The World Bank Guatemala Urban Resilience Project (P179462) Project Information Document (PID) Concept Stage | Date Prepared/Updated: 22-Sep-2022 | Report No: PIDC34526 Aug 10, 2022 Page 1 of 9 The World Bank Guatemala Urban Resilience Project (P179462) BASIC INFORMATION A. Basic Project Data OPS TABLE Country Project ID Parent Project ID (if any) Project Name Guatemala P179462 Guatemala Urban Resilience Project (P179462) Region Estimated Appraisal Date Estimated Board Date Practice Area (Lead) LATIN AMERICA AND Oct 03, 2022 Dec 02, 2022 Urban, Resilience and CARIBBEAN Land Financing Instrument Borrower(s) Implementing Agency Investment Project Financing Republic of Guatemala MINISTRY OF PUBLIC FINANCES Proposed Development Objective(s) To improve urban infrastructure, increase access to basic public services, and enhance housing resilience in selected communities in the Mancomunidad del Sur. PROJECT FINANCING DATA (US$, Millions) SUMMARY-NewFin1 Total Project Cost 120.00 Total Financing 120.00 of which IBRD/IDA 120.00 Financing Gap 0.00 DETAILS -NewFinEnh1 World Bank Group Financing International Bank for Reconstruction and Development (IBRD) 120.00 Environmental and Social Risk Classification Concept Review Decision Substantial Track I-The review did authorize the preparation to continue Aug 10, 2022 Page 2 of 9 The World Bank Guatemala Urban Resilience Project (P179462) B. Introduction and Context Country Context 1. With a population of 17 million and a GDP per capita estimated at US$5,039 in 2021, Guatemala is the largest economy in Central America.1 Guatemala experienced a prolonged period of economic growth and macroeconomic stability prior to the COVID-19 pandemic. In the last decade, including the downturn during COVID-19, real GDP growth averaged 3.5 percent, about 2.4 percentage points above the Latin American and Caribbean (LAC) average, propelled by remittance-fueled private consumption and underpinned by prudent fiscal and monetary management. Successive governments have maintained a conservative macroeconomic stance, with a relatively small public sector compared to the size of the economy. However, investment and productivity growth remain low, limiting the country’s long-term growth prospects. An unfavorable business climate has also contributed to low employment growth in the formal sector, resulting in increasing informality (70 percent of total employment), declining labor earnings,2 high poverty, and low productivity.3 A large share of the workforce is employed in agriculture and low-productivity services, which are characterized by overall lower job quality.4 2. In 2020, during the COVID-19 crisis, the poverty incidence reached 52.4 percent, an estimated 4.6 percent increase over 2019. The increase would have been two to three times greater had it not been for the Government’s unprecedented response in expanding the social safety net5 to mitigate COVID-19 induced losses to human capital. Most of the increase in social spending was channeled through investments in social assistance (about 1.1 percent of GDP). A temporary cash transfer program called Bono Familia scaled up the existing safety net by a factor of 20 relative to pre- pandemic levels, extending coverage from 5 percent to about 80 percent of the population. This represented one of the largest expansions of cash transfers in the world during the first year of the pandemic.6 Although by December 2021 economic activity in most sectors was at pre-pandemic levels, the pandemic is expected to have long-lasting impacts on multiple dimensions of wellbeing, particularly among poor households and marginalized communities which lack appropriate infrastructure and live in informal conditions that facilitate the spread of disease. 3. While extreme poverty is mostly concentrated in rural areas, it is increasingly becoming an urban problem. More than 31 percent of Guatemala’s urban population lives in slums.7 The concentration of extreme poor in urban areas increased from 7 percent in 2000 to 24 percent in 2014.8 According to national projections, close to 7 million people will be moving to urban areas in the next 15 years.9 Rural-to-urban migration has been driven by the country’s previous 1 Guatemala Country Overview. 2022. World Bank. https://www.worldbank.org/en/country/guatemala/overview 2 Slow implementation of business climate and public sector reforms (including governance and anticorruption), limited capacity for public investment and low quality and coverage of basic public services over the years have limited progress. 3 Labor reallocation from manufacturing and high-productivity services toward low-productivity services was the principal source of labor productivity losses between 1991 and 2016. 4 Guatemala Country Report. 2018. International Monetary Fund. 5 The Government’s response was swift and focused on protecting the poor and vulnerable. However, the expansion of the program ended in December 2020 and the country is now back to the extremely low coverage of cash transfer programs, even lower than pre-COVID (Bono Social had 2019: 130,000 and 2021: 100,000 households). 