The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) Document of The World Bank FOR OFFICIAL USE ONLY Report No: 136434-GT INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT PROGRAM DOCUMENT FOR A PROPOSED LOAN IN THE AMOUNT OF US$200 MILLION TO THE REPUBLIC OF GUATEMALA FOR A SECOND DISASTER RISK MANAGEMENT DEVELOPMENT POLICY LOAN WITH A CATASTROPHE DEFERRED DRAWDOWN OPTION (CAT DDO) April 23, 2019 Social, Urban, Rural And Resilience Global Practice Latin America And Caribbean Region This document is being made publicly available prior to Board consideration. This does not imply a presumed outcome. This document may be updated following Board consideration and the updated document will be made publicly available in accordance with the Bank’s policy on Access to Information. . The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) Republic of Guatemala GOVERNMENT FISCAL YEAR January 1 – December 31 CURRENCY EQUIVALENTS (Exchange Rate Effective as of April 14th, 2019) Currency Unit=US$1.00 Guatemalan Quetzales 7.63445 =US$1.00 ABBREVIATIONS AND ACRONYMS CAT DDO Catastrophe Deferred Drawdown Option CCA Climate Change Adaptation CONADUR National Council for Urban and Rural (Consejo Nacional de Desarrollo Urbano y Rural) National Coordinator for Disaster Reduction (Coordinadora Nacional para la Reducción de CONRED Desastres) CPF Country Partnership Framework DALA Damage and Loss Assessment DTF Fiscal Transparency Department (Departamento de Transparencia Fiscal) DPL Development Policy Loan DRFS Disaster Risk Financing Strategy DRM Disaster Risk Management ENCOVI Living Conditions Survey (Encuesta de Condiciones de Vida) FDI Foreign Direct Investment GDP Gross Domestic Product GFDRR Global Facility for Disaster Reduction and Recovery German Corporation for International Cooperation (Deutsche Gesellschaft für Internationale GIZ Zusammenarbeit) GNP Gross National Product GoG Government of Guatemala GRS Grievance Redress Service IADB Inter-American Development Bank IBRD International Bank for Reconstruction and Development IFC International Finance Corporation IMF International Monetary Fund INFOM Institute of Municipal Development (Instituto de Fomento Municipal) National Institute of Seismology, Volcanology, Meteorology and Hydrology (Instituto Nacional INSIVUMEH de Sismología, Vulcanología, Meteorología e Hidrología) JICA Japan International Cooperation Agency KfW German Reconstruction Credit Institute (Kreditanstalt für Wiederaufbau) LAC Latin America and the Caribbean LDP Letter of Development Policy MARN Ministry of Environment and Natural Resources (Ministerio de Ambiente y Recursos Naturales) MINEDUC Ministry of Education of Guatemala (Ministerio de Educación) MSPAS Ministry of Public Health and Social Assistance (Ministerio de Salud Pública y Asistencia Social) MINFIN Ministry of Public Finance (Ministerio de Finanzas Públicas) MTEF Medium-Term Expenditure Framework PDO Program Development Objectives PER Public Expenditure Review PFM Public Financial Management PRONACOM National Program for Competitiveness (Programa Nacional de Competitividad) SCD Systematic Country Diagnostic Executive Secretariat of the National Coordinator for Disaster Reduction (Secretaría Ejecutiva SE-CONRED de la CONRED) SFDRR Sendai Framework for Disaster Risk Reduction Secretariat for Planning and Programming of the Presidency (Secretaría de Planificación y SEGEPLAN Programación de la Presidencia) SINAVE National Epidemiological Surveillance System (Sistema Nacional de Vigilancia Epidemiológica) UNDP United Nations Development Program USAID United States Agency for International Development WB World Bank WBG World Bank Group . Regional Vice President: Axel van Trotsenburg Country Director: Yaye Seynabou Sakho Senior Practice Director: Ede Jorge Ijjasz-Vasquez Practice Manager: Ming Zhang Lizardo Narvaez Marulanda, Zoila Victoria Task Team Leaders: Navarro Portocarrero The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) REPUBLIC OF GUATEMALA GUATEMALA DRM DEVELOPMENT POLICY LOAN WITH CAT DDO II TABLE OF CONTENTS SUMMARY OF PROPOSED FINANCING AND PROGRAM .......................................................................3 1. INTRODUCTION AND COUNTRY CONTEXT ...................................................................................5 2. MACROECONOMIC POLICY FRAMEWORK....................................................................................7 2.1. RECENT ECONOMIC DEVELOPMENTS............................................................................................ 7 2.2. MACROECONOMIC OUTLOOK AND DEBT SUSTAINABILITY .......................................................... 9 2.3. IMF RELATIONS ............................................................................................................................ 12 3. GOVERNMENT PROGRAM ........................................................................................................ 12 4. PROPOSED OPERATION ............................................................................................................ 15 4.1. LINK TO GOVERNMENT PROGRAM AND OPERATION DESCRIPTION .......................................... 15 4.2. PRIOR ACTIONS, RESULTS AND ANALYTICAL UNDERPINNINGS .................................................. 17 4.3. LINK TO CPF, OTHER BANK OPERATIONS AND THE WBG STRATEGY .......................................... 28 4.4. CONSULTATIONS AND COLLABORATION WITH DEVELOPMENT PARTNERS ............................... 28 5. OTHER DESIGN AND APPRAISAL ISSUES .................................................................................... 29 5.1. POVERTY AND SOCIAL IMPACT .................................................................................................... 29 5.2. ENVIRONMENTAL ASPECTS ......................................................................................................... 31 5.3. PFM, DISBURSEMENT AND AUDITING ASPECTS .......................................................................... 31 5.4. MONITORING, EVALUATION AND ACCOUNTABILITY .................................................................. 33 6. SUMMARY OF RISKS AND MITIGATION ..................................................................................... 34 ANNEX 1: POLICY AND RESULTS MATRIX .......................................................................................... 36 ANNEX 2: INTERNATIONAL MONETARY FUND RELATIONS ANNEX ...................................................... 39 ANNEX 3: LETTER OF DEVELOPMENT POLICY..................................................................................... 41 ANNEX 4: ENVIRONMENT AND POVERTY/SOCIAL ANALYSIS TABLE .................................................. 47 ANNEX 5: IMPACTS OF MAJOR DISASTERS AND NATIONAL DECLARATIONS OF DISASTERS ................. 48 ANNEX 6: EVOLUTION OF THE DRM FRAMEWORK IN GUATEMALA ................................................... 51 ANNEX 7: ORGANIZATION CHART OF THE NATIONAL COORDINATOR FOR DISASTER REDUCTION....... 52 ANNEX 8: GENERAL DESCRIPTION OF A DISASTER RISK FINANCING STRATEGY ................................... 53 Page 1 LIST OF FIGURES Figure 1. Macro-fiscal impacts associated with severe events 12 Figure 2. Objectives of the Strategic Lines of the DRFS 22 Figure 3. Overall Poverty and Earthquakes intensity 30 Figure 4. Extreme Poverty and Earthquakes Intensity 30 LIST OF TABLES Table 1. Guatemala - Key Economic Indicators, 2016–2021 9 Table 2. Guatemala - Fiscal Accounts of the Central Government, 2016–2021 10 Table 3. Guatemala - Balance of Payments Financing Requirements and Sources, 2015 –2021 11 Table 4. Scaling up the first CAT DDO 16 Table 5. DPL Prior Actions and Analytical Underpinnings 25 Table 6. Summary Risk Ratings 35 The Second Disaster Risk Management Development Policy Loan with a Catastrophe-Deferred Drawdown Option was prepared by an IBRD team led by Lizardo Narvaez Marulanda (TTL, GSU10) and Zoila Victoria Navarro Portocarrero (co- TTL, GSU10). The Task Team includes Jose Simon Rezk (GGOLF), Daniel Jorge Arguindegui (GGOPL), Monica Lehnhoff (GGOPL), Ana Isabel Aguilera De Llano (GSU10), Claudia Patricia Pacheco Florez (GSU10), Gabriela Grinsteins (LEGLE), Escarlata Baza Nunez (LEGLE), Waleska Magalhaes Pedrosa (LCC5C), Simon Davies (GMTLC), Mirtha Liliana Escobar Saenz (GSU10), Luis Alberto Aviles (LCC2C), Gabriel Roberto Zaourak (GMTLC), Concepcion Aisa Otin (FABBK), German Caruso (GPV04), Rodrigo Andres Donoso Arias (GSU10), Jessica Carolina Grisanti Bravo (GSU10), Sebastian Wilhelm Forsch (GSU10), and Osmar Eleazar Velasco Lopez (GSU10). This operation was undertaken under the general guidance of Country Director, Yaye Seynabou Sakho, (Director, LCC2C); Ede Jorge Ijjasz-Vasquez (Senior Director), Ming Zhang (Practice Manager, GSU10) Homa-Zahra Fotouhi (Country Manager, LCCGT), Andre C. Guedes (LCC2C), Jovana Stojanovic (LCC2C), and Christian Peter (LCC2C). The peer reviewers were Enrique Pantoja (OPSIL), Eric Dickson (GSU13) and Tiguist Fisseha (GSU13). The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) SUMMARY OF PROPOSED FINANCING AND PROGRAM BASIC INFORMATION Project ID Programmatic P159710 No Proposed Development Objective(s) The PDO is to help strengthen Guatemala’s legal, institutional and financial framework to manage the impact of adverse natural events and climate risk. Organizations Borrower: REPUBLIC OF GUATEMALA Implementing Agency: MINISTRY OF PUBLIC FINANCE PROJECT FINANCING DATA (US$, Millions) SUMMARY Total Financing 200.00 DETAILS International Bank for Reconstruction and Development (IBRD) 200.00 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 Substantial Page 3 The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) . Results Operation Type Development Policy Loan with a Catastrophe Deferred Drawdown Option The PDO is to help strengthen Guatemala’s legal, institutional and financial framework to manage the impact of adverse natural events and climate risk. Program Development This objective will be achieved by supporting policy reforms under two pillars: Objective (PDO) and Pillars of the • Pillar A - Strengthening the legal and institutional framework for Disaster Risk Operation Management (DRM) and Climate Change Adaptation (CCA). • Pillar B - Incorporating disaster risk into the management of public finances for fiscal resilience. Pillar A - Strengthening the legal and institutional framework for DRM and CCA • Percentage of municipalities that have included disaster risk reduction activities in their local development plans. • Percentage of municipalities that have created or updated local DRM committees in line with the new DRM framework. • Number of educational facilities constructed in compliance with the technical criteria adopted by the Ministry of Education about safe location and seismic-resistant infrastructure. • National Institute of Seismology, Volcanology, Meteorology and Hydrology (INSIVUMEH), restructured, strengthened and providing enhanced hazard information related to volcano activity. • Coordination of humanitarian assistance guided by the updated National Humanitarian Assistance Manual adopted by the Executive Secretariat of the National Coordinator for Disaster Reduction (SE-CONRED). • Number of local communities with environmental risk evaluations completed and disseminated and trained to protect strategic ecosystems and the livelihoods Result Indicators provided by them. Pillar B - Incorporating disaster risk into the management of public finances for fiscal resilience • Number of new financial instruments established in line with the Disaster Risk Financing Strategy (DRFS). • Accelerated response time in providing emergency funds maintained after the declaration of emergency. • Operations Manual for the implementation of the DRFS adopted by the Ministry of Public Finance (MINFIN). • Number of new emergency procurement tools and mechanisms in place for dealing with adverse natural events. • Number of fiscal risk budget reports elaborated by the Directorate of Fiscal Transparency that consider natural hazards and climate risks. • Number of government institutions implementing thematic classifiers in DRM and CCA in line with the new conceptual guide and implementation manual. • Permanent National DRM Fund annually funded and operational in line with the . DRFS. Page 4 The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) IBRD PROGRAM DOCUMENT FOR A PROPOSED SECOND DISASTER RISK MANAGEMENT DEVELOPMENT POLICY LOAN WITH CAT DDO TO THE REPUBLIC OF GUATEMALA 1. INTRODUCTION AND COUNTRY CONTEXT 1. The proposed operation is a stand-alone US$200 million Disaster Risk Management Development Policy Loan (DPL) with a Catastrophe Deferred Drawdown Option (CAT DDO). It supports the efforts of the Government of Guatemala (GoG) to strengthen the legal and institutional framework for disaster risk management (DRM) and climate change adaptation (CCA), and to quickly mobilize resources in the aftermath of disasters in the country. This operation would be the second CA DDO in the country, it builds on the success and lessons learned from the first DPL with CAT-DDO (P112544) disbursed in 2010. 2. Guatemala is among the countries most affected by climate events and geophysical hazards. 