Committee (HECC), with regular meetings to facilitate the response activities, as well as the activation of the Multi-Agency Coordination (MAC) Group to facilitate coordination with other stakeholders in the country. 72. Ensuring that gender, age and vulnerability sensitivities are not compromised during crisis response is one of the priorities of the HEOP. Under Pillar C, steps will be taken to address women’s challenges when accessing health services under the special conditions of a disaster or public health emergency. These include coordinating delivery of reproductive health services during crisis situations. Implementation of the HEOP will be supported by the Ministry of Gender and Family and other stakeholders to ensure integration and/or coordination of the delivery of Minimum Initial Service Package (MISP) for reproductive health in crisis situations in an effort to prevent excess neonatal and maternal morbidity and mortality, reduce transmission of HIV, and prevent and manage the consequences of sexual violence. Prior Action 6 73. The borrower established a national Health Emergency Operations Center (HEOC) at the MoH . HEOC staff has been assigned to manage the center including two key focal points (IT and Technical). Connectivity between this Center and the islands and atolls has been also established, and tools and protocols have been finalized as defined under the HEOP. 74. Legal evidence. The Health Emergency Operations Center (HEOC) has been officially established by a MoH Permanent Secretary’s letter dated January 23, 2018. 75. One of the core competencies under the IHR is the capacity of a country to effectively coordinate and control outbreaks through emergency response operations. Experience shows that countries with adequate public health emergency operation centers take shorter times from detection to response and result in a smaller number of cases and deaths. The JEE revealed that the Maldives has a limited capacity, scoring 2 out of 5 across all indicators, for Emergency Response Operations. One of the specific recommendations of the JEE is to establish a fully functioning national HEOC. 76. The HEOC has been established as the government’s public health coordination center for public health emergency situations, which require the utilization and commitment of national assets and/or services. This is the central point where decision makers and health response officials will be placed to effectively address any emergencies. The HEOC is kept in a constant state of readiness for activation for a possible response to any emergency. The operational procedures for the activation and management of the HEOC have been laid down in the HEOP. Page 27 The World Bank Development Policy Financing with Cat DDO and Pandemic Emergency Financing Facility Table 5: CAT DDO Prior Actions and Analytical Underpinnings Prior Actions Analytical Underpinnings Pillar A: Enhancing the institutional and regulatory framework to manage the impact of climate and disaster risk. “Natural Hazards, UnNatural Disasters. The Economics of Effective Prevention,” World Bank and United Nations (2010) presents examples from around the world that demonstrate that government investments in ex-ante measures, instead of solely in emergency response and recovery actions, can be more cost- Prior action #1 effective. National Disaster Management Authority “Financial Protection against Natural Disasters: An Operational Framework for Disaster Risk Financing and Insurance.” Washington, DC (2014). “Developing a Disaster Risk Profile for Maldives” by UNDP (2006) provides key findings following the 2004 Tsunami to inform development planning including safe construction practices. Prior action #2 ”Investing in Urban Resilience” (2015) by the World Bank provides the case for increasing urban resilience Building Code through investments as well as improving building regulations: https://www.gfdrr.org/sites/default/files/publication/Investing%20in%20Urban%20Resilience%20Final.pdf Pillar B: Integrating climate change and disaster risk reduction in key sectors. Republic of Maldives (2006) “National Adaptation Plan of Action” provides a framework to climate change adaptation that enhances resilience in the face of predicted climate hazards. http://unfccc.int/resource/docs/napa/mdv01.pdf Ministry of Environment and Energy (MEE) 2015, Maldives Climate Change Policy Framework provides a unified and a comprehensive instrument in working towards climate proof and sustainable development Prior action #3 for the Maldives. NDC Implementation Plan http://www.environment.gov.mv/v2/wp-content/files/publications/20150810-pub-maldives-cc-policy- framework-final-10aug2015.pdf MEE 2015 Maldives’ Intended Nationally Determined Contribution in Paris http://www4.unfccc.int/ndcregistry/PublishedDocuments/Maldives%20First/Maldives%20INDC.pdf The “National Water and Sewerage Policy” (August 2017) provides a framework for the provision of water and sewerage services and proper management of water resources in the Maldives. http://www.environment.gov.mv/v2/en/download/5880 Prior action #4 Water and Sewerage Regulations “High and Dry: Climate Change, Water, and the Economy” by World Bank (2016), Washington, DC. https://openknowledge.worldbank.org/handle/10986/23665 Pillar C: Enhancing the capacity to manage human health crisis preparedness and response. The “Joint External Evaluation of IHR Core capacities in the Republic of Maldives” Executive Summary (March 2017) provides the main recommendations for the country to strengthen and achieve their IHR core capacities. http://www.who.int/ihr/publications/WHO-WHE-CPI-2017.30/en/ Prior action #5 Health Emergency Operations Plan “A strategic framework for emergency preparedness” lays down the principles and elements of effective country health emergency preparedness. http://who.int/ihr/publications/9789241511827/en/ Page 28 The World Bank Development Policy Financing with Cat DDO and Pandemic Emergency Financing Facility Prior Actions Analytical Underpinnings The “Joint External Evaluation of IHR Core capacities in the Republic of Maldives” Executive Summary (March 2017) provides the main recommendations for the country to strengthen and achieve their IHR core