6 World Bank. 2022. Building a Stronger Social Contract through Productive, Inclusive and Sustainable Growth. Guatemala SCD Update (March). 7 Population living in slums (percent of urban Population). World Bank Data for Guatemala. 2018. 8 The most recent Living Standards Measurement Survey (ENCOVI) was collected in 2014, making that the latest year with an official poverty estimate. 9 Five percent of the domestic population has been internally displaced in the last five years, usually from small agricultural communities to cities. The forecast is that in 15 years, an additional 7 million people will have moved from the countryside to cities. Aug 10, 2022 Page 3 of 9 The World Bank Guatemala Urban Resilience Project (P179462) internal conflict,10 natural and climate-related hazards, and the attraction of better labor opportunities and higher living standards. However, as more migrants have moved closer to Guatemala City and secondary cities, the opportunities for formal housing and jobs have decreased and urban poverty continues to grow. Informal settlements have arisen on the urban periphery, and many lack basic services and are vulnerable to landslides, flash flooding and other disaster risks. The municipalities, responsible for providing water, sanitation, road management, and other public services, are struggling to keep up with demand and create the conditions for economic prosperity.11 Given that Guatemala’s urban population is projected to grow rapidly, the number of poor people living in these vulnerable, peripheral communities will inevitably grow as well. Sectoral and Institutional Context 4. According to the population and housing census of 2019,12 53.8 percent of the country’s population now lives in cities. With an annual urban population growth rate of 3.4 percent (the highest in the region), Guatemala’s urbanization rate is expected to reach 67.3 percent by 202513 and 80 percent (the current Latin American average) by 2032.14 Most of the urban population growth is taking place outside the capital region. The contribution of secondary cities to urbanization has been rising steadily since 1973, with secondary cities now accounting for more than 65 percent of the total urban population.15 5. Urbanization in Guatemala has mostly taken place informally, without spatial planning, access to basic services, and adequate housing. According to estimates by the Guatemalan Chamber of Construction, the total housing deficit in the country amounts to 1,363,193 units, with a quantitative deficit totaling 88,588 units.16 As for qualitative deficit, which includes poor quality housing (shacks, tin roofs, dirt floors, adobe or tin walls, overcrowded housing with no dependents, among others), the data amounts to 1,274,605 units. The Chamber of Construction also estimates that of these 1,274,605 units, 874,764 do not have access to basic services such as lighting, water service and connection, and drainage; and that a quarter of households still have a dirt floor, a third do not have their own space for cooking, and more than half do not have reliable garbage collection services. According to estimates from the Ministry of Communications, Infrastructure and Housing (Ministerio de Comunicaciones, Infraestructura y Vivienda, CIV), the production of formal and subsidized housing reaches about 30,000 homes per year, while the housing deficit grows by about 50,000. This inability to produce social housing to keep up with demand explains the dynamics of self-construction and the growth of precarious settlements. Guatemala’s current pattern of sub-standard urban growth and housing conditions increase the risk of vulnerable populations to multiple hazards, hindering inclusive and resilient development. 6. The Guatemala City Metropolitan Area (GCMA) is the most important urban concentration in Guatemala, with an estimated population of 3.2 million, or 19 percent of the total. The GCMA concentrates 60 percent of the country’s 10 From 1960 to 1996 Guatemala experienced a Civil War that led to several waves of internal migration. 11 Decreto Numero 12-2022. Código Municipal Artículo 68. 12 INE. 2019. XII Censo Nacional de Población y VII de Vivienda. 13 “Maria, Augustin; Acero, Jose Luis; Aguilera, Ana I.; Garcia Lozano, Marisa. 2017. Central America Urbanization Review: Making Cities Work for Central America. Directions in Development--Countries and Regions. World Bank. https://openknowledge.worldbank.org/handle/10986/26271 License: CC BY 3.0 IGO.� 14 Projection from the National Development Plan K'atun. 15 Programa de las Naciones Unidas para el Desarrollo (PNUD). Informe Nacional de Desarrollo Humano: Desafíos y oportunidades para Guatemala: hacia una agenda de futuro. Guatemala. - Programa de las Naciones Unidas para el Desarrollo (PNUD). 2022. 