1 Located on the Ring of Fire between the Atlantic and Pacific Oceans,2 the country is frequently affected by earthquakes, landslides, and volcanic eruptions. Guatemala ranks 11th in the world among the countries most affected by climate-related events3 such as floods, hurricanes, and extreme weather. Recurrent droughts related to El Niño in the Dry Corridor endanger crops, livestock, and food security. Rapid urbanization and climate change further increase disaster risk in the country. As a result, vulnerable households may only be one disaster away from falling below the poverty line or sliding further back into poverty. 3. Guatemala’s economic and social development continue to be regularly interrupted by earthquakes, volcanic eruptions, hurricanes, and flooding. Major disasters in Guatemala include the 1976 earthquake, which resulted in more than 23,000 deaths and damages estimated at 20.7 percent of GDP; Hurricane Mitch (1998), which caused estimated damages of 4.2 percent of GDP; Hurricane Stan (2005), which caused damages estimated at 4.1 percent of GDP, the eruption of the Pacaya volcano and the Agatha tropical storm (2010), which caused damages at 3.9 percent of GDP; and the eruption of El Fuego volcano (2018), which caused damages at 0.3 percent of GDP4. In these events the Government had to interrupt ongoing service delivery and development programs in sectors such as health and education to finance immediate needs for recovery and reconstruction (Annex 5). 4. Poverty in Guatemala has increased in recent years and many households remain vulnerable. Between 2006 and 2014, poverty measured at the upper (US$5.5 per day) and lower middle-income (US$3.2 per day) class lines increased from 44.4 percent to 50.1 percent and from 24.7 percent to 25.3 percent, respectively. These increases were largely driven by price rises, particularly for food, in response to the increasing oil prices and disaster related events, such as the drought and volcano eruptions. Poverty is highest in rural areas, but there has also been a striking increase in urban poverty. Poverty remains concentrated among indigenous groups, who make up just 42 percent of the population but account for 52 percent of the total poor and 66 percent of the extreme poor. At national poverty lines, almost 80 percent of indigenous 1 Such as low-frequency-high-impact events (earthquakes, volcano eruptions, and hurricanes) and high-frequency-low-impact natural events (floods, landslides, and droughts). 2 The Ring of Fire is a continuous series of oceanic trenches, volcanic arcs, and plate movements, with over 450 volcanoes. 3 Global Climate Risk Index 2018, Germanwatch. 4 Post disaster needs assessments conducted by ECLAC in coordination with the World Bank and Guatemala Government. Page 5 The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) people lived in poverty in 2014, compared to 47 percent non-indigenous. While there have been no new poverty data since 2014, poverty, at the upper income line, is estimated at 48.8 percent in 2018, for a total of 8.4 million people as continued low GDP per capita growth and minimal social spending hamper poverty reduction.5 As such, vulnerable households may only be one disaster away from falling below the poverty line or sliding further back into poverty. In 2010, for instance, poverty rates rose by 5.5 percentage points in areas flooded by tropical storm Agatha6. This meant that nearly 80,000 additional families fell below the poverty line. 5. Guatemala is an extreme outlier in the region in terms of chronic malnutrition and almost half of all children in the country suffer from stunting. Although the urban-rural gap in malnutrition closed from 17 percent in 2008 to 11 percent in 2014,7 this was mainly due to an increase in malnutrition rates in urban areas. Guatemala’s high chronic malnutrition among children is also an indication of the high levels of poverty and inequality in the country. Malnutrition represents a substantial cost to Guatemalans, limiting opportunities to participate in the economy and to contribute to the country’s social and economic development. Vulnerability to natural adverse events and climate risks further exacerbate malnutrition. For example, droughts have severe impacts on the dietary diversity and reduce overall food consumption. 6. Poor households, and women are particularly vulnerable to and disproportionally affected by natural disasters. There is increasing evidence of the relationship between the impact of natural hazards and poverty. A recent World Bank report found that after Tropical Storm Stan affected Guatemala, the probability of child labor increased by 7.3 percent in departments hit by the storm.8 Furthermore, in the aftermath of disasters, women experience higher rates of mortality and morbidity and diminishment in livelihoods.9 Several underlying factors exacerbate women’s vulnerability to the impacts of disasters, particularly when their rights and status are considered inferior to those of men, such as lack of means to recover lost assets, limited livelihood options, and restricted access to education and basic services. At the same time, women can be powerful agents of change, thus the empowerment of women is an important ingredient for building resilience.10 7. Considering the high impact of natural adverse events on Guatemala’s social welfare and economic growth, the Government is shifting towards a more robust and comprehensive approach to manage disaster and climate risks. Disasters present a significant financial shock for the Government and can reverse years of hard-earned growth and poverty reduction efforts. Major public sector budget shocks in the aftermath of natural disasters can result in diminished coverage and quality of public services (particularly for the poor) and higher deficit levels. The GoG has identified natural hazards and climate risks as a contingent liability that 5The next data collection exercise is planned for 2020 or 2021. 6 Hallegatte, Stephane; Vogt-Schilb, Adrien Camille; Bangalore, Mook; Rozenberg, Julie. 2016. Unbreakable: building the resilience of the poor in the face of natural disasters (English). Climate Change and Development series. Washington, D.C: World Bank Group. http://documents.worldbank.org/curated/en/512241480487839624/Unbreakable-building-the-resilience-of-the-poor-in-the-face- of-natural-disasters 7 World Bank. 2018. Guatemala’s Water Supply, Sanitation, and Hygiene Poverty Diagnostic: Challenges and Opportunities . 8 Ishizawa Escudero, Oscar Anil, Montero Miranda, and Jose Juan. 2016. “Weathering Storms: Understanding the Impact of Natural Disasters on the Poor in Central America.” Policy Research Working Paper WPS 7692, World Bank, Washington, DC. 9 Trohanis, Zoe Elena; Zuzana Svetlosakova; Helene Carlsson-Rex. 2012. Making women's voices count in natural disaster programs in East Asia and the Pacific. East Asia and Pacific Region social development notes. Washington, DC: World Bank. 10 World Bank. 2011. Gender and Climate Change: Three Things You Should Know. Washington, DC: World Bank. Page 6 The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) affects the country’s fiscal sustainability, thereby undermining its development path. Financial stress and shortage of liquidity in the aftermath of natural disasters lead to reduced coverage and provision of public services, disproportionally affecting the poor. To address these impacts, the GoG has initiated a series of policy reforms intended to strengthen the legal framework for DRM and CCA. 8. Climate change increases the frequency and severity of natural hazards. In 2009, the worst drought in 30 years hit Guatemala, reducing the harvest of staples like maize and beans by up to 50 percent and affecting 2.5 million Guatemalans.11 Climate trends show that increased precipitation threatens areas already prone to flooding and landslides, as many of these areas in Guatemala have inadequate transport infrastructure and unregulated land use. Over the next 30 to 50 years, the country’s average temperature is expected to increase between 1.5°C and 4.5°C. This is likely to cause more frequent and prolonged heat waves and droughts. 9. Guatemala is also highly exposed to public health risks, including contagious outbreaks of dengue, chikungunya, and zika.12 According to data of the Department of Epidemiology from the past six years, in 2014 alone, almost 20,000 cases of dengue were reported, followed by 18,279 cases in 2015. Moreover, from 2014 to 2016, the department registered 63,745 cases of zika. The health system faces significant challenges including low health spending as well as limited and unequal access to health services, combined with a high disease burden. 10. Recognizing the need to enhance the country's policy and institutional framework in the areas of DRM and CCA, the GoG requested the proposed operation. The operation would support the modernization of Guatemala’s legal and institutional framework to manage disasters and climate risks; and increase the Government’s capacity to quickly mobilize resources in the aftermath of natural disasters. The proposed operation reflects lessons learned from Guatemala’s active participation in regional disaster risk management initiatives, the use of the first CAT DDO (P112544), and the experience with the most recent disaster, the El Fuego volcano eruption (2018), for which, in the absence of any other financial instrument, Congress fast tracked the approval of the World Bank-financed First Programmatic Improved Governance of Public Resources and Nutrition Development Policy Financing (US$250 million) to address the liquidity shortage. The proposed operation can also be activated to provide timely liquidity in the case of health-related emergencies. 2. MACROECONOMIC POLICY FRAMEWORK 2.1. RECENT ECONOMIC DEVELOPMENTS 11. Guatemala’s real GDP growth is forecasted to remain at around 3 percent between 2019-2020. After four quarters of deceleration, the economy gained momentum in the second semester of 2018 raising the forecast from 2.7 percent to 3 percent. Strong remittance inflows, which grew in real terms at 10 percent, have fueled private consumption and imports, which rose by 4.4 percent, in part due to increased consumer demand but also due to oil prices that translated into higher energy and raw materials costs. At the same 11World Bank (2018). Guatemala Country Adaptation Profile. Climate Change Knowledge Portal (online, accessed August 28, 2018). 12Class, Deena, A. Sunil Rajkumar, and Eleonora Cavagnero. 2014. Guatemala - Health Financing Profile (English). Health Financing Profile; Guatemala. Washington, DC: World Bank. Page 7 The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) time, exports declined 2.0 percent in 2018 driven by terms of trade losses for key export products such as sugar, rubber and coffee. On the supply side, growth is positive in almost all sectors except mining. Sectors that showed good dynamism in 2018 were: electricity, gas and water supply (6.4 percent y/y); wholesale and retail (4.4 percent y/y); and finance and insurance (4.4 percent y/y). Finally, after having been affected by a severe drought and a volcano’s eruption, agriculture recovered at the end of 2018 with a 2.5 percent y/y growth. 12. Investment has been affected in recent years due to political constraints. While investment rebounded in 2018, there are significant investment needs in the economy to support long-term economic growth and development. Corruption scandals and congressional gridlock over budget approval in 2017, has affected investment. On the other hand, mining and quarrying sectors have been affected by a court order that suspended activities at a large mine due to the lack of consultation with affected communities. 13. Despite tax revenue collection levels being among the lowest worldwide, the fiscal deficit remains contained. With central government’s revenue at only 11 of GDP, the main fiscal challenge of Guatemala is the need to raise additional revenues to finance key public investment projects. In 2018, the fiscal deficit stood at 1.7 percent of GDP, which is 0.4 percentage points higher than in 2017. This increase is explained by the growth in expenditures in the second half of 2018. In particular, capital expenditures had a significant boost as a result of reconstruction efforts after the eruption of El Fuego volcano and the beginning of the election cycle, rising 12.2 percent in real terms. Tax revenue experienced a small increase in real terms of 0.1 percent, mostly explained by lower collection of direct taxes. 14. The current account has maintained a small surplus, with remittances inflows offsetting trade deficits. Agricultural exports are one of the drivers of export growth, notably coffee and cardamom. However, this leaves the country exposed to weather and climatic shocks as well as crop diseases, all of which have hit the country in recent years. Light manufacturing—such as garments—is also an important driver of exports. Remittance inflows are also significant and reach over 13 percent of GDP in 2018. 15. Inflation remains under control, anchored in inflation targeting. 