capacities. http://www.who.int/ihr/publications/WHO-WHE-CPI-2017.30/en/ Prior action #6 Health Emergency Operations Center The “Framework for a Public Health Emergency Operations Centre” provides guidance for designing, developing, and strengthening of public health emergency operations centers. http://www.who.int/ihr/publications/9789241565134_eng/en/ 4.3. LINK TO CPF, OTHER BANK OPERATIONS AND THE WBG STRATEGY 77. The proposed operation is consistent with the 2015 Systematic Country Diagnostic (SCD) and the Country Partnership Framework (CPF) FY 16–1942 and its adjustments.43 The SCD identifies many challenges including exposure to external demand shocks from natural disasters and limited macroeconomic and fiscal space to deal with an external shock. It also recognizes that improving preparedness for disasters and climate change would have a medium- to long-term impact on reducing macro fiscal risk. The proposed operation therefore, also conforms with SCD Priority Area 3 by increasing macroeconomic resilience to external shocks. It also responds to the CPF Focus Area 2 - building resilience to climate change and other exogenous shocks, and Focus Area 3 - strengthening fiscal sustainability. This operation is part of an integrated set of operations that would improve Maldives’ fiscal sustainability, and its physical and human resilience to adverse natural events. 78. The Program is in line with the Bank’s twin goals to end extreme poverty and promote shared prosperity by addressing climate and disaster risk issues that affect the most vulnerable segments of the population. As has been extensively documented, disasters associated with natural hazards, climate change, and disease outbreaks disproportionately affect the poor. The proposed operation also contributes to the national objective to reduce disaster risk as articulated in the Sendai Framework for Action 2015–2030. The policy measures supported by this operation build on and further contribute to the country’s ongoing efforts to strengthen its institutional and regulatory frameworks to address disaster risk and climate change development challenges. In addition, the operation contributes to the implementation of Health Aspects of the Sendai Framework for DRR, as spelled out in the Bangkok Principles, adopted in March 2016. The Borrower’s program is set forth in the Letter of Development Policy (Annex 3). 79. Building disaster and climate resilience and strengthening pandemic preparedness and response 42 Maldives: Country Partnership Framework, FY 16-19, World Bank, 2016. http://documents.worldbank.org/curated/en/125521468195563512/Maldives-Country-partnership-framework-for-the-period- FY16-19. 43 “Maldives Performance and Learning Review of the Country Partnership Framework for the period FY 2016 -20,” World Bank, May 2018. http://documents.worldbank.org/curated/en/955211528601457431/Maldives-Performance-and-learning-review-of- country-partnership-framework-for-the-period-of-FY2016-2020 Page 29 The World Bank Development Policy Financing with Cat DDO and Pandemic Emergency Financing Facility are essential to supporting the Bank’s twin goals of ending extreme poverty and boosting shared prosperity. Poor are often the hardest hit by the impacts of disasters and climate change, especially those living in high-risk areas, largely due to their limited coping capacity44. Disease outbreaks also tend to disproportionately affect the poor, who tend to have lower access to health services, both in terms of physical and financial capacity. 80. The proposed operation will complement other World Bank interventions that support the resilience agenda in the Maldives. In addition to the complementarity with the proposed Urban Development and Resilience project (MUDRP), this operation will complement the ongoing Maldives Clean Environment Project (CEP). The CEP aims to improve solid waste management in selected zones by developing a solid waste management strategy, building institutional capacity, operationalizing regional waste management systems and developing island-level facilities for managing residual waste. By improving solid waste management systems, the CEP is helping increase resilience to rising sea levels, and protecting the health of people and the ocean. In addition, this operation supports the IDA18 commitment to support IDA countries in developing: (i) pandemic preparedness plans, and (ii) frameworks for governance and institutional arrangements for multi-sectoral health emergency preparedness, response and recovery. 81. In compliance with IDA18 priority commitments, this operation has been screened for potential short-and long-term climate and disaster risks, and the screening suggests an overall low risk rating for the project outcome since no investments are planned under the operation. Therefore, achievement of the PDO is unlikely to be affected by climate change and disaster risks. Moreover, the proposed operation will seek to enhance the policy, institutional and financial framework of the GoM to manage climate and disaster risk. 4.4. CONSULTATIONS AND COLLABORATION WITH DEVELOPMENT PARTNERS 82. While preparing this operation, consultations were undertaken with key stakeholders in coordination with the Ministry of Finance (MoF), the NDMC, Ministry of Environment and Energy, Ministry of Housing and Infrastructure and Ministry of Health. The process included active participation of central government officials, local council authorities, and civil society representatives. This was achieved through joint workshops, reviews and consultations as well as organized discussions. 83. Citizen Engagement: The program supported by the proposed Cat DDO-PEF operation has been informed by multiple stakeholder and public consultations. The proposed programs actions under Pillar B that focus on integrating disaster risk reduction draw upon the 2011 Strategic National Action Plan (SNAP) on Climate Change Adaptation and Disaster Risk Reduction for 2010-2020, that was prepared through extensive community consultations as part of its multi-stakeholder dialogue and consultation process. SNAP highlights citizen engagement as a critical element in disaster risk reduction integration through inclusion of community consultations at both project development and implementation stage. Prior action 3, on the NDC implementation plan, is based on the 44Hallegatte,Stephane;Vogt-Schilb,Adrien Camille;Bangalore,Mook;Rozenberg,Julie. 