16 VII Housing Census of 2018. Aug 10, 2022 Page 4 of 9 The World Bank Guatemala Urban Resilience Project (P179462) industry and generates 60 percent of the national GDP, making it the strongest economic region in Guatemala. It is also home to the largest proportion of poor citizens. In 2012, six secondary cities located to the south of the GCMA17 created a metropolitan association —the Mancomunidad Gran Ciudad del Sur (Greater South City Commonwealth)—with the goal of developing a common planning strategy aimed at moving away from monocentric spatial development and toward a multicentric metropolitan region, while addressing shared local development initiatives and infrastructure projects with a supra-municipal scope.18 In 2019, Guatemala City joined the Mancomunidad del Sur, making it the most urbanized and industrialized metropolitan association in the country, with a population of 2.3 million, of which 97 percent live in urban areas. The Mancomunidad del Sur has an established technical secretariat that supports member municipalities in the planning and coordination of interventions to tackle several common challenges, including (a) an increase in the urban population; (b) low coverage of basic services; (c) high proportion of the population living in hazard-prone areas and subject to large-scale disaster risk; (d) high traffic congestion on the main roads connecting the other cities to downtown Guatemala City; and (e) increased criminal activity. 7. The limited capacity of local governments to plan, administer, and manage urban development within and across the seven municipalities has resulted in inequitable levels of access to public services. In 2021, an Informal Settlement Census (Censo de Asentamientos) by TECHO19 estimated that there are between 58,500 and 94,079 households in informal settlements in the GCMA, where informal housing is often built on steep slopes and near riverbanks, where they are at risk from multiple hazards.20. Service coverage of these settlements varies: 37 percent of households do not have access to water, either through a community meter or fixed rate service, and roughly 22 percent lack solid waste collection services and therefore dispose trash in vacant lots, riverbeds, patios, and/or by burning. These conditions of accelerated urban growth, poverty, insufficient access to public services, and low community cohesion are compounded by the lack of urban planning capacities at the municipal level. 8. Improving infrastructure and tackling challenges associated with high and uncontrolled urbanization are key Government priorities. The Government is committed to advancing government-led urban development and leveraging urbanization to boost sustainable and equitable growth while reducing territorial disparities. One of the Government’s aims is to integrate informal settlements into the multilevel planning framework outlined in the National Development Plan K’atun 2015-2032 (Plan Nacional de Desarrollo K’atun: nuestra Guatemala 2032) and the related Strategic Goals and Development Priorities. The Government has also developed several instruments to address urban informality, including the National Policy for Comprehensive Urban Upgrading 2017-2031 (approved by National Housing Commission, CONAVI)21 and the update of the National Policy for Housing and Human Settlements 2020-2032. Additional objectives are included in the National Development and Innovation Plan 2020-2024 and the Government General Policy 2020-2024. 17 On May 28, 2012, six municipalities joined together to form the Greater South City Commonwealth - Mancomunidad Gran Ciudad del Sur: (Amatitlán, Mixco, San Miguel Petapa, Santa Catarina Pinula, Villa Canales, and Villa Nueva). In 2019, Guatemala City joined the Mancomunidad del Sur. 18 Mancomunidades are associations of municipalities with legal personality, constituted through agreements between the councils of two or more municipalities, in accordance with the law, for the common formulation of municipal public policies, plans, programs and projects, the execution of works and the efficient provision of services within its competences. 19 TECHO is an NGO formed by young volunteers together with inhabitants of informal settlements in Latin America. https://guatemala.techo.org/sobre-techo/ 20 Censo de Asentamientos. 2021. TECHO. https://guatemala.techo.org/wp-content/uploads/sites/14/2022/02/Censo-de-Asentamientos-2021- TECHO-Guatemala.pdf 21 CONAVI is a consultative and advisory body to the CIV’s Vice Ministry of Housing, and its function is to be a deliberative, c onsultative and advisory body, with the responsibilities of proposing, implementing and following up on policies, strategies and plans related to housing in Guatemala. Aug 10, 2022 Page 5 of 9 The World Bank Guatemala Urban Resilience Project (P179462) Relationship to CPF 9. The operation is aligned with the objectives of the Country Partnership Framework (CPF) for the period FY17- 20 discussed by the Board of Directors on November 17, 2016, and revised in the Performance and Learning Review (PLR), considered by the Board on October 23, 2019. Specifically, it is aligned with (a) Pillar 1, Fostering Inclusion of Vulnerable Groups through Objective 1, Increase access to basic health, nutrition, and water and sanitation services; and (b) Pillar 2, Addressing Bottlenecks to Sustainable Growth through Objective 4, Expand infrastructure, and Objective 5, Build institutional capacity to manage and adapt to climate change. 