The World Bank Third Disaster Risk Management Development Policy Loan with a Cat DDO (P176650) Program Information Document (PID) Concept Stage | Date Prepared/Updated: 03-Jun-2021| Report No: PIDC32178 Page 1 of 6 The World Bank Third Disaster Risk Management Development Policy Loan with a Cat DDO (P176650) BASIC INFORMATION A. Basic Project Data OPS TABLE Country Project ID Project Name Parent Project ID (if any) Colombia P176650 Third Disaster Risk Management Development Policy Loan with a Cat DDO (P176650) Region Estimated Board Date Practice Area (Lead) Financing Instrument LATIN AMERICA AND Dec 09, 2021 Urban, Resilience and Land Development Policy CARIBBEAN Financing Borrower(s) Implementing Agency Ministry of Finance and National Planning Department Public Credit Proposed Development Objective(s) To strengthen the Government of Colombia’s program to manage risk resulting from adverse natural events including disease outbreaks Financing (in US$, Millions) FIN_SUMM_PUB_TBL SUMMARY Total Financing 250.00 DETAILS -NewFin3 Total World Bank Group Financing 250.00 World Bank Lending 250.00 Decision The review did authorize the preparation to continue B. Introduction and Context Country Context Colombia has one of the highest rates of disasters caused by extreme natural hazards and exacerbated by climate change in Latin America and Caribbean, ranking fourth in terms of disaster risk. Floods, earthquakes, and landslides are the most prevalent hazards, followed by volcanic activity, tsunamis, and hurricanes. It is estimated that 84 percent of Colombia's population and 86 percent of its assets are exposed to two or more natural hazards, mainly floods, seismic activity and landslides. Colombia’s tropical climate, affected by La Niña and El Niño climatic variability, leads to heavy and frequent rains and dry periods, respectively, while the average annual loss from earthquakes alone is estimated at Page 2 of 6 The World Bank Third Disaster Risk Management Development Policy Loan with a Cat DDO (P176650) US$3.1 billion, and a major earthquake (250-year return period) could generate losses of about 17 percent of GDP. When factoring in the expected impact of climate change, lack of action to strengthen disaster risk reduction and climate change adaptation could generate annual losses of 0.5 percent of GDP in Colombia. By 2060, substantial sea level rise on both the Pacific and Caribbean coastlines would significantly increase the exposure to flooding and storm surge. Moreover, 50 percent of the country's territory will be affected by changes in its hydrological system, with resulting impacts on economic activities and water supply. The COVID-19 pandemic has reversed many of Colombia’s gains in economic growth and poverty reduction achieved over the last decade. In 2020, real GDP contracted by 6.8 percent, while the overall government deficit increased to 7 percent of GDP, from a projected 2.6 percent before the pandemic. Notwithstanding the mitigating impact of the emergency social transfers put in place in response to the crisis, the incidence of poverty increased from 35.7 percent in 2019 to 42.5 percent in 2020, more than wiping out all gains in poverty reduction since 2012. Furthermore, the occurrence of Hurricane Iota (November 2020) during the pandemic has demonstrated the large threat from compound risks materializing simultaneously. Despite Colombia’s continuous progress to become one of the global leaders on disaster risk management and climate change adaptation, key gaps exist at the subnational and sectoral levels, and the country will not be covered by contingent credit starting July 2021. In the past 20 years, Colombia has developed a comprehensive national DRM and financial protection system against disasters, with key World Bank support through the previous Cat DDO I (US$150 million) and Cat DDO II (US$ 250 million) programs. However, the ability to minimize the fiscal impact of disasters, improve the efficiency and transparency of post-disaster public spending and reduce the disruption to ongoing development programs remains a challenge. Moreover, financial protection against disasters will not be available following the closing of the Cat DDO II program in July 2021 and the Government’s decision not to renew its three-year Pacific Alliance Cat bond coverage for seismic risk (US$400 million), which expired in February 2021. Relationship to CPF The proposed operation will contribute to the Colombia Country Partnership Framework (CPF)'s goals of promoting green and resilient growth for a more balanced territorial development and supporting the Government's fiscal sustainability. The Colombia CPF for the period FY16-21 recognizes an inadequate DRM framework in the face of worsening disasters and climate change, as well as inadequate adaptation to climate change, particularly in the agricultural sector. By supporting national efforts to scale-up adoption of sustainable and climate resilient systems and the implementation of associated sectoral policy frameworks, the proposed policy actions under this project would contribute to an enhanced capacity for natural resource management in target regions (Objective 2). Additionally, the proposed policy actions would support the development of climate-informed infrastructure and urban development and thus contribute to improving infrastructure services and enhanced urban planning to develop competitive cities (Objective 8). C. Proposed Development Objective(s) The objective of this operation is to strengthen the Government of Colombia’s program to manage risk resulting from adverse natural events, including disease outbreaks. Key Results This proposed operation, which is closely aligned with the Government’s current priorities, seeks to integrate disaster, climate and public health emergency management as central elements of public policies, and strengthen sectoral and subnational capacity to manage disaster risk and climate change. The operation will support Colombia’s continued Page 3 of 6 The World Bank Third Disaster Risk Management Development Policy Loan with a Cat DDO (P176650) progress on robust risk management across critical sectors, focusing on strengthening governance, reducing vulnerability and increasing resilience and adaptive capacity in the context of socioeconomic development. The Cat DDO III proposes to support reforms in four pillars, corresponding to thematic policy areas: (a) promoting the development of DRM and CCA policies; (b) strengthening fiscal resilience to disaster risk and climate change; (c) promoting sectoral and subnational co-responsibility in DRM and CCA; and (d) strengthening DRM in health sector emergency management. It will build on the progress achieved through Cat DDO I and II to reduce risk conditions related to disasters and increased climate vulnerability. D. Concept Description The proposed Cat DDO III supports Colombia’s continued progress on DRM and CCA while addressing key gaps in the development of risk management at subnational and sectoral levels. The proposed operation promotes key policy reforms while providing a line of contingent financing available to respond to a declared eligible disaster, climate-related shock and disease outbreaks. It also addresses the need for more sustainable DRM financing to minimize the fiscal impact of disasters, improve the efficiency and transparency of post-disaster public spending, and reduce the disruption to ongoing development programs: • Under Pillar 1, “Promoting the development of DRM and CCA policies,� the operation will: (a) support the Government’s identification of public policy actions aimed at reducing disaster risk and increasing climate resilience; and (b) support the framework for mobilizing resources to finance green projects, including green sovereign bonds. • Under Pillar 2, “Strengthening fiscal resilience to disaster risk and climate change,� the operation will support the update of the National Disaster Risk Financing Strategy and the design of financial protection strategies for priority sectors and subnational governments. • Under Pillar 3, “Promoting sectoral and subnational co-responsibility in DRM and CCA,� the operation will support: (a) adoption of measures to manage disaster events caused by hazardous materials; (b) adoption of instruments to strengthen resilience to natural hazards and climate change in the transport sector; (c) adoption of measures to mainstream risk analysis, climate adaptation and disaster response in the water and sanitation sector in rural areas and small municipalities, and (d) adoption of measures to control deforestation and prevent forest fires. • Under Pillar 4, “Strengthening DRM in health sector emergency management,� the operation will support measures to strengthen preparedness and response to public health emergencies caused by epidemics and increased climate variability. E. Poverty and Social Impacts, and Environmental, Forests, and Other Natural Resource Aspects Poverty and Social Impacts The proposed policy actions are expected to have positive direct and indirect effects on poverty in the short, medium, and long term, considering that natural risks and disasters have differentiated impacts at the subnational and population level. The policy actions supported by the operation are expected to reduce the impact of disasters on the most vulnerable population and make public investments more geared to social welfare. Pillar 2 related to fiscal resilience to disaster risk and climate change will contribute to reducing fiscal vulnerability and existing socioeconomic gaps in the country, which will be particularly relevant for post-COVID-19 economic recovery. Furthermore, Pillars 3 and 4 seeking to mainstream DRM and climate adaptation across the subnational level and sectors, including public health, will contribute to correcting the existing social gaps and inequities based on geographical, socioeconomic and institutional conditions, and reduce the vulnerability of the population to disasters and diseases transmitted by vectors Page 4 of 6 The World Bank Third Disaster Risk Management Development Policy Loan with a Cat DDO (P176650) and viruses. Overall, the proposed policy actions can also contribute to inclusion, considering that some of the country’s strategic ecosystems include indigenous peoples and Afro-Colombian communities, who will be key actors in planning and achieving culturally relevant climate resilience goals and targets. Environmental, Forests, and Other Natural Resource Aspects Overall, the proposed policy actions under the operation have potentially positive effects on Colombia’s environment, forests, or natural resources. The proposed policy actions would reduce the degree of susceptibility and inability of the country to cope with the adverse effects of climate change. Policy actions under Pillar 2 will promote the development of financial instruments for environmentally sustainable projects and will allow subnational entities to respond on time to disasters and emergencies with the potential to destroy vegetative cover, forests and fauna, and displacement of natural habitats. Under Pillar 3, the proposed policy actions will promote efficient pollution prevention through environmental emergency response, promote preservation of the integrity of forests and ecosystems in transport infrastructure development, promote low-carbon development, reducing greenhouse gas emissions from waste and wastewater activities, as well as promoting conservation of biodiversity, ecosystem services, emissions reductions and sustainable use of natural capital through deforestation control. Policy actions under Pillar 4 are expected to have a neutral environmental impact. . CONTACT POINT World Bank Alexander Agosti, Diana Marcela Rubiano Vargas, Jose Angel Villalobos Senior Disaster Risk Management Specialist Borrower/Client/Recipient Ministry of Finance and Public Credit Lina Mondragon Deputy Director, Finance, Multilateral Organizations lina.mondragon@minhacienda.gov.co Implementing Agencies National Planning Department Natalia Bargans Ballesteros Deputy Director, Public Credit nbargans@dnp.gov.co Page 5 of 6 The World Bank Third Disaster Risk Management Development Policy Loan with a Cat DDO (P176650) 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): Alexander Agosti, Diana Marcela Rubiano Vargas, Jose Angel Villalobos Approved By APPROVALTBL Country Director: Ulrich Zachau 29-Jun-2021 Page 6 of 6