2016. Unbreakable: building the resilience of the poor in the face of natural disasters. Climate Change and Development series. Washington, D.C.: World Bank Group. Page 30 The World Bank Development Policy Financing with Cat DDO and Pandemic Emergency Financing Facility Maldives NDC that was developed through consultations with key stakeholders including local public representatives. For prior actions under Pillar C, consultations were also held with WHO and UNICEF. 84. Among development partners and donors, UNDP, UNEP, WHO and UNICEF are key partners in the areas supported by this operation. UNDP has been providing technical assistance to NDMC (now NDMA) to build DRM capacity and develop key documents such as NEOP and NDMP. UNEP is supporting the Ministry of Environment and Energy’s Climate Change Department to develop the National Adaption Plans (NAPs) to adapt to climate change impacts in the country. Further, WHO, UNICEF and other selected UN agencies have supported the GoM in preparing the Health Emergency Operation Plan, which provides guidance and structure to the MoH (its departments and its personnel), and partner institutions and stakeholders on emergency preparedness and response. WHO also supported the GoM in establishing the HEOC and provides continuous support to the country in meeting its International Health Regulations (IHR) core capacities. 5. OTHER DESIGN AND APPRAISAL ISSUES 5.1. POVERTY AND SOCIAL IMPACT 85. As most small island states, Maldives is vulnerable to climate-change-related impacts and natural disasters that typically affect an entire population and economy. The impact of disasters put government’s finances under stress, limiting resources for development programs and future needs. The implementation of the Cat DDO with the Pandemic Emergency Financing Facility is expected to have a positive impact on government finances as it provides timely liquidity to a country facing a disaster. The Cat DDO and PEF is further expected to have a positive poverty and social impact as improvements in national disaster risk management and vulnerability reduction strategies are expected to benefit the poor. However, great care must be taken to ensure vulnerable groups are specifically considered in national DRM strategies, particularly in the Maldives where poverty remains a challenge despite high GDP growth of past decades (poverty headcount ratio stands at over 8 percent in 2016 based on the national poverty line). A set of social protection programs, such as a pension and cash transfer system, exist in the Maldives which can be used to build resilience of poor and vulnerable populations. 86. The Maldives “Disaster Management Act”, ratified on September 6, 2015, refers to the “responsibility of the State to protect its people, their health and well-being, their property, and the natural and built-up environment they live in from natural and man-made disasters, and hazards”. The activation of the Cat DDO will help to ensure the continuity of development plans, targeted at alleviating the needs of the poor making resources quickly available to respond to the needs of the affected populations, while the activation of the PEF will help to specifically address potential and actual high-severity disease outbreaks and to prevent them from becoming pandemics. 87. Under the operation Pillar A, prior action #1, if the NDMA successfully carries out its mandate including the implementation of the NEOP, it could reduce the risk of the poor and other vulnerable groups to disasters, and ex-post, enable them to return to, or improve, the socioeconomic, health, Page 31 The World Bank Development Policy Financing with Cat DDO and Pandemic Emergency Financing Facility and environmental conditions found before the disaster event. The Building Code, Prior Action #2 under Pillar A, is expected to have positive effects on the poor. Safer construction practices and more resilient infrastructure will ensure that negative impacts on the poor from disasters can be reduced, particularly in Male where construction practices will be particularly relevant. Both prior actions under Pillar A are likely to have positive effects on poor and marginalized groups of Maldivian society as mechanisms will be established to increase the safety of vulnerable groups, such as the poor, women, and people with special needs in the face of disasters. 88. Prior Action #3, the implementation plan for Maldives’ Nationally Determined Contribution (NDC) is expected to have a positive direct impact on the poor due to the expansion of AWS network, which will improve timely early warning and enhance preparedness and response to disasters, reducing damage to assets, livelihoods and disasters. 89. The Water and Sewerage Regulations, Prior action #4 under Pillar B, have the potential of positive spillover effects if there is no discrimination in providing access to safe water supply and adequate sewer services. Typically, the poorest segments of the population lag behind richer segments in achieving access to safe water and Maldivian island communities, particularly, face hardships with access to safe drinking water. During the dry seasons, Maldivians have to endure large costs to purchase drinking water and by providing access to clean water (and thus reducing costs spent on drinking water), the poor benefit relatively more from this initiative. 90. The Cat DDO-PEF operation will also be utilized to lessen the economic and social disruption that countries have recently faced due to health‐related shocks in the aftermath of disaster. The Cat DDO and PEF in the Maldives will therefore include a component to reduce the impact of public health‐ related emergencies by enhancing health crisis preparedness as well as the ability to scale-up response to health adverse events. The Health Emergency Operations Plan (HEOP), prior action #5 under Pillar C, will enable the Maldives to respond to public health emergencies including high- severity disease outbreaks with the potential of becoming pandemics. This will likely have positive effects on the poor as it reduces vulnerability to disaster risk and enables the poor and other vulnerable groups to return to, or improve, the socioeconomic, health, and environmental conditions found before the disaster event. 