10. The proposed project seeks to respond to some of the critical development challenges outlined in the Systematic Country Diagnostic Update of 2022,22 such as heightened vulnerability to natural disasters and climate change in the context of growing urbanization. Climate change is increasing Guatemala’s vulnerability to rising sea levels, flooding in low-lying areas and coastal erosion, as well as a continuous rise in average temperatures, the intensification of heatwaves and increases in average precipitation.23 Despite the devastating impacts of extreme weather events and other natural disasters, progress in preparing for these shocks has been limited. Disasters have reversed hard-won gains in human capital, destroyed infrastructure, reduced agricultural output, intensified food insecurity, spread vector- and waterborne diseases, and disrupted the provision of essential services. Recent estimates suggests that Hurricanes Eta and Iota caused infrastructure-related losses (including the destruction of housing) of close to 0.56 percent of GDP, and agriculture-related losses of close to 0.20 percent of GDP. C. Proposed Development Objective(s) To improve urban infrastructure, increase access to basic public services, and enhance housing resilience in selected communities in the Mancomunidad del Sur. Key Results (From PCN) a. People benefiting from improved urban infrastructure (number, sex disaggregated) b. People in urban areas benefiting from improved water sources and sanitation (number, sex disaggregated) c. Increased number of households benefiting from resilient housing (number, sex disaggregated) d. Territorial planning instruments and institutions strengthened (number) D. Concept Description 11. The project will address the effects of unplanned urbanization in Guatemala’s Mancomunidad Gran Ciudad del Sur, particularly focusing on increasing communities’ access to improved urban infrastructure, basic public services, and better housing conditions. The project has four components: Component 1: Urban upgrading of targeted neighborhoods 22 World Bank. 2022. Guatemala – Building a Stronger Social Contract through Productive, Inclusive, and Sustainable Growth. SDC Update. 23 The Dialog, Leadership for the Americas. 2021. Aug 10, 2022 Page 6 of 9 The World Bank Guatemala Urban Resilience Project (P179462) 12. This component will support the municipalities of the Mancomunidad Gran Ciudad del Sur in (a) improving targeted urban areas with adequate infrastructure and services; and (b) promoting a more inclusive, productive, and climate-resilient urban environment. Its aim is to upgrade key public spaces and assets in low-income areas, such as water supply and sanitation, drainage, paved access roads, public lighting, and solid waste management. Specific activities will be prioritized considering community demand and the neighborhood’s strategic plan. Urban infrastructure improvement will follow climate-resilient designs and use resilient construction materials to reduce vulnerability to floods and erosion. The project will also promote the use of low-carbon materials and energy-efficient technologies. Component 2: Housing improvements for vulnerable households 13. This component will finance works to improve access to basic services and better living conditions for vulnerable households in selected neighborhoods. The aim of this component will be to improve the quality of life of urban communities located in informal and hazard-prone areas with inadequate living conditions such as dwellings with dirt floors; unsafe and inadequate ceilings and walls that increase exposure to heat and excess rain resulting from climate change; lack of or inadequate sanitary systems, including sewerage systems and in-house bathrooms; and lack of adequate kitchen facilities. During preparation, the project will work with the Government, including the CIV and SEGEPLAN, and with the Mancomunidad del Sur in the design of a governance mechanism that ensures the transparency in the prioritization of neighborhoods and in the selection of potential beneficiaries. Component 3: Contingent Emergency Response 14. This Contingent Emergency Response Component (CERC) will enable a speedy response to disaster, as needed. It will have an initial zero budget allocation but would allow for rapid reallocation of project funds in the event of a natural disaster or crisis, including a disease outbreak, that has caused or is likely to imminently cause major adverse economic and/or social impacts. To trigger the use of the CERC, the Government would provide a pre-specified trigger according to national legislation, such as a Declaration of National Emergency. A specific Emergency Response Operations Manual will be prepared for this component, detailing financial management (FM) and procurement aspects, safeguards, and any other necessary implementation arrangements. Component 4: Project management and implementation 15. Component 4 will provide support to the Project Implementation Unit (PIU) for project management, coordination, and evaluation activities. Legal Operational Policies Triggered? Projects on International Waterways OP 7.50 No Projects in Disputed Areas OP 7.60 No Summary of Screening of Environmental and Social Risks and Impacts . Aug 10, 2022 Page 7 of 9 The World Bank Guatemala