2018 annual inflation at 3.8 percent is within the official range and below the Central Bank’s upper bound target of 5 percent. The monetary authority reduced the policy rate in November 2017 from 3 percent to 2.7 percent to support economic activity, keeping the rates unchanged since then. However, as a result of climate shocks and the El Fuego volcano eruption, food prices have increased rapidly over the past months (7.2 percent compared to headline inflation). 16. Guatemala’s financial sector is dominated by banks and is considered sound. Banks are profitable, liquid, well capitalized, and domestically funded. The banking system has adequate financial soundness indicators, with nonperforming loans at 2.2 percent as of February 2019, and a capital adequacy ratio of 14.9 percent, above the Basel III requirements (all financial institutions are well above this requirement). Banking credit stepped up in 2018 by growing 3.6 percent in real terms after null growth in 2017, allowing new investments in manufacturing, telecommunications and construction. Financial depth remains below regional levels. Commercial bank deposits in foreign currency remained relatively stable at around 21 percent of total deposits. There are also currency mismatches that stem from a high share of dollar denominated loans and unhedged borrowers, generating risks to the system in the event of a large depreciation. Given the stability of the exchange rate, this risk has not materialized. Page 8 The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) 2.2. MACROECONOMIC OUTLOOK AND DEBT SUSTAINABILITY 17. Guatemala’s macroeconomic outlook is expected to remain stable over the medium term. Growth is expected to remain between 2.7 and 3.3 percent during the 2019-21 period, in the context of an uncertain external environment, tightened monetary conditions in the United States (US), and higher oil prices (Table 1). Services are expected to remain the main growth drivers during 2019-2021, contributing on average 2.4 percentage points to real GDP growth. Private consumption is expected to grow at a solid pace, averaging 3.6 percent during the 2019-21 period. Guatemala’s ability to reduce poverty in a more significant and sustained manner has been limited by historically low real GDP growth rates. 18. The current account surplus is expected to decline slightly on the back of increased consumer imports and some demand for investment goods. The current account surplus is projected to decline to 0.6 percent of GDP by the end of 2021. Oil prices are expected to increase during this time, increasing imports. Remittances, which grew at 10 percent in real terms in 2018, are expected to continue to grow, albeit at a more moderate pace over the 2019–2021 horizon. Table 1. Guatemala - Key Economic Indicators, 2016–2021 2016 2017 2018 e 2019 f 2020 f 2021f Real GDP growth, at constant market prices 3.1 2.8 3.0 3.3 2.7 3.0 Private consumption 4.2 3.6 4.7 4.3 3.5 3.2 Government consumption –2.5 1.5 4.3 3.8 3.6 2.4 Gross fixed capital investment 2.7 3.1 5.1 4.2 3.5 3.7 Exports, goods, and services 1.7 2.1 -2.0 2.1 3.0 4.0 Imports, goods, and services 3.5 2.3 4.4 5.0 5.0 4.0 Real GDP growth, at constant factor prices 3.4 2.9 3.0 3.3 2.7 3.0 Agriculture 3.1 2.9 2.5 3.2 2.0 2.0 Industry 3.1 1.8 2.1 2.3 2.6 2.6 Services 3.5 3.3 3.5 3.8 3.0 3.4 Inflation (Consumer price index) 4.4 4.4 3.8 4.0 3.9 3.9 Current account balance (% of GDP) 1.5 1.6 1.5 1.5 1.3 0.6 Fiscal balance (% of GDP) –1.1 –1.3 -1.7 -1.9 -2.0 -1.8 Debt (% of GDP) 24.5 23.7 23.7 23.8 24.1 26.6 Primary balance (% of GDP) 0.4 0.1 -0.3 -0.5 -0.3 -0.1 International poverty rate (US$1.9 in 2011 PPP)a,b 8.1 8.1 7.9 7.8 7.6 7.5 Lower-middle-income poverty rate (US$3.2 in 2011 23.6 23.3 23.0 22.7 22.5 PPP)a,b 22.2 Upper-middle-income poverty rate (US$5.5 in 2011 47.6 47.3 46.8 46.2 46.0 PPP)a,b 45.6 Source: World Bank, Poverty and Equity and Macroeconomics, Trade and Investment Global Practices. Notes: e = estimate, f = forecast. (a) Calculations based on Socio-Economic Database for Latin America And the Caribbean harmonization, using 2014 Living Conditions Survey (Encuesta de Condiciones de Vida, ENCOVI). Nowcast: 2015–2018. Forecasts are from 2019 to 2020. (b) Projection using neutral distribution (2014) with pass-through = 0.7 based on GDP per capita in constant local currency units. Page 9 The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) 19. Inflation is projected to remain within the range targeted by the monetary authority, with expectations anchored by prudent monetary policy. Inflation rates are expected to remain within the official 3–5 range. However, cost pressures coming from the El Fuego volcano eruption and the rise of global oil prices might pose challenges to the central authority and could have significant impacts on poverty. Nevertheless, inflation is expected to remain within the targeted range, as the Central Bank is likely to tighten monetary policy to anchor expectations. The efficiency of monetary policy will continue to be partly hampered by low financial intermediation. In addition, adverse weather conditions and natural hazards represent a source of temporary inflation. 20. The fiscal deficit is projected to remain moderate. Public spending is expected to remain contained over the medium term, with the GoG generally restraining both capital and social expenditures to keep the fiscal balance from deteriorating but limiting the resources for long term growth and poverty reduction. Fiscal revenues are projected to remain stable at around 11 percent of GDP—among the lowest in the world. Continued widespread tax evasion, informality, low rates and narrow bases, coupled with weak tax administration capacity, will continue to hinder the effectiveness of fiscal policy in fulfilling some of its key objectives, including service delivery and infrastructure, to support growth. Overall, the deficit is expected to remain around the -2 percent of GDP mark during the 2019–2021 projection period (Table 2). Table 2. Guatemala - Fiscal Accounts of the Central Government, 2016–2021 2016 2017 2018 e 2019 f 2020 f 2021 f Revenues 11.0 10.8 10.6 10.7 10.9 11.1 Taxes 9.0 8.9 9.0 9.2 9.4 9.5 Direct taxes 3.9 3.7 3.7 3.9 4.0 4.1 Indirect taxes 5.1 5.2 5.2 5.4 5.4 5.4 Nontax revenues 2.0 1.9 1.6 1.5 1.5 1.5 Expenditures 12.1 12.1 12.2 12.5 12.8 12.8 Expenditures on goods and services 5.5 5.3 5.4 5.5 5.6 5.6 Interest payment 1.5 1.4 1.4 1.4 1.6 1.7 Other expenditures 5.1 5.3 5.4 5.7 5.6 5.6 Primary balance 0.4 0.1 -0.3 -0.5 -0.3 -0.1 Balance –1.1 -1.3 -1.7 -1.9 -2.0 -1.8 Public debt 24.5 23.7 23.7 23.8 24.1 26.6 Source: Guatemalan authorities and World Bank staff estimates. 21. The trajectories of public debt and total external debt are sustainable and resilient to negative shocks. Under the current policies, central government debt is sustainable at 23.8 percent of GDP. However, its position is less favorable when debt is compared to revenues.13 22. Although stable, Guatemala’s macroeconomic outlook is subject to downside risks. Domestic risks are largely political in nature. For instance, the limited capacity to reach agreements in Congress has delayed the approval of some key investment projects and tax policy reforms seeking to expand the revenue basis, as 13 This paragraph is based on the IMF’s debt sustainability analysis prepared for the latest Article IV consultations with Guatemala (IMF Country Report No. 18/154, June 8, 2018). Page 10 The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) well as affecting spending limits and the speed of budgetary execution. These issues have been closely monitored by credit rating agencies. Guatemala is also highly vulnerable to external shocks. Uncertainty in global market conditions could affect Guatemala’s macroeconomic performance. Despite increased remittances in 2017 and 2018, a rise in return migration from the US could affect the flow of foreign currency through remittances. A reduction of these inflows would negatively affect economic activity and labor markets through consumption, and hinder poverty reduction. The interest rate tightening in the US could impact external debt costs, while disorderly financial market movements could reduce access to foreign capital. The World Bank supported tax policy and administration reforms through the First Improved Governance of Public Resources and Nutrition DPL (P160667). Challenges remain and include mobilizing private capital, enhancing revenues to enable fiscal consolidation, and creating fiscal space for strategic expenditures. 23. Despite those risks, Guatemala’s overall macroeconomic policy framework is deemed adequate for the purpose of this operation. Guatemala’s debt-to-GDP ratio is among the lowest in Latin America, inflation is low and within the target range, the fiscal deficit is contained, and the balance of payment financing needs are within the Government’s control (Table 3). As a result, the economy is stable and shows little macroeconomic volatility. However, one of the greatest challenges in Guatemala is low tax revenue, which highlights the urgency to adopt measures that generate greater resilience of the public finances. Table 3. Guatemala - Balance of Payments Financing Requirements and Sources, 2015–2021 2015 2016 2017 2018 e 2019 f 2020 f 2021 f Financing requirements (US$) 4,272 3,433 3,554 3,767 4,435 4,865 5,423 Current Account deficit -96 1,023 1,189 1,185 1,207 1,086 528 Medium and Long-term debt amortization plus short-term 4,369 2,410 2,365 2,579 3,228 3,779 4,895 debt Financing sources (US$) 4,272 3,433 3,554 3,764 4,435 4,865 5,423 Capital account flows (net) 0 0 0 0 0 0 Foreign direct investment 1,104 1,068 1,001 998 1,029 1,054 1,084 Public sector borrowing 935 749 998 1,135 1,467 1,654 2,011 Other capital flows (net) 2,709 3,008 4,121 2,130 1,938 2,157 2,328 Changes in reserves (+ decrease) -475 -1,392 -2,566 -500 0 0 0 Source: Guatemalan authorities, IMF and World Bank staff estimates. Macro-fiscal impacts associated with severe events 24. Disasters can create significant pressure on public spending, thereby potentially undermine the stability and sustainability of public finances. The impact of disasters can slow down economic activity, which, in turn, leads to declining tax revenues. Moreover, disasters demand public expenditure to respond to disaster-related needs and boost economic activity. As a result, fiscal deficits increase, which, in the absence of disaster risk financing instruments, can also lead to an increase in the debt-to-GDP ratio (Figure 1). MINFIN estimated that the impacts of the past severe events, such as tropical storms Mitch, Stan, and Agatha14, as well as the eruption of the Pacaya volcano, raised the fiscal deficit by 0.5 percentage points of GDP. The role of Ministries of Finance in the comprehensive management of fiscal risk scenarios is crucial, particularly in the 14 GIZ and MINFIN. 2012 Page 11 The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) financial management of the recovery process. Incorporating appropriate risk considerations into development planning and fiscal management can lead to the reduction of underlying risk through ex ante macro-fiscal policies and enhanced implementation of disaster response measures. A 2016 International Monetary Fund (IMF) study shows that the average fiscal cost associated with contingent liabilities for disasters for emerging economies reaches 2 percent of GDP.15 Figure 1. Macro-fiscal impacts associated with severe events 2.3. IMF RELATIONS 25. The Government maintains an ongoing dialogue with the IMF on macroeconomic policy in Guatemala. An Article IV Consultation took place in 2018. The IMF commended Guatemala for maintaining a solid record of macroeconomic stability and resilience, supported by prudent economic management. However, it was also noted that structural reforms are essential to sustain higher growth, help attract private investment, make growth more inclusive and reduce poverty (see Annex 2 for more details). 3. GOVERNMENT PROGRAM 26. The Government’s program is based on the National Development Plan (K’atun), which recognizes important synergies between DRM and CCA. Announced in 2014, K’atun outlines 36 priorities and 80 goals related to human welfare, wealth for all, natural resources, urban and rural development, and the State as guarantor of human rights and development driver, incorporating the important notions of sustainability and resilience as cross-cutting themes throughout society, economy, and the environment. 27. The GoG has firmly placed DRM in its development agenda and has continuously strengthened the legal framework, but responsibilities for DRM and Climate Change Adaptation (CCA) still require further clarification. Based on earlier efforts on adopting comprehensive policies for DRM, the Government is committed to improving its DRM legal framework. The current structure for disaster response, the National Coordinator for Disaster Reduction (Coordinadora Nacional para la Reducción de Desastres, CONRED), was established in 1996 with the goal of strengthening the national capacity to prepare and respond to emergencies and disasters.16 CONRED is supported by an Executive Secretariat (SE-CONRED), and its structure 15 Bova, Elva, Marta Ruiz-Arranz, Frederik G. Toscani, and H. Elif Ture. 2016. “The Fiscal Costs of Contingent Liabilities: A New Dataset.” IMF Working Paper 16/14. 