91. Furthermore, prior action #6 under Pillar C is not likely to have any adverse poverty or social impacts. Enhancing the health sector’s ability and capacity to identify and address potential and actual health emergencies have the potential to increase the productivity and efficiency of government health services, as well as the transparency and accountability which may have positive but certainly not negative spillover effects for the broader population. 5.2. ENVIRONMENTAL ASPECTS 92. It is anticipated that policy reforms supported by the proposed operation are likely to have a positive and mainly indirect effect on the Maldives’ environment and natural resources. The geographic conditions of the Maldives (80% below 1 m sea level) make the country highly vulnerable to natural hazards such as surges, cyclones and tsunamis and the coral islands heavily rely on the Page 32 The World Bank Development Policy Financing with Cat DDO and Pandemic Emergency Financing Facility biological and geomorphic functioning of the coral reef environment for their stability45. This situation increases climate and disaster risks of coastal communities and assets, as coral reefs for example provide significant coastal protection through wave-force attenuation and are the primary sand producer46. 93. Climate co-benefits for the proposed operation are expected to be high. Climate change adaptation considerations are integrated in all the Prior Actions, particularly those under Pillar B which are expected to increase the GoM’s technical capacity to implement climate change adaptation policies. 94. Measures included in the 2015 Disaster Management Act (DM Act) will promote an integrated and coordinated system of disaster management, with special emphasis on prevention and mitigation. 95. In line with the DM Act, a National Disaster Council which is expected to provide guidance, advice and approve all critical decisions on disaster management, shall aim at protecting the natural –and built– environment47. By preserving natural ecosystems, the Maldives can be better protected from natural hazards and maintain the services they provide that support for example the fisheries and tourism industries. Investing in conservation and restoration of critical natural assets such as coral reefs, seagrass beds, beaches and mangroves would also contribute to disaster risk reduction. 96. The Building Code, prior action #2, will help to improve construction practices, therefore increasing people’s safety and resilience to rapid-onset events such as cyclones and climate change impacts like sea-level rise48. By ensuring the protection, conservation and efficient management of groundwater and rainwater through the Water and Sewerage Regulations, prior action #4, the GoM will prevent inland erosion and ecosystems degradation, which in turn increases communities’ resilience by securing water for food production, and improve landscapes’ capacity to adjust to floods and droughts. 5.3. PFM, DISBURSEMENT AND AUDITING ASPECTS 97. The country’s PFM systems have improved in recent years as a result of a comprehensive and decade long reform program. Reforms have led to: (1) improvements in revenue administration; (2) modernization of PFM systems with the development and roll out on an integrated financial information system; (3) improved cash and debt management; (4) development of cash plans and a medium-term debt strategy; and (5) enhanced financial controls with the establishment of commitment controls using the SAP asset module, an internal audit unit at MoF, as well as, the publication of external audits, although with delay. Budget transparency is ensured through the publication of the annual budget, a citizen budget and quarterly budget reports. 98. Despite this important progress, strengthening the management of public finances remains a core priority for the GoM. This objective is directly supported by this operation and the parallel Public 45 World Bank. 2015. Maldives: Systematic Country Diagnostic. 46 Perry, C.T., Kench, P.S., O’Leary, M.J., Morgan, K.M. and Januchowski-Hartley, F., 2015. Linking reef ecology to island building: Parrotfish identified as major producers of island-building sediment in the Maldives. Geology, 43(6), pp.503-506. 47 Maldives: 2015 Disaster Risk Management Act. 48 World Bank Group. 2015. Building Regulations for Resilience. Managing Risks for Safer Cities. Page 33 The World Bank Development Policy Financing with Cat DDO and Pandemic Emergency Financing Facility Financial Management Systems Strengthening Project (PFMSSP), in particular :(i) strengthening budget discipline and accountability through the introduction of budget appropriation and virement rules; (ii) enhancing the ownership and oversight function of SOEs, as well as their corporate governance to improve performance and reduce fiscal risks; (iii) improving allocative and operational efficiency of public investments, through a more stringent vetting and prioritization of affordable and ready projects with a positive return on investment; (iv) strengthening public procurement and the disclosure of contract awards, by leveraging e-procurement; and (v) enhancing external controls. These improvements and ongoing reforms provide reasonable assurance regarding the budget management. 99. The control environment for foreign exchange in the MMA is satisfactory. The last IMF Safeguard Assessment of the MMA was carried out in in March 2010. The MMA is subject to an external audit and it is carried out by a reputed firm of Chartered Accountants who carries out the audit under International Standards of Auditing (ISA) to ensure compliance with International Financial Reporting Standards (IFRS). The MMA audit report and published annual financial statements for the year ended 31st December 2018 were reviewed by the Bank. The audit report issued for FY 2018 has an unqualified opinion. Therefore, it is deemed that no additional fiduciary arrangements need to be put in place for the DPF operation. 