Urban Resilience Project (P179462) 16. Environmental risk is rated Substantial. The environmental risk rating is considered substantial at this stage, due to the potential inclusion of civil works for the planning of urban upgrading of targeted neighborhoods and housing improvements for vulnerable households. Specific technical details related to infrastructure activities, including the location, type, and collective scale/magnitude of expected investments will be detailed during project implementation. The risk rating will be reviewed and adjusted during appraisal, if necessary, as more detailed information becomes available about the specific investments and the detailed environmental and social assessments are completed. From an environmental perspective, project related risks will stem from activities related to the rehabilitation and new construction under Component 1 and 2. Some of the key potential impacts may include: (i) diverse impacts on lands and land use, including potentially on natural habitats or other sensitive landscapes for those activities (mostly new construction works) that may be located in areas of biodiversity importance; (ii) nuisance related to dust generation, vibration, noise and odors; (iii) generation, management and disposal of non-hazardous and hazardous solid waste, residual construction materials waste, and hazardous materials from demolitions; (iv) generation and discharge of wastewater from civil works; (v) disposal from residential water and sanitation connections; (vi) temporary disruptions to local traffic during the construction phase; (vii) health and safety risks to the project workforce and local communities in the surrounding areas of the project activities, including from exposure to hazardous materials and wastes and the possibility of additional disease outbreaks as well as risks of spread of the COVID-19 virus and outbreaks of malaria, dengue or cholera; (viii) direct and indirect impacts from natural hazards (earthquakes, tsunamis, landslides, volcanos, extreme heat, cyclones, and floods) that may occur in the selected neighborhoods and surrounding areas. Such impacts would be site-specific and manageable through proper screening and assessment of the eligible and approved subprojects, including careful site selection in observance of factors of E&S sensibility for the new construction work to be undertaken. The implied environmental risks and potential negative impacts of the planned Project activities are not considered significant or irreversible and can be addressed with straight-forward mitigation measures and good practices. The E&S instruments will include measures to manage these risks and impacts appropriate to the scale and nature of the activities. 17. Social risk is rated Substantial. The social risk rating is Substantial at this stage, due to a combination of the following factors: (i) the high levels of citizen insecurity in the country and with presence of Gangs concentrated in Guatemala City and the nearby cities of Mixco, Villa Nueva, and Amatitlán, all part of the project intervention area; (ii) possible exclusion of vulnerable groups such as Persons with Disability (PwD), women, migrants or indigenous people if these groups are not adequately represented in decision making bodies (COCODES); (iii) possible exclusion of families from housing improvement activities, as selection criteria have not been finalized as yet); (iv) potential cases of temporary involuntary resettlement and temporary limitations in access to basic services (schools, health centers) while construction works take place and economic impacts created by the temporary restrictions in access due to construction works, which could affect both established businesses and informal vendors; (v) community health and safety risks, including the increased risk of accidents for the local population as a result of construction works, movement of vehicles and machinery; (vi) labor influx in communities where works will take place could lead to impacts on the local population; and (vi) SEA/SH risks associated with labor influx and the presence of workers in communities, as well as SEA/SH risk in the workplace among contract workers. The Initial E&S Risk/Impact and Mitigation Analysis to be prepared by the borrower characterizes these social risks and describes possible mitigation measures, all of which will be further detailed in the ESMF and other outstanding E&S instruments in a manner appropriate to the scale and nature of the activities. . Aug 10, 2022 Page 8 of 9 The World Bank Guatemala Urban Resilience Project (P179462) CONTACT POINT World Bank Andre Herzog, Dmitry Sivaev Senior Urban Development Specialist Borrower/Client/Recipient Republic of Guatemala Implementing Agencies MINISTRY OF PUBLIC FINANCES Alvaro González Ricci Minister of Public Finances dmendez@minfin.gob.gt FOR MORE INFORMATION CONTACT The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 473-1000 Web: http://www.worldbank.org/projects APPROVAL Task Team Leader(s): Andre Herzog, Dmitry Sivaev Approved By APPROVALTBL Practice Manager/Manager: Country Director: Joelle Beatrice Dehasse 22-Sep-2022 Aug 10, 2022 Page 9 of 9