16 Law 109 of 1996 regulated by Government Accord No. 49-2012. Page 12 The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) and responsibilities are decentralized and expanded throughout sectors and territorial representations at the regional, departmental, municipal, and local levels through respective committees. In 2011, the GoG adopted the National Disaster Risk Reduction Policy,17 which was updated in 2016 to be harmonized with the Sendai Framework for Disaster Risk Reduction (SFDRR). This Policy represents a first attempt of shifting the paradigm from relief-centric response to a more proactive prevention-driven approach, intended to preserve development gains and minimize loss of life, livelihood, and property (see Annex 6). Despite these efforts, the national DRM Policy is not binding. Consequently, the legal framework that governs DRM is still the 1996 Law, which does not address key processes of DRM, such as risk identification and risk reduction. 28. The GoG issued guidelines for incorporating DRM, CCA, and territorial development into public sector processes in line with the National Development Plan. The GoG presented the General Government Policy 2016–2020 in March 2016 (Act No. 01-2016), which establishes guidelines for all public sector institutions to incorporate specific actions related to environmental sustainability, risk reduction, and CCA within institutional processes, public policies, plans, programs, projects, and budgets. Moreover, the Ministry of Education (MINEDUC) has defined specific resilience criteria for new school infrastructure and building modifications that go beyond traditional building codes and practices. Among others, these criteria address critical issues for school safety, such as safe location and seismic-resistant design for building facilities. These guidelines, known as the “Manual of Normative Criteria for the Architectural Design of Official Educational Centers,”18 were approved through Ministerial Accord (No. 1233-2016 of June 6, 2016) and are mandatory for all new public school infrastructure commissioned by MINEDUC. 29. In 2013, Guatemala became the second country in Latin America to adopt a Climate Change Law19 and has since stepped up its commitment to mitigation, adaptation, and nature-based DRM solutions. The law grants responsibilities and competences that transcend those of the Ministry of Environment and Natural Resources (Ministerio de Medio Ambiente y Recursos Naturales, MARN) to other governmental and nongovernmental sectors. Following Guatemala’s accession to the Paris Agreement of the United Nations Framework Convention on Climate Change in April 2016, the country presented a National Action Plan on Climate Change. The National Action Plan adopts practices to improve adaptation capacities, elaborates proposals for the mitigation of climate change, and calls upon MARN as the designated national authority on climate change to play a leading role in coordinating the Government’s agenda in this area.20 As a next step, MARN created the Department of Integral Environmental Risk Management in September 2018 in an effort to strengthen its institutional DRM and CCA framework in the environmental sector.21 The department is responsible for introducing the concept of ‘nature-based DRM,’ which is an approach that uses natural systems to reduce disaster risks. Examples include the use of natural wetlands for flood mitigation or forests for regulating runoff for water supply or hydropower generation. These nature-based initiatives can either be implemented as stand-alone activities or as parts of hybrid green-gray infrastructure projects. The work of the new department will complement that of the Climate Change Unit, which offers technical and scientific support and helps enhance participation in early warning activities related to climate variability. 17 Following Hurricane Stan (2005), a consultative process led to the adoption of the 2009-2011 National Program for Disaster Prevention and Mitigation. The National DRM Policy of 2011 was established as a continuation of this program. 18 With support from German cooperation (Kreditanstalt für Wiederaufbau, KfW) and the World Bank. 19 (Decree 7-2013 of the Congress of the Republic). 20 The National Action Plan on CC was approved in October 2016 by the National Climate Change Council through Act 4-2016. 21 Ministerial Accord No. 339-2018, dated September 21, 2018. Page 13 The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) 30. MINFIN is implementing mechanisms to improve financial resilience against disaster and climate risk and strengthening the management of fiscal risks. On April 18, 2018, MINFIN approved a Disaster Risk Financing Strategy (DRFS) (Ministerial Accord 206-2018), becoming the sixth country in LAC to have this type of financial tool formally approved. The strategy advocates for the diversification of financial instruments to respond to emergencies and promotes efficient and transparent mobilization and execution of disaster risk- related spending. Analyses of fiscal risks related to disasters were also included in the congressional discussions of the budget for years 2017, 2018, and 2019 to reflect the urgent need for implementing fiscal policies against disasters risk in order to protect Guatemala’s development achievements. 31. Likewise, the Government has implemented tools and mechanisms to enhance the transparency of public spending and speed up emergency procurements. MINFIN, in coordination with the DRM Agency (Executive Secretariat of the National Coordinator for Disaster Reduction [Secretaría Ejecutiva de la Coordinadora Nacional para la Reducción de Desastres, SE-CONRED]) and the Secretariat for Planning and Programming of the Presidency (Secretaría de Planificación y Programación de la Presidencia, SEGEPLAN), is enhancing and expanding the use of DRM and CCA budget classifiers to improve the efficiency of public spending through a results-based budgeting approach that will help identify and plan the use of public resources in all DRM processes and across the budget cycle. Moreover, MINFIN created a Fiscal Transparency and Procurement Vice-Ministry, which demonstrates the Government’s commitment to enhance procurement procedures to facilitate the purchase of goods and services without compromising transparency and fairness. 32. The Government has made progress in the areas of land use planning and resilient urban development to reduce the exposure of human settlements to natural hazards. In 2017, the GoG launched the Guatemala Urban Agenda22, which creates the foundation for the urban development of the country over the next 20 years. As part of the Urban Agenda, the Vice Ministry of Housing has formulated a draft guideline that lays out the conceptual and institutional framework for slum upgrading, which represents an import step toward enhancing urban resilience in Guatemala. As a first step, the Government will focus on building new residences to address the quantitative housing deficit. 33. The Ministry of Public Health and Social Assistance (MSPAS) is an integral part of the National Response Plan under the responsibility of SE-CONRED. MSPAS has established a risk management unit in charge of disaster prevention in public hospitals and health centers. Currently, all health districts participate in trainings on the institutional response plan. Moreover, an institutional emergency operations center is being created and an intersectoral operations center is intended to follow at a later stage. 34. The MSPAS’s Department of Epidemiology is in charge of monitoring, evaluating, preventing, and controlling public health risks and manages the National Epidemiological Surveillance System (Sistema Nacional de Vigilancia Epidemiológica, SINAVE).23 The SINAVE is based on information provided on a daily basis by health districts and hospitals and allows for a permanent monitoring of epidemiological developments and potential outbreaks. An epidemiological alert can be issued if a pre-defined threshold of verified cases of specific communicable diseases is reached. The alert informs about the situation and activates the respective response protocols for patient care and vector management (if applicable). In 2016, 22 Approved by Administrative Act Number 06-2017 of the National Council for Competitiveness, PRONACOM. 23 The SINAVE is available on the website of the MSPAS under http://epidemiologia.mspas.gob.gt/. Page 14 The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) the Department elaborated and updated the epidemiological surveillance protocols for public health risks for dengue, chikungunya, and zika and developed a care guide for mothers and newborns with zika virus infection. To this date no state of emergency has been declared in Guatemala because of a predominantly or exclusively health-related event. However, if justified, the MSPAS confirmed that it would be possible to declare a state of emergency in accordance with the Public Order Law based on an epidemiological alert. 4. PROPOSED OPERATION 4.1. LINK TO GOVERNMENT PROGRAM AND OPERATION DESCRIPTION 35. The PDO is to help strengthen Guatemala’s legal, institutional and financial framework to manage the impact of adverse natural events and climate risk. This objective will be achieved through reforms under two pillars: • Pillar A - Strengthening the legal and institutional framework for DRM and CCA. • Pillar B - Incorporating disaster risk into the management of public finances for fiscal resilience. 36. The proposed operation is expected to contribute to the Government’s objective of reducing disaster risk and is fully aligned with the SFDRR, adopted by the GoG at the Third UN World Conference for Disaster Risk Reduction in Sendai, Japan, in March 2015. The 2016 National Disaster Risk Reduction Policy highlights the GoG’s commitment to DRM and alignment with the SFDRR. The policy actions supported by this DPL with CAT DDO will support the Government’s efforts to update its legal framework and institutional structure for DRM in line with international standards and promote fiscal resilience by enhancing policies to safeguard efficient and transparent budget allocation while mobilizing resources quickly in the event of a natural adverse event or health related emergency. 37. The proposed operation builds on the success and lessons learned from the implementation of the first DPL with CAT DDO (P112544), which helped enhance the GoG’s capacity to implement its DRM Program and provided financial resources to quickly respond to disasters. The first DPL with CAT DDO disbursed US$85 million in response to two adverse natural events that occurred in 2010, the eruption of Pacaya Volcano and the Tropical Storm Agatha. The provision of financial liquidity helped the GoG in meeting urgent fiscal needs related to response, recovery and reconstruction. The outcome of the first DPL with CAT DDO, evaluated in the Implementation Completion and Results Report (ICR) as Moderately Satisfactory, helped the GoG improve its response capacity to mobilize resources in case of disasters, and introduced the broader concepts of DRM within MINFIN. The engagement under the current CAT DDO has led to a second generation of reforms, based on previous efforts (Table 4) and the incorporation of lessons learnt from the El Fuego volcano eruption. For example, the proposed operation supports the GoG to complete the analysis of fiscal impacts due to adverse natural events, and to complete and approve the DRFS (initiated under the first CAT DDO). Moreover, the first operation encouraged the development of additional financial instruments tailored to the country context. In response, the proposed operation supports the establishment of thematic budget classifiers and the analysis of disaster and climate risks in the annual General Budget report. Lastly, it supports the development of a new legal DRM framework, which was identified by the first operation as an important step towards more comprehensive DRM. Page 15 The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) Table 4. Scaling up the first CAT DDO24 First DPL with CAT DDO (P112544) – 2010 Second DPL with CAT DDO (P159710) – 2019 Establishment of a National System for DRM, which defines procedures and instruments to enhance National Program for Disaster Reduction and risk knowledge and reduction, disaster Prevention developed (4-year program). preparedness and response, and resilient recovery. [prior action A.1] 100 municipalities (29% of the country) include Three municipalities (Guatemala City, disaster risk reduction activities in their local Quetzaltenango and Antigua) incorporated DRM in development plans. their territorial planning. [result indicator A.1a] 120 educational facilities constructed in compliance with the technical criteria adopted by MINEDUC 73 schools (15% of 484 schools evaluated) were about safe location and seismic-resistant upgraded to meet seismic standards. infrastructure. [result indicator A.1c] Risk identification and monitoring improved via INSIVUMEH restructured, strengthened and expanded monitoring networks of INSIVUMEH providing enhanced hazard information. (equipment). [result indicator A.2a] Two financial instruments established based on the Understanding of the Governments’ contingent DRFS to facilitate a timely disaster response and liabilities increased via the identification of the enhancing fiscal stability and revenue predictability fiscal impact associated with natural hazards against disasters. (transport sector). [result indicator B.1a] Two institutions implement thematic classifiers in MINFIN developed a tagging system to track budget DRM and CCA in line with the new conceptual appropriation for DRM. guide and implementation manual. [result indicator B.3a] 38. The design of this operation is also informed by lessons learned from CAT DDOs implemented by the World Bank worldwide. The experience in other countries, including Colombia, Costa Rica, El Salvador, Panama, Peru, and the Philippines, highlights the need to: (i) define the monitoring and implementation arrangements with the Government early on, including reporting responsibilities on progress with the operation; (ii) agree on the financial, legal, and technical aspects of activating the revolving mechanism; and (iii) complement the financing with technical assistance or investment financing activities. 