100. The proposed grant and credit will follow World Bank’s disbursement procedures for development policy operations. After effectiveness, at the request of the Borrower, the proceeds from the credit and grant will be deposited into a USD account at the MMA, designated by the Borrower (in foreign currency that forms part of the country’s official foreign exchange reserves held by the MMA) and acceptable to the Bank. GoM may use the proceeds as follows: i) make budgeted foreign currency payments directly from this foreign currency bank account; ii) transfer amounts from the foreign currency bank account to a local currency bank account of the GoM, which the GoM then uses to make payments for its budget expenditures; or, iii) a combination of these approaches. The Recipient, within thirty (30) days after the withdrawal of the Financing from the Financing Account, shall report to the Association: (a) the exact sum received; (b) the details of the account to which the Maldivian Rufiyaa equivalent of the Financing proceeds will be credited; (c) the record that an equivalent amount has been accounted for in the Recipient’s budget management systems; and (d) the statement of receipts and disbursement of the account. 101. Once the funds enter the GoM’s foreign exchange reserves and the budget, they will be commingled with the GoM’s other funds. Therefore, the Bank will not require tracking the end use of Cat DDO funds. This means that disbursements of the Cat DDO will not be linked to any specific purchases and no procurement requirements have to be satisfied, except that the borrower is required to comply with the standard negative list of excluded items that may not be financed with Bank’s Cat DDO proceeds, as defined in the financing agreement. If any portion of the Cat DDO is used to finance ineligible expenditures as so defined in the financing agreement, the Bank has the right to require the Government to promptly, upon notice from the Bank, refund the amount equal to such payment to the Bank. Amounts refunded to the Bank will be cancelled from the Cat DDO. The disbursement arrangements in the preceding paragraphs would apply to the PEF Grant also. Page 34 The World Bank Development Policy Financing with Cat DDO and Pandemic Emergency Financing Facility 5.4. MONITORING, EVALUATION AND ACCOUNTABILITY 102. The Ministry of Finance (MoF) is the main counterpart agency for this operation with the responsibility to monitor program progress and to ensure the accountability of relevant institutions to the commitments made. The MoF will collaborate with the NDMA, Ministry of Environment (ME, formerly Minsitry of Environment and Energy, MEE), Ministry of National Planning and Infrastructure (MNPI, formerly Ministry of Housing and Infrastructure, MoHI), and Ministry of Health (MoH) to monitor the progress of the proposed operation during the entire drawdown period. The MoF will have an overall coordination and decision‐making role while the NDMA, ME, MNPI and MoH will monitor the implementation of the indicators. The Bank will monitor both the macroeconomic policy framework and the implementation of the program supported by the operation during the drawdown period. 103. The Bank will monitor the status of the program implementation through regular implementation support missions and by tracking the baselines and output indicators provided in the policy and results matrix (Annex 1), based on the data provided by the Government agencies and disclosed in the official sources. The Bank team will maintain the dialogue with the authorities and to assess the compliance of the authorities with legal provisions under the loan agreement. 104. Grievance Redress. Communities and individuals who believe that they are adversely affected by specific country policies supported as prior actions or tranche release conditions under a World Bank Development Policy Operation may submit complaints to the responsible country authorities, appropriate local/national grievance redress mechanisms, or the WB’s Grievance Redress Service (GRS). The GRS ensures that complaints received are promptly reviewed in order to address pertinent concerns. Affected communities and individuals may submit their complaint to the WB’s independent Inspection Panel which determines whether harm occurred, or could occur, as a result of WB non- compliance with its policies and procedures. Complaints may be submitted at any time after concerns have been brought directly to the World Bank's attention, and Bank Management has been given an opportunity to respond. For information on how to submit complaints to the World Bank’s corporate Grievance Redress Service (GRS), please visit http://www.worldbank.org/GRS. For information on how to submit complaints to the World Bank Inspection Panel, please visit www.inspectionpanel.org. Page 35 The World Bank Development Policy Financing with Cat DDO and Pandemic Emergency Financing Facility 6. SUMMARY OF RISKS AND MITIGATION 105. The overall risk to achieving the PDO is assessed high. This reflects high macroeconomic and institutional capacity risks. The macroeconomic framework’s adequacy depends on whether the large downside fiscal, external and political risks can be mitigated. 106. Macroeconomic risk is also high. Maldives faces a high risk of external debt distress and a heightened overall risk of debt distress, with the high debt-to-GDP ratio, contingent liabilities from guaranteed debt, the redemption of a US$250 million-sovereign bond with low FX reserves, and the large volume of domestic short-term debt considered important risks. Maldives is also exposed to external exogenous risks, such as a global downturn, global commotiy prices and investor sentiment. The proposed Cat DDO-PEF operation is complemented by the Maldives Fiscal Sustainability and Budget Credibility DPF, that is focused on reducing the fiscal and macroeconomic risks. 107. Risk related to institutional capacity for implementation and sustainability is rated as high. Institutional capacity and mechanisms for effective coordination and enforcement of standards to incorporate disaster risk consideration, and support disaster preparedness is limited. Going forward, an increased coordination between key stakeholders will be achieved under the leadership of the recently established NDMA. Pillar A of the proposed operation is expected to mitigate the risks to a certain extent with the implementation of the NEOP by the NDMA. Table 6: Summary Risk Ratings Risk Categories Rating Overall ⚫ High Political and governance ⚫ Moderate Macroeconomic ⚫ High Sector strategies and policies ⚫ Moderate Technical design of project or program ⚫ Moderate Institutional capacity for implementation and sustainability ⚫ High Fiduciary ⚫ Moderate Environment and social ⚫ Low Stakeholders ⚫ Moderate . Page 36 The World Bank Development Policy Financing with Cat DDO and Pandemic Emergency Financing Facility ANNEX 1: POLICY AND RESULTS MATRIX Lead entity Prior Action Results Baseline (2019) Target (2022) Pillar A: Enhancing the institutional and regulatory framework to manage the impact of climate and disaster risk. Ministry of Prior action #1: Establishment of the National Disaster Management Authority NDMA produced reports NEOP readiness reports: Defence (NDMA) which will focus on mainstreaming disaster risk reduction in national on NEOP readiness: 0 3 planning, processes, standards and policies. Legal evidence: Issuance of Presidential decree 2018/24 of December 30, 2018 National Disaster National Disaster as per the Disaster Management Act 28/2015. Management Plan Management Plan (NDMP) is not drafted. (NDMP) is drafted. Ministry of Prior Action #2: Enactment of the Building to ensure buildings are safe, healthy Compliance documents Compliance documents National Planning and durable for the people who use them. issued: 0 issued: 10 and Infrastructure (MNPI) Legal Evidence: The Building Code has been enacted as per the Construction Act 2017, in the Maldives Official Gazette of March 30, 2019, No. 2019/R-1020. Pillar B: Integrating climate change and disaster risk reduction in key sectors. Ministry of Prior action #3: Approval and adoption of the Nationally Determined Early Warning System is Meteorological Environment (ME) Contribution (NDC) Implementation Plan. supported with a observation network meteorological expanded to: 50 AWS Legal evidence: NDC Implementation Plan endorsed by MEE through a Ministry observation network of Environment and Energy’s Permanent Secretary’s letter dated February 13, with: 36 AWS 2018, No: 438-CCD/WB/2018/1. Page 37 The World Bank Development Policy Financing with Cat DDO and Pandemic Emergency Financing Facility Lead entity Prior Action Results Baseline (2019) Target (2022) Prior action #4: Drafting of the Water and Sewerage Regulations, establishing Water service coverage Water service coverage the legal framework to govern the quality and assurance of the WS services from 51% and sewerage 80% and sewerage project design to management and operation of systems, and to optimize these service coverage 67% of service coverage 90% of services towards the benefit of the island communities. total population. total population. Legal evidence: Draft Water and Sewerage Regulations by the Ministry of Environment through its Permanent Secretary’s letter dated May 22, 2019, No: 438-WS/WB/2019/2. Pillar C: Enhancing the capacity to manage human health crisis preparedness and response. Ministry of Health Prior action #5: Development and endorsement of a Health Emergency Percentage of health Percentage of health (MoH). Operations Plan, that increases the government’s preparedness and response workers responsible for workers responsible for capacities for health crisis. implementing the HEOP implementing the HEOP trained in MISP for RH: trained in MISP for RH: Legal evidence: The Health Emergency Operations Plan was published and 0% 100% endorsed by the MoH Permanent Secretary’s letter on May 30, 2018, Endorsement Number: Plan/23/-MoH/2018/11. Prior action #6: Establishment of a Health Emergency Operation Center (HEOC) Simulation exercises on Simulation exercises on at the MoH. the activation and use of the activation and use of the HEOC are carried out: the HEOC are carried out: Legal evidence: Health Emergency Operations Center (HEOC) was officially 0 3 established by MoH Permanent Secretary’s letter dated January 23, 2018; Number: 23-S/PRIV/2018/73. Page 38 The World Bank Development Policy Financing with Cat DDO and Pandemic Emergency Financing Facility ANNEX 2: FUND RELATIONS ANNEX Page 39 The World Bank Development Policy Financing with Cat DDO and Pandemic Emergency Financing Facility Page 40 The World Bank Development Policy Financing with Cat DDO and Pandemic Emergency Financing Facility Page 41 The World Bank Development Policy Financing with Cat DDO and Pandemic Emergency Financing Facility ANNEX 3: LETTER OF DEVELOPMENT POLICY Page 42 The World Bank Development Policy Financing with Cat DDO and Pandemic Emergency Financing Facility Page 43 The World Bank Development Policy Financing with Cat DDO and Pandemic Emergency Financing Facility Page 44 The World Bank Development Policy Financing with Cat DDO and Pandemic Emergency Financing Facility ANNEX 4: ENVIRONMENT AND POVERTY/SOCIAL ANALYSIS TABLE Significant poverty, social or Significant positive or negative Prior Actions distributional effects positive or environment effects negative Pillar A: Enhancing the institutional and regulatory framework to manage the impact of climate and disaster risk. Prior action #1 National Disaster Management Positive Positive Authority Prior action #2 Building Code Positive Positive Pillar B: Integrating climate change and disaster risk reduction in key sectors Prior action #3 NDC Implementation Plan Positive Neutral Prior action #4 Water and Sewerage Regulations Positive Positive Pillar C: Enhancing the capacity to manage human health crisis preparedness and response Prior action #5 Health Emergency Operations Plan Positive Positive Prior action #6 Health Emergency Operations Center Neutral Neutral Page 45 The World Bank Development Policy Financing with Cat DDO and Pandemic Emergency Financing Facility ANNEX 5: HOW PEF WORKS The Pandemic Emergency Financing Facility (PEF) was developed by the World Bank Group (WBG), in consultation with the World Health Organization (WHO) and other development partners, and the private sector, to help fill a critical gap in the international aid architecture, as one part of the global solution to strengthening pandemic risk management. The PEF helps fill the financing gap that occurs after the initial outbreak and before large-scale humanitarian relief assistance can be mobilized. Funds made available quickly in this timeframe are essential to preventing a severe outbreak from becoming a pandemic. Beneficiaries: All IDA-eligible countries are eligible to access PEF funds. In addition, international organizations and NGOs that have been accredited as PEF responding agencies and are supporting response efforts in affected countries are also eligible to access PEF funds. PEF premiums are covered by donors for the initial period of three years, ending June 30, 2020, and beneficiary countries are not required to bear any costs. Design and activation: The PEF provides surge funding for countries and accredited responding agencies to respond to specific infectious disease outbreaks. It does so through two complementary windows: Cash and Insurance. The Cash Window is funded by traditional donor contributions. The Insurance Window leverages funding from capital markets via Catastrophe Bonds and SWAPs. The Cash Window covers large-scale disease outbreak events that have met the cash window activation criteria, based on pathogen type, epidemiological thresholds, independent expert advice and the decision of the PEF Steering Body. The Cash Window provides greater flexibility in funding infectious disease outbreaks in accordance with the PEF objectives when such funding is not eligible to be provided under the PEF Insurance Window, either because it has not yet met or will not meet its activation criteria. The determination of an outbreak reaching the Cash Window activation criteria will follow a process described in Box 5.1. Page 46 The World Bank Development Policy Financing with Cat DDO and Pandemic Emergency Financing Facility The Insurance Window covers larger-scale disease outbreak events that have met a specific, pre- determined, activation criteria. These criteria are based on outbreak size (i.e., number of cases or number of deaths), outbreak growth (i.e., the outbreak must be growing over a defined time-period) and outbreak spread (i.e., two or more countries affected by the outbreak). The details on the Insurance Window activation criteria are included in Box 5.2. The determination of an outbreak reaching the Insurance Window activation criteria is made by an independent calculation agent, based on publicly available data published by the WHO. Payout amounts from the capital markets into the PEF vary by disease and by the outbreak size and spread, as shown in Table 5.1. Allocations to affected countries are pro-rated according to each county’s population and outbreak size. Covered diseases: The Insurance Window covers outbreaks of the following pathogens: pandemic Influenza (new or novel influenza A virus), Coronaviruses (e.g. SARS, MERS), Filoviruses (e.g. Ebola, Marburg), Crimean Congo hemorrhagic fever, Rift Valley fever, and Lassa fever. The cash window covers all diseases covered by the insurance window, as well as other infectious diseases caused by different pathogens, including new or unknown pathogens, in the event of a high-severity outbreak consistent with the PEF objectives (see Box 5.1). Additional information on the PEF, including the Operations Manual and the PEF Framework, is publicly available at www.worldbank.org/pef. Page 47 The World Bank Development Policy Financing with Cat DDO and Pandemic Emergency Financing Facility Box 5.1: Process for determination of Cash Window activation criteria Activation of the PEF Cash Window will follow a sequential three-step process based on (i) pathogen type; (ii) epidemiological thresholds; and (iii) technical assessment. Pathogen type: Consistent with the goal to mitigate or prevent severe epidemic threats with regional or global pandemic potential, the PEF Cash Window will provide financing for the response to outbreaks of pathogens that are not currently endemically transmitted within the human population. This includes all pathogens covered by the PEF Insurance Window plus viruses with a primary zoonotic reservoir (including, but not limited to, Chikungunya, Nipah, Zika, equine encephalitis viruses, Hanta viruses, West Nile, Monkeypox), novel viral pathogens which are genetically determined to originate from a zoonotic source, and smallpox. Pathogens not posing an acute regional or global pandemic threat are excluded. Therefore, all non-viral pathogens and pathogens that are currently endemic in human populations are excluded (endemicity is defined here as continuous sustained human-to-human transmission of a pathogen in the global human population). Note: The list of included and excluded pathogens is indicative and will be reviewed and updated periodically upon the expert advice of the Strategic & Technical Advisory Group for Infectious Hazards (STAG-IH), constituted by WHO. Epidemiological thresholds: The adoption of case number based epidemiological thresholds is intended to ensure the PEF Cash Window provides a more flexible and rapidly triggering financing mechanism than the PEF Insurance Window while retaining the primary goal of PEF to mitigate severe epidemic threats with regional or global pandemic potential. Determination of whether an outbreak has reached the epidemiological thresholds will be based on publicly available epidemiological data published by WHO (HQ or regional offices) and/or national public health agencies. Note: The indicative thresholds will be reviewed and updated periodically upon the expert advice of the WHO STAG- IH. Technical assessment: An event that is deemed eligible according to pathogen type and that has reached the epidemiological thresholds will be referred to subject-matter experts from the WHO STAG-IH for a technical assessment of (a) whether the outbreak is driven by human-to-human transmission, in the case that evidence for human-to-human transmission is available; (b) whether underlying incidence trends suggest continued growth in weekly numbers of new confirmed cases; and (c) unless the proposed response plan submitted by the country has been endorsed by WHO, whether this proposed plan is consistent with prevailing expert opinions in specialized agencies, such as WHO, and is aligned with applicable WHO public health recommendations relating to the outbreak in question. The PEF Coordinator will present the application together with the advice obtained through the technical assessment to the Steering Body, which will take a decision on the payout from the Cash Window within 24 hours. Page 48 The World Bank Development Policy Financing with Cat DDO and Pandemic Emergency Financing Facility Box 5.2: Insurance Window activation criteria For Flu outbreaks (a)There must be at least 5,000 confirmed cases (counted from all countries worldwide) within a rolling 42-day period. For these cases, the virus needs to satisfy the following conditions: (i) WHO Report states that such Virus is an influenza A virus (either through a statement or by denoting such influenza Virus with an “A” prior to its genetic subtype); (ii) Such WHO Report states either: - that such influenza A virus is a new or novel influenza A virus with a new or novel genetic subtype, and no Case of or Death relating to such influenza A virus has been reported in any WHO Report published prior to July 2017; or - that such influenza A virus is an influenza A virus whose hemagglutinin gene is antigenically distinct, due to an antigenic shift, from those in seasonal influenza viruses circulating in the 35 years prior to July 2017; and (iii) Such WHO Report states that the influenza A virus is experiencing sustained or effective human-to-human transmission. (b) The Growth Rate needs to be greater than zero after the first 42 days and the Growth Rate Mean needs to be greater than or equal to 0.265, for any day after the first 42 days. (c) When (a) and (b) are met, the influenza pandemic would be confirmed and 100% of the maximum US$275 million coverage would be released. For Non-flu outbreaks (a) At least 12 weeks have passed from the date of the start of the event. (b) The outbreak needs to be in more than one country (IDA or IBRD), with each such country having greater than or equal to 20 Confirmed Deaths. (c) The Growth Rate needs to be greater than zero to ensure that the outbreak is growing at a specific statistical confidence level (d) The Total Confirmed Death Amount needs to be greater than or equal to 250. (e) The Rolling Total Case Amount needs to be greater than or equal to 250. (f) The Rolling Confirmed Case Amount needs to comprise a minimum percentage of the Rolling Total Case Amount. (g) Regional outbreaks affecting two to seven countries would activate payments of Pandemic Bond/Insurance Payout Amounts at three stages as the number of total confirmed deaths increases. Global outbreaks affecting eight or more countries also activate payments at three stages but provide access to higher funding levels at the first two triggers. Table 5.1: Insurance Window payouts from capital markets into the PEF Page 49 The World Bank Development Policy Financing with Cat DDO and Pandemic Emergency Financing Facility Box 5.2: Process for determination of Cash Window activation criteria Activation of the PEF Cash Window will follow a sequential three-step process based on (i) pathogen type; (ii) epidemiological thresholds; and (iii) technical assessment. Pathogen type: Consistent with the goal to mitigate or prevent severe epidemic threats with regional or global pandemic potential, the PEF Cash Window will provide financing for the response to outbreaks of pathogens that are not currently endemically transmitted within the human population. This includes all pathogens covered by the PEF Insurance Window plus viruses with a primary zoonotic reservoir (including, but not limited to, Chikungunya, Nipah, Zika, equine encephalitis viruses, Hanta viruses, West Nile, Monkeypox), novel viral pathogens which are genetically determined to originate from a zoonotic source, and smallpox. Pathogens not posing an acute regional or global pandemic threat are excluded. Therefore, all non-viral pathogens and pathogens that are currently endemic in human populations are excluded (endemicity is defined here as continuous sustained human-to-human transmission of a pathogen in the global human population). Note: The list of included and excluded pathogens is indicative and will be reviewed and updated periodically upon the expert advice of the Strategic & Technical Advisory Group for Infectious Hazards (STAG-IH), constituted by WHO. Epidemiological thresholds: The adoption of case number based epidemiological thresholds is intended to ensure the PEF Cash Window provides a more flexible and rapidly triggering financing mechanism than the PEF Insurance Window while retaining the primary goal of PEF to mitigate severe epidemic threats with regional or global pandemic potential. Determination of whether an outbreak has reached the epidemiological thresholds will be based on publicly available epidemiological data published by WHO (HQ or regional offices) and/or national public health agencies. Note: The indicative thresholds will be reviewed and updated periodically upon the expert advice of the WHO STAG- IH. Technical assessment: An event that is deemed eligible according to pathogen type and that has reached the epidemiological thresholds will be referred to subject-matter experts from the WHO STAG-IH for a technical assessment of (a) whether the outbreak is driven by human-to-human transmission, in the case that evidence for human-to-human transmission is available; (b) whether underlying incidence trends suggest continued growth in weekly numbers of new confirmed cases; and (c) unless the proposed response plan submitted by the country has been endorsed by WHO, whether this proposed plan is consistent with prevailing expert opinions in specialized agencies, such as WHO, and is aligned with applicable WHO public health recommendations relating to the outbreak in question. The PEF Coordinator will present the application together with the advice obtained through the technical assessment to the Steering Body, which will take a decision on the payout from the Cash Window within 24 hours. 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