24 This table includes selected results linked to prior actions implemented under the First DPL with CAT DDO. Page 16 The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) 39. This operation significantly supports climate co-benefits as most of the activities of the CAT DDO directly contribute to building resilience to disaster and climate risks. Climate change adaptation is integrated in all prior actions, of which two have special focus on climate change: Prior Action B.2 (strengthening the management of fiscal risks by integrating an analysis of natural hazards and climate risks in the annual General Budget report) and Prior Action B.3 (enhancing public spending, planning and budget allocation processes related to DRM and CCA by establishing thematic budget classifiers and assuring annual budget allocations for risk knowledge and risk reduction activities). 40. The trigger for drawdown is the declaration of a national or regional state of emergency (Estado de Calamidad Pública) by Government Decree ratified by Congress. In the event of a major disaster, the National Emergency Coordination Center of Operations, a branch of CONRED, proposes the declaration of a state of emergency at the national and/or regional level to the executive branch. In accordance with Public Order Law, Article 14 (Law No. 7, 1975), the President, in a meeting with the Council of Ministers, reviews the proposal and can declare a state of national or regional emergency as appropriate. This declaration has to be ratified by Congress. Subsequently, the declaration is published in the official gazette, allowing the GoG to trigger the CAT DDO (Annex 5 includes an overview of past national declarations of emergency and the impacts of the respective disasters and in Guatemala). While no declaration of a state of emergency has been declared in Guatemala to date for exclusively health-related events, such a declaration is also an eligible trigger for drawdown and would have to follow the same procedures described above. The declaration of a state of emergency for imminent events is not included in the Public Order Law, nor in the current legal framework of CONRED. The new proposed DRM law, however, allows for declarations of imminent emergencies which can be declared following the same procedures as those for ex-post emergencies described above. Thus, it will be possible to trigger the CAT DDO for imminent emergencies under the conditions that: (i) the new proposed DRM Law is approved; (ii) an imminent emergency is declared a state of national or regional emergency (Estado de Calamidad Pública) by the Executive; and (iii) this declaration is ratified by Congress. 41. The loan amount is available for disbursement in full or in part at any time within three years from loan signing and the loan may be renewed for up to 12 additional years. The DPL with CAT DDO has a revolving feature whereby amounts repaid during the drawdown period are available for subsequent withdrawals. The three-year drawdown period may be renewed up to four times, for a total maximum period of 15 years. Renewals require that the GoG is implementing its policy reform program described in the Letter of Development Policy (Annex 3). Renewals take place no earlier than one year and no later than six months before the closing date of the DPL with CAT DDO. 4.2. PRIOR ACTIONS, RESULTS AND ANALYTICAL UNDERPINNINGS Pillar A: Strengthening the legal and institutional framework for DRM and CCA 42. Reforms in this policy area focus on actions that will allow the GoG to strengthen the legal and policy framework for DRM and CCA. The GOG is committed to improving and updating its DRM legal framework to ensure clarity among different government levels, and institutions, strengthen capacities for volcanic resilience and enhance the country’s environmental aspects of DRM. Page 17 The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) Prior Action A.1: The Government has submitted to its Congress a bill of law to strengthen the legal DRM framework, establish a national system for DRM and define procedures and instruments to enhance risk knowledge and reduction, disaster preparedness and response, and resilient recovery. 43. The current DRM Act, established in 1996, is facing substantial constraints that limit the effect of risk prevention and mitigation polices. For instance, under the current legislation, the law prohibits any public or private investments in declared risk-prone areas but does not specify that investment in risk reduction can be made. As a result, investments have been impossible in a large area within Guatemala City’s Mancomunidad Gran Ciudad del Sur since it has been declared “high risk” in 2001. Further, the existing DRM Law does not allow for the declaration of imminent emergencies, which is particularly important for health- related but also for certain natural events such as imminent volcano eruption and does not include a sound post-disaster recovery framework. National and subnational government institutions often do not have adequate access to risk information and lack the capabilities to design effective risk-reduction measures. Guatemala is also the only Central American country that had not updated its DRM regulation after Hurricane Mitch devastated the region in 1998. Therefore, a reform of the legal DRM framework is needed to reduce vulnerability and adapt to international standards. 44. The new DRM Law proposal presented to Congress in January 201925 provides an organizational framework focused on risk reduction and management rather than preparedness and response alone, which has been the focus in the past. Effective national systems comprise multiple actors from national and subnational governments, private sector, academia, and civil society, including community-based organizations, playing different but complementary roles to manage risk according to their respective functions and capacities. The new DRM law proposal, broadly discussed with civil society and national institutions, creates mechanisms for planning, risk awareness, risk reduction, and prevention. It presents a vision of development, preparation, response, reconstruction, and recovery, to protect and safeguard the life of the population and their assets through sectoral, multisectoral, and territorial interventions. The proposal is in line with international agreements and best practices and will enhance the capacity of the GoG to adapt to the growing challenges of risk-informed economic and social development. Moreover, the new law includes the principle of ‘inclusion’, which recognizes and seeks to facilitate and promote the organization and participation of societal and vulnerable groups in DRM, including indigenous people, persons with disabilities and women. Building on the new DRM Law proposal, future DRM reforms beyond the scope of this operation could focus on: (i) a regulation of the new law; (ii) the design of neighborhood improvement; (iii) territorial planning policies; (iv) the strengthening of the Vice Ministry of Housing and Urban Development; and (v) developing a building code to be approved by Congress. 45. The new legal DRM framework will establish responsibilities at both national and local levels. It clearly establishes the responsibility of all relevant actors and mandates the creation of municipal organizations for the integral management of disaster risk. The new system’s ‘localized’ DRM approach will facilitate the prioritization and implementation of risk-reduction measures at the municipal level as well as risk-aware land use planning and the upgrading of informal urban settlements. It is important to highlight that the DRM Law is in line with the national CCA framework, thereby jointly constituting a strong mechanism to foster resilience and promote sustainability. Additionally, the proposed law also builds on the National 25 Legislative Initiative 5543, dated January 18, 2019. Page 18 The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) Planning System (created by SEGEPLAN in 2007) and its guidelines for the formulation of Municipal Development Plans, according to which DRM considerations, such as hazard maps and mitigation works, should be included in such plans.26 In this context, the new legal framework will be instrumental in enhancing local development plans, making them risk informed, and strengthening local structures (committees) for their implementation. 46. Strengthening disaster-resilient public and private investments in critical educational facilities is key for reducing disaster risk in Guatemala and in line with international best practices. Resilient schools not only provide a safe space for learning and development, which contributes to reducing vulnerability and building community resilience, but can also serve as emergency shelters and centers to coordinate response and recovery efforts. In accordance with the Manual of Normative Criteria for the Architectural Design of Official Educational Centers (Ministerial Accord 1233-2016), all municipalities and departments should apply the new technical criteria. However, the Decentralization Act (Decree 14-2002), which is a legal document of a higher authority, allows municipalities as autonomous agencies discretionary decision making when applying sectoral requirements (such as ministerial accords). To address this discrepancy, the new DRM Law includes a chapter explicitly dedicated to the role and responsibilities of municipalities and departments in DRM, which endorses and contributes to the implementation of the manual. As a result, this Prior Action will contribute to increasing the number of educational facilities constructed in compliance with safe location and seismic-resistant infrastructure. 47. Expected results of Prior Action A.1: Improved Government coordination as well as enhanced capacities for risk assessment, risk reduction, early warning, preparedness, and resilient recovery. The achievement of this prior action will be measured using the following indicators: (a) percentage of municipalities that have included disaster risk reduction activities in their local development plans; (b) percentage of municipalities that have created or updated local DRM committees in line with the new DRM framework; and (c) number of educational facilities constructed in compliance with the technical criteria adopted by the MINEDUC about safe location and seismic-resistant infrastructure.27 Prior Action A.2: The Government has adopted a DRM roadmap including contingency plans and information dissemination activities to strengthen risk management and resilience for volcanic hazards. 48. The June 2018 El Fuego volcano disaster exposed weaknesses in the management of volcanic risks in Guatemala. These weaknesses include scientific knowledge and monitoring of volcanic activities, education and participation of communities exposed to volcanic risks, organization and logistics for preparedness and response and land use planning in volcanic areas. The technical assistance provided by the World Bank on Volcan de Fuego Resilient Recovery (P167980) identified the following lessons learned: (i) the importance of land use planning as the most cost-effective means of reducing casualties and losses and damages; (ii) the indispensability of a well-defined interinstitutional, multisectoral and decentralized coordination system for managing volcanic risks; (iii) the need for adequate technical equipment and qualified staff to monitor and evaluate volcanic risks; (iv) the importance of pre-defined response and evacuation protocols, which are 26Since 2015, about 100 municipalities have been trained by SEGEPLAN in the formulation of their Municipal Development Plans. 27Education facilities refers to any space involved in education purposes (including psychomotor, social, behavioral, creative, and sensitive activities) such as the following areas: classrooms, administrative areas, service areas, or circulation areas. Page 19 The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) internalized by communities living in areas of volcanic risks; and (v) the consideration of the social and cultural dynamics within these communities in the Government’s response. 49. Learning from the recent experience, the Government has adopted the roadmap to strengthen institutional capacities for volcanic risk reduction and resilience. The roadmap, which represents the agreement of all key institutions regarding DRM for volcanoes, was formally adopted by the National Council for Disaster Risk Reduction through resolution CN-14-11-11.2-2018, dated Dec. 12, 2018, comprises of six strategic actions to contribute to enhancing resilience in volcanic areas: (i) enhancing land use planning in volcanic areas; (ii) institutional strengthening of the National Institute of Seismology, Vulcanology, Meteorology and Hydrology (Instituto Nacional de Sismología, Vulcanología, Meteorología e Hidrología, INSIVUMEH); (iii) strengthening of management capacities and inter-institutional coordination in DRM at all levels; (iv) strengthening response to volcanic crises and early warning systems; (v) strengthening the management of fiscal risks for emergencies and the transparency and efficiency of public spending; and (vi) strengthening communication capacities and channels with communities. Addressing the weak capacity of INSIVUMEH is a priority. INSIVUMEH does not have the minimum personnel required for volcanic observation and warning protocols. With only four experts covering the entire country and 11 active volcanoes, INSIVUMEH is significantly short-staffed compared to similar organizations, such as the Geological Services of Colombia and Ecuador that have teams of experts for each active volcano. In addition, INSIVUMEH lacks resources for the generation of timely information, risk assessment and forecasting. The lack of humanitarian assistance protocols for the coordination of emergency operations at national and local levels complicates post disaster response and renders it inefficient. For example, difficulties to gather and update databases of affected people and information gaps regarding responsibilities for procedures of evacuation and shelter, among others, delay recovery efforts. Considering the support provided by the technical assistance under the Volcan de Fuego Resilient Recovery Project, as well as by other development partners supporting the GoG in DRM, it is expected that the roadmap will be fully implemented within the next three years. 50. Expected results of Prior Action A.2: Enhanced institutional capacities to manage volcanic risks, contributing to the resilience of Guatemala against adverse natural events. The achievement of this Prior Action will be measured using the following indicators: (i) INSIVUMEH restructured, strengthened and providing enhanced hazard information related to volcano activity; and (ii) coordination of humanitarian assistance guided by the updated National Humanitarian Assistance Manual adopted by CONRED. Prior Action A.3: The Government has strengthened the DRM’s institutional framework in the environmental sector by creating the Department of Integral Environmental Risk Management within the Ministry of Environment and Natural Resources. 51. MARN has enhanced its institutional DRM capacities. In addition to the responsibilities derived from the Climate Change Law and its National Action Plan, and following best international practices, MARN has created the Department of Integral Environmental Risk Management (Ministerial Accord No. 339-2018, dated September 21, 2018). With a focus on integrating risks management into environmental protection and introducing new concepts such as nature-based solutions, this department is expected to contribute significantly to reducing the impact of disasters on ecosystems and increasing the resilience of communities that depend on the services they provide. Page 20 The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) 52. Environmental risks evaluations in strategic or sensitive ecosystems represent the first step toward nature-based DRM solutions in Guatemala. As part of this operation, the Government will select several strategic or particularly sensitive ecosystems and analyze their degree of exposure to natural hazards as well as the benefits and natural services they offer in protecting communities and livelihoods against disasters. The evaluations will be conducted by the newly created department in coordination with SE-CONRED and other relevant actors at the national and local levels. 53. Expected results of Prior Action A.3: Enhanced coordination and synergies between DRM and environmental management and increased awareness of nature-based DRM solutions. The achievement of this Prior Action will be measured by the number of local communities with environmental risk evaluations completed and disseminated and trained to protect strategic ecosystems and the livelihoods provided by them. Pillar B: Incorporating disaster risk into the management of public finances for fiscal resilience 54. Reforms in this policy area focus on actions that will allow the GoG to strengthen fiscal resilience by incorporating disaster risk into a comprehensive fiscal management and public finances processes. The GoG has expressed its commitment to establish financial mechanisms that contribute to strengthening fiscal resilience to potential economic impacts generated by adverse natural events. The policy reforms under this pillar will be coordinated by MINFIN and will seek to increase fiscal resilience against natural adverse events and strengthen Guatemala’s financial response capacity. Prior Action B.1: The Government has approved and published a Disaster Risk Financing Strategy (DRFS) to promote diversification of disaster-related financial instruments and enhance capacity to respond to disasters. 55. In the past, the Government has used risk retention instruments to manage emergencies, such as an emergency fund, a contingency loan, and budget reallocation mechanisms. The main financing sources were: (i) the Permanent National Fund for Disaster Reduction (Fondo Nacional Permanente de Reducción de Desastres)28 and the Emerging Fund (Fondo Emergente),29 under the General Budget; (ii) a DPL with CAT DDO from the World Bank in the amount of US$85 million, which Guatemala withdrew in 2010 in response to the Pacaya volcano eruption and tropical storm Agatha; and (iii) post-disaster budget reallocations. The sources of financing for post-disaster spending come mainly from current income (tax, nontax, and donations) and financial sources (domestic and external debt). 56. To ensure fiscal stability and sustainability, MINFIN has assumed a more active role in addressing fiscal risks related to disasters and approved a DRFS in April 2018. The vision of the DRFS is to allow MINFIN to “efficiently and transparently manage the financial resources allocated to disaster risk management by following best practices in disaster risk financing that contribute to safeguarding the lives of citizens, the country’s heritage, and its development path.” However, there is still a financing gap to be covered. According to 2017 government data, total resources available to respond to disasters accounted for less than 0.1 percent 28Legislative Decree Number 109-96. 29Governmental Accord 105-2012. Its purpose is to mitigate the damages that may be caused by natural phenomena that affect the country. It is a cumulative fund financed with voluntary contributions from mining companies. Page 21 The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) of GDP. In this context, the DRFS and the 2019 Budget Law approved by Congress, mandate the acquisition of risk transfer instruments to build more fiscal resilience against disasters. 57. The DRFS is comprised of six strategic lines (Figure 2). The implementation of the DRFS is facilitated by sustained capacity building to strengthen Guatemala’s economic and fiscal resilience and its capacity to respond to disaster risks. The implementation involves technical coordination with several Directorates of MINFIN, SE-CONRED, and SEGEPLAN. An Operations Manual for the DRFS, in line with international best practices (Annex 8), is under preparation to facilitate the achievement of the DRFS’s objectives. Figure 2. Objectives of the Strategic Lines of the DRFS Source: MINFIN, Guatemala DRFS. April 2018 58. Expected results of Prior Action B.1: Enhanced government capacity to respond to disasters while protecting its fiscal balance. The achievement of this prior action will be measured by: (i) the number of new financial instruments established in line with the DRFS; (ii) accelerated response time in providing emergency funds maintained after the declaration of the State of Emergency (14 days after government request in the case of sovereign catastrophic parametric insurances offered by CCRIF, less in case of this CAT DDO); and (iii) Operations Manual for the implementation of the DRFS designed and adopted by MINFIN. Prior Action B.2: The Government has created the position of Fiscal Transparency and Procurement Vice- Minister within MINFIN and clarified the functions and responsibilities of MINFIN; and approved an integrated analysis of fiscal risks to strengthen the management of fiscal risks and enhance transparency of public spending . Page 22 The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) 59. The GoG has expressed its commitment to strengthen public finances. In June 2018, MINFIN created the position of Fiscal Transparency and Procurement Vice-Minister, and regulated the respective functions and responsibilities, including those of the General Register of State Acquisitions, the General Directorate of State Procurement, the Directorate of Training and Professional Development, and the Directorate of Fiscal Transparency. The creation of the new position of Vice-Minister demonstrates the Government’s commitment and represents an important step towards enhancing the transparency of public spending and procurement processes. MINFIN is currently drafting a new procurement law, including emergency procurement regulations. In addition, MINFIN plans to enhance ‘Guatecompras’ system, in line with the international best practices, by developing fast-track processes to simplify the approval and procurement of goods in the aftermath of a disaster without comprising transparency and efficiency. Also, MINFIN is developing a “Systematic Result Monitoring System” that could help develop a medium-term M&E plan and support an evidence-based planning. 60. MINFIN aims to enhance fiscal resilience to be able to adapt to a wide range of disaster-related shocks. For this purpose, the Department of Fiscal Transparency (DTF) elaborates reports for public budget discussions that provide an overview of natural disasters and climate risk’s impact, analyzing the fiscal dimension of available disaster risk financial instruments. Crucially, MINFIN incorporated a section describing fiscal risk related to natural disasters into the proposed Budget Law presented to Congress for the last three consecutive years. It is key to maintain such practices and measure their sustainability through one of the proposed results indicators. 61. To properly account for the impact of disasters, risk analysis should be incorporated into annual budget process. As MINFIN is responsible for implementing and maintaining a sustainable fiscal policy, it is critical that it regularly undertakes risk analysis to effectively manage disaster-related fiscal risks, which are significant. In 2012, the Fiscal Evaluation Department (Departamento de Evaluación Fiscal), with the support of the German Corporation for International Cooperation (GIZ), carried out the ‘Study of the Main Contingent Environmental Liabilities and their Potential Tax Effects in Guatemala.’30 Following the recommendation of this report, MINFIN has been working in close coordination with the World Bank to integrate disaster risk into the management of fiscal risk in the country. By providing critical data regarding possible fiscal losses for frequent and occasional natural adverse events, and establishing different financial instruments for each case, the DRFS will further enhance the analyses of fiscal risk implemented by MINFIN. 62. Expected results of Prior Action B.2: Enhanced understanding of the potential impact of disaster- related fiscal shocks on solvency, liquidity, and financing needs. The achievement of this Prior Action will be measured by: (i) the number of new emergency procurement tools and mechanisms in place for dealing with adverse natural events31; and (ii) the number of fiscal risk budget reports elaborated by the Directorate of Fiscal Transparency that consider natural hazards and climate risks. 30 MINFIN, and GIZ. 2013. Estudio de los principales pasivos ambientales contingentes y sus potenciales efectos fiscales en Guatemala (1976–2012). 31 These new instruments will also depend on the approval of the new procurement law. Page 23 The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) Prior Action B.3: The Government has enhanced the efficiency of public spending, planning and budget allocation processes related to DRM and CCA activities by clarifying the responsibilities of the thematic budget classifiers’ governing bodies and updating the scope of said instruments throughout its budget cycle. 63. Guatemala has to date implemented three budgetary instruments related to public DRM expenditures: (i) a tagger, (ii) a thematic budgetary classifier, and (iii) budgetary programs and subprograms. In 2010, in the context of the first CAT DDO, MINFIN created the tagger ‘Disaster Risk Reduction Management’ to code and monitor DRM-related public expenditure. In 2013, this tagger was replaced by the thematic budgetary classifier No. 9 ‘Risk Reduction,’ which was introduced under the ‘Disaster Risk Reduction National Policy.’ The implementation of this classifier is established by Budget Law 2019 (Article 18). Additionally, when a state of calamity occurs, MINFIN creates and makes available to public sector entities a specific source code (budget subprogram) to track the expenditure of entities that allocate resources to address the given calamity. Unlike thematic budgetary classifiers designed to be used from the formulation stage of the budget cycle, this code can be used only for coding post-disaster public expenditures. 64. The thematic classifier is a budgetary instrument that facilitates tracking public expenditure along different stages of the budget cycle. These thematic budget classifiers are implemented throughout the budget cycle and create a critical foundation for better fiscal management for DRM. Currently, the efforts of MINFIN, SE-CONRED, and SEGEPLAN focus on improving the budget classifier to allow public entities at the national level to plan DRM budget allocations. This information will improve DRM and budgetary planning, as the data generated through the tracking can inform and improve future policies. As the responsible governing body, SE-CONRED prepared in February of 2019, a first draft of a conceptual guide and implementation guide for the thematic classifiers, which is expected to become available by June 2019. The goal of the manual and the guide is to improve management of resources dedicated to DRM and CCA. SE-CONRED, in coordination with MINFIN and SEGEPLAN, is updating the conceptual framework of the thematic budgetary classifier No. 9 (‘Risk Reduction’) in line with the Sendai Framework for Disaster Risk Reduction and other international best practices. SE-CONRED is also responsible for providing guidance and training to all relevant public entities for the implementation of the classifier. 65. Via the proposed DRM Law, the Government seeks to ensure an annual budget allocation through the Permanent National Fund for Integral Disaster Risk Management (Fondo Nacional Permanente para la Gestión Integral del Riesgo de Desastres). This Fund replaces the existing Permanent National Fund for Disaster Reduction. As opposed to its predecessor, in addition to disaster response financing, this Fund will include financing for disaster knowledge and risk reduction activities and will require fiscal space for allocating resources through the annual budget. For 2017, the resources allocated towards the existing fund were US$27.3 million. Once the DRM Law is approved, it is expected that the annual allocation to the modified Fund will cover all DRM processes depending on budget availability. Moreover, except for revenue mobilization in a state of emergency, public budget allocation to DRM should increase depending on the macro fiscal context and demand for risk knowledge and risk reduction activities. 66. Expected results of Prior Action B.3: Enhanced planning, monitoring and transparency of DRM and CCA expenditures and an additional financing window for risk knowledge and risk reduction activities. The achievement of this Prior Action will be measured by: (i) the number of government institutions implementing thematic classifiers in DRM and CCA using the new conceptual guide and implementation manual; and (ii) Page 24 The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) Permanent National DRM Fund annually funded and operational serving as a first layer financial instrument in case of emergencies, in line with the DRFS. Table 5. DPL Prior Actions and Analytical Underpinnings Prior Actions Related analytical work Pillar A: Strengthening the legal and institutional framework for DRM and CCA Prior Action A.1: The IPCC. 2012. Managing the Risks of Extreme Events and Disasters to Advance Government has submitted to its Climate Change Adaptation. A Special Report of Working Groups I and II of the Congress a bill of law to Intergovernmental Panel on Climate Change. Cambridge University Press. strengthen the legal DRM This document states that effective DRM national systems comprise multiple framework, establish a national actors from national and subnational governments, private sector, research system for DRM, and define bodies, and civil society, including community-based organizations, playing procedures and instruments to differential but complementary roles to manage risk according to their accepted enhance risk knowledge and functions and capacities. These actors work in partnership across temporal, reduction, disaster preparedness spatial, administrative, and social scales, supported by relevant scientific and and response, and resilient traditional knowledge. While specific characteristics of national systems vary recovery. between countries and across scales depending on their sociocultural, political, and administrative environments and development status, it is generally accepted that a country with a robust DRM national system is likely to be more effective in managing current risk. United Nations Office for Disaster Risk Reduction. 2015. Sendai Framework for Disaster Risk Reduction 2015–2030. This international guideline encourages countries to develop and implement a systematic DRM approach and, in some cases, has led to strategic shifts in the management of disaster risks, with governments and other actors placing greater attention on disaster risk reduction compared to more reactive measures. This has included improvements in coordination between actors, enhanced early warning and preparedness, more rigorous risk assessments, and increased awareness. World Bank and GFDRR. 2010. GFDRR Country Note Guatemala. Washington, DC: World Bank. This document provides important information on Guatemala’s risk profile and drivers of risk, such as inadequate application of building standards, lack of risk- sensitive territorial planning on the municipal level, and the spread of informal settlements. World Bank and GFDRR. 2017. Roadmap for Safer Schools, Global Program for Safer Schools. Washington, DC: World Bank. This report notes that site location, physical planning and quality building regulations are critical elements to be considered in regulatory criteria to reducing risk and making schools and their communities safer. Prior Action A.2: The World Bank and GFDRR. 2018. International Workshop Report “Lessons Learned Government has adopted a DRM after the Fuego Volcano Eruption – Roadmap for Strengthening Volcanic roadmap including contingency Resilience in Guatemala.” Washington, DC: World Bank. plans and information This document identifies opportunities for enhancing DRM in volcanic areas in Page 25 The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) Prior Actions Related analytical work dissemination activities to Guatemala through targeted capacity building and institutional strengthening. It strengthen risk management and recommends and prioritizes concrete proposals (programmatic and public resilience for volcanic hazards. investments) for effectively reducing losses and damages associated with future volcanic eruptions, such as: (i) enhancing land use planning in volcanic areas; (ii) institutional strengthening of INSIVUMEH; (iii) strengthening of management capacities and inter-institutional coordination in DRM at all levels; (iv) strengthening response to volcanic crises and early warning systems; (v) strengthening the management of fiscal risks for emergencies and the transparency and efficiency of public spending; and (vi) strengthening capacities of communication with communities. Prior Action A.3: The IPCC. 2012: Managing the Risks of Extreme Events and Disasters to Advance Government has strengthened Climate Change Adaptation. A Special Report of Working Groups I and II of the the DRM’s institutional Intergovernmental Panel on Climate Change. Cambridge University Press. framework in the environmental This report states that ecosystem management, or the sound management of sector by creating the natural resources, is a well-tested solution to sustainable development that is Department of Integral being revisited because of its inherent ‘win-win’ and ‘no-regrets’ appeal to Environmental Risk Management address rising disaster risk and climate change issues. within the Ministry of Environment and Natural United Nations University. 2013. The Role of Ecosystems in Disaster Risk Resources. Reduction, edited by Fabrice G. Renaud, Karen Sudmeier-Rieux, and Marisol Estrella. New York: UNU. This document proposes that sustainable ecosystem management has the potential to influence disaster risk by regulating and mitigating hazards, controlling exposure, and reducing vulnerability. In particular, it states that “healthy and well-managed ecosystems can serve as natural infrastructure to prevent hazards or buffer hazard.” Moreover, well -managed ecosystems can also help reduce the exposure of people and their productive assets to hazards. The document also states that natural ecosystems are well suited to support the post- disaster recovery needs of communities. The United Nations University concludes that the involvement of the Ministry of Environment in the DRM arena would ensure increased integration of environment and DRM concerns in their respective policies, programs, and plans. World Bank. 2018. Nature Based Solutions for Disaster Risk Management. Washington, DC: World Bank. This note presents examples of World Bank projects implementing nature-based solutions for DRM. Pillar B: Incorporating disaster risk into the management of public finances for fiscal resilience Prior Action B.1: The World Bank (Ghesquiere, Francis, and Oliver Mahul). 2010. Financial Protection Government has approved and of the State Against Natural Disasters: A Primer . Policy Research Working published a Disaster Risk Paper; no. WPS 5429. Washington, DC: World Bank. Financing Strategy (DRFS) to This publication shows how an effective disaster risk financing strategy relies on a promote diversification of combination of instruments, taking into consideration a country’s fiscal risk disaster-related financial profile, the cost of available instruments, and the expected disbursement profile instruments and enhance after a disaster. Financial protection will help governments mobilize resources in capacity to respond to disasters. the immediate aftermath of a disaster while mitigating the long‐term fiscal impact of disasters. Moreover, a comprehensive risk management strategy should include additional dimensions, including programs to promote risk Page 26 The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) Prior Actions Related analytical work identification, reduce the impact of adverse events, and strengthen emergency services. OECD. 2017. Recommendation on Disaster Risk Financing Strategies and OECD. 2018. Developing the Elements of a Disaster Risk Financing Strategy. Paris: Organisation for Economic Co-operation and Development. The reports highlight the importance of an integrated approach to DRM and the contribution of risk assessment, risk awareness, and risk prevention to the financial management of disaster risks. Prior Action B.2: The IMF. 2016. Analyzing and Managing Fiscal Risks - Best Practices. Washington, Government has created the DC: International Monetary Fund. position of Fiscal Transparency This report shows how a comprehensive analysis and management of fiscal risks and Procurement Vice-Minister can help ensure sound fiscal public finances and macroeconomic stability. Fiscal within MINFIN and clarified the stress tests and analyses in particular can help policy makers simulate the effects functions and responsibilities of of shocks to their central forecasts and their implications for government MINFIN; and approved an solvency, liquidity, and financing needs. Countries need to expand their toolkits integrated analysis of fiscal risks for fiscal risk management and adopt the use of instruments to transfer, share, or to strengthen the management provision for risks. of fiscal risks and enhance transparency of public spending. IMF. 2016. Guatemala Fiscal Transparency Evaluation. IMF Country Report N16/372. Washington, DC: International Monetary Fund. This report evaluates the practices in Guatemala in relation to fiscal risk analysis and management. It explicitly recommends preparing regular reports to be presented together with the budget on fiscal risks that cover macroeconomic and debt risks, including those related to natural hazards, as an important step toward improving the identification, measurement, and management of fiscal risks in the country. Prior Action B.3: The PEFA. 2016. PEFA 2016 Handbook. Volume II: PEFA Assessment Fieldguide. Government has enhanced the Washington, DC: Public Expenditure and Financial Accountability Program efficiency of public spending, Secretariat. planning and budget allocation This handbook shows how a robust classification system allows transactions to be processes related to DRM and tracked throughout the budget’s formulation, execution, and reporting cycle CCA activities by clarifying the according to administrative unit, economic category, function/subfunction, or responsibilities of the thematic program. This is essential for allocating and monitoring expenditure to support budget classifiers’ governing aggregate fiscal discipline, the allocation of resources to strategic priorities, and bodies and updating the scope of efficient service delivery. said instruments throughout its budget cycle. PEFA. 2013. PEFA Assessment Report Guatemala. Washington, DC: Public Expenditure and Financial Accountability Program Secretariat. According to this assessment of Guatemala’s PEFA performance, the introduction of a first generation of thematic budget classifiers contributed to improving the transparency by allowing for the automatic generation of expense reports. Note: GFDRR = Global Facility for Disaster Reduction and Recovery; IPCC = Intergovernmental Panel on Climate Change; OECD = Organization for Economic Co-operation and Development; PEFA = Public Expenditure and Financial Accountability. Page 27 The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) 4.3. LINK TO CPF, OTHER BANK OPERATIONS AND THE WBG STRATEGY 67. The proposed operation is aligned with the twin goals of the World Bank as natural hazards are a significant threat to poverty reduction and shared prosperity. When disasters hit, the poor (including farmers, fishers, and informal sector workers) and vulnerable (children, women, indigenous people, and the elderly) are disproportionally affected. Climate change and exposure to natural events threaten to disrupt international efforts to eradicate poverty. Natural hazards drive more people to poverty as their assets vanish, together with their means to generate income. 68. The proposed DPL with CAT–DDO builds on the Systematic Country Diagnostic (SCD) for Guatemala32, which highlights the vulnerability of the country to adverse natural events and their negative impact on the country’s development and poverty rates. The SCD identifies the country’s vulnerability to natural hazards as a key challenge as it continues to set back development efforts and economic growth and is, among other factors, one of the main drivers of persistent poverty, lack of shared prosperity, and financial strain. It is thus critical that Guatemala builds resilience to extreme events, particularly so for the most vulnerable societal groups. For this purpose, proactive and preventive action is required. The SCD also identifies high exposure to natural hazards as a challenge to fiscal sustainability, growth and inclusive development, since disasters can divert resources meant for social and infrastructure spending toward disaster response. In this context, the SCD explicitly recognizes the steps taken by the GoG to create an agenda for disaster prevention and mitigation. 69. The proposed operation is fully consistent with the Country Partnership Framework (CPF)33 in which DRM and climate change are key priorities. The 2016 CPF is anchored in the Government’s commitment to preventive planning and disaster risk reduction and identifies opportunities to expand the World Bank’s engagement in this area. The “Fostering Inclusion and Resilience” pillar of the CPF identifies vulnerability to natural hazards as one of the key development constraints for Guatemala. To address this challenge, building capacity to respond to disasters and climate change is a core CPF objective. The proposed DPL with CAT DDO is expected to unlock synergies with the Crecer Sano Guatemala Nutrition and Health Project (P159213) that will address investments focused on reducing social vulnerability. In addition, the World Bank is providing technical support to the GoG through three Analytical and Advisory Services that contribute to designing policies and strengthening institutional capacity for DRM: Strengthening DRM and Resilience of Central American Municipalities (P157269), Central America Disaster Risk Financing Engagement (P148729), and the Volcan de Fuego Resilient Recovery (P167980). 4.4. CONSULTATIONS AND COLLABORATION WITH DEVELOPMENT PARTNERS 70. The design of this operation has undergone an extensive consultation processes, including with government agencies, private sector, academia, and civil society. The National Development Plan K’atun 2032 was developed within CONADUR allowing for a broad participation of more than 13,000 people across the country. The K’atun 2032 reflects the needs of the population, and its priorities are derived from the 32Closing Gaps to Generate More Inclusive Growth, 2016, WB (Report# 106770) 33World Bank. Guatemala - Country Partnership Framework for the period FY17-20, discussed by the Board of Executive Directors on November 17, 2016 (Report No. 110398). Washington, DC: World Bank. Page 28 The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) dialogue and ideas contributed by municipalities, departmental development councils, the 14 sectors of civil society represented in the CONADUR, political parties, Congress, and international development partners. Furthermore, as part of the preparation of the proposed operation, consultations were made with relevant GoG agencies, particularly with MINFIN; SEGEPLAN; SE-CONRED; the Institute for Seismology, Volcanology, Meteorology, and Hydrology; the United Nations Development Program (UNDP), USAID and JICA. Several workshops were implemented during the preparation of the project, including an international workshop to present and discuss the findings of the Urbanization Review (June 2016), the international workshop on DRM legal reforms with a broad range of stakeholders including civil society, municipalities, non-governmental organizations and donors (February 2017), and the national presentation of the DRFS (June 2018). 71. Close collaboration with other development partners, particularly the Inter-American Development Bank (IADB), UNDP and GIZ, has been very important to ensure synergies and build upon each agency’s strengths in an effort to obtain the best possible development results for Guatemala. Particular focus has been placed on maintaining coordination among development partners and giving frequent updates on progress of the different areas of intervention, all of which foster complementarity and help actors avoid duplication of efforts. There are several ongoing projects aimed at fostering CCA and reducing vulnerability, including: (i) Adapting in the dry corridor (KfW); (ii) Climate Change Resilient Productive Landscapes (Adaptation Fund); (iii) Adaptation of Rural Development to Climate Change (GIZ); (iv) Program to Support the Climate Change Agenda in Guatemala (IADB), focused on supporting the areas of incidence of the National Climate Change Policy and the development of various instruments established within the Climate Change Law linked to adaptation and reduction of vulnerability; (v) Project for Adaptation to Climate Change with focus on Indigenous Peoples (IADB), which has systematized a series of ancestral practices for adapting to climate change; (vi) Petén Development Program for the Conservation of the Mayan Biosphere Reserve (IADB); and (vii) USAID support for strengthening the capacities of local governments and integrating adaptation and vulnerability reduction practices, mainly in the northwest region. 5. OTHER DESIGN AND APPRAISAL ISSUES 5.1. POVERTY AND SOCIAL IMPACT 72. The prior actions included in this DPL with CAT DDO are expected to have overall positive effects on poverty over the medium and long term (Annex 4). A Poverty and Social Impact Analysis was conducted in October 2018 and revised in January 2019, which looked at the potential effects of the reforms supported under the operation and in that context confirmed a positive indirect impact on poverty and social development indicators. The Poverty and Social Impact Analysis concluded that: (i) a large proportion of the population is vulnerable to the negative effects of natural hazards; and (ii) the combination of high and rising poverty and the high probability of natural hazards render efforts to mitigate the impacts of disaster of particularly importance for Guatemala. The policies supported under this operation are expected to reduce the Guatemala’s vulnerability to natural hazards by, ex ante, improving the DRM framework, land use and DRM planning at the municipal level, and upgrading education infrastructure while improving the country’s ability to cope with the effects of a shock ex post. The policies are not expected to reduce poverty directly but rather contribute to preventing increased poverty in the event of new extreme natural events and mitigating the long-term effects of disasters. Page 29 The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) 73. Improving planning and risk reduction will benefit a large segment of the poor and vulnerable population. Substantial numbers of poor people are exposed to high risks of natural hazards and health- related crisis in Guatemala. The majority of the population lives in areas considered high risk for earthquakes and there is a concentration of the poor and the very poor in these areas (Figures 3 and 4). Poverty remains concentrated among indigenous groups, who represent 42 percent of the total population, but 52 percent of the poor and 66 percent of the extreme poor. In three of the departments with the highest risk areas, at 57 percent, the indigenous population is especially high.34 By supporting DRM at the national and municipal levels, this DPL with CAT DDO will contribute to reducing the vulnerability of minorities to shocks and thus, contribute to improving their probability of moving out of poverty. Figure 3. Overall Poverty and Earthquakes Figure 4. Extreme Poverty and Earthquakes intensity Intensity Source: World Bank staff calculations based on ENCOVI 2014 and Guatemala 2012 – San Marcos- Earthquake Hazard Information, GFDRR - Tactical Hybrid Order Router platform. 74. The reduction of extremely high levels of vulnerability will improve the well-being of the most- deprived population in Guatemala. Poorer socioeconomic conditions make households more sensitive to the impact of hazards and less able to respond, cope, and adapt to disasters. Moreover, the poor have a lower threshold for enduring external shocks and barely have financial resources or capital, if any, to rely on.35 Disaster reduction activities in the municipal development plans are envisioned to prioritize the most vulnerable population, considering their multidimensional poverty status,36 and thereby contribute to protecting them from unforeseen events. 34 Calculations used ENCOVI 2014 and Guatemala EQ Hazard Information, GFDRR - Tactical Hybrid Order Router platform. 35 Lal, P. N., R. Singh, and P. Holland. 2009. Relationship between Natural Disasters and Poverty: A Fiji Case Study , SOPAC Miscellaneous Report 678. 36 Sistema Nacional de Gestión del Riesgo de Desastres 2014. Page 30 The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) 75. The proposed operation could also enhance social assistance programs through which financial resources can be directed to households affected by adverse natural events. Guatemala has an existing conditional cash transfer program along with other social assistance programs. Many of the departments with strong coverage ranging from 28 percent to 43 percent of the population receiving benefits are those with high earthquake and wind risk. Social protection and cash transfer systems could be strengthened, and their scalability be explored via technical assistance during project supervision. Existing social assistance or cash transfer programs have proven to be effective for this purpose in other countries. 37 5.2. ENVIRONMENTAL ASPECTS 76. Prior actions selected for the proposed operation are expected to have a positive impact on Guatemala’s environment and other natural resources (Annex 4). Through the proposed operation, the GoG addresses technical and financial barriers to enable the adoption of a risk-informed approach to development. Specifically Pillar A of this operation contains prior actions that are expected to directly contribute to enhancing natural resource and environmental management. Prior Action A.1 will strengthen the policy and institutional capacity for DRM and seeks to mainstream DRM and climate change adaptation policies and practices at the national level, contributing to environment-friendly planning of essential infrastructure and development projects. Under Prior Action A.3, the Government has created the Department of Integral Environmental Risk Management within MARN, which will seek to produce and disseminate 25 local environmental risk evaluations by 2021 and provide training to communities for protecting strategic ecosystems and the livelihoods provided by them, thereby directly contributing to sound environmental management. 77. Moreover, the GoG has advanced significantly in defining priority adaptation measures to address CCA and vulnerability. The 2009 National Climate Change Policy seeks to adopt risk-reduction actions, improve CCA, reduce emissions, and improve quality of life, among others. In late 2013, Congress adopted the Framework Law to Regulate Vulnerability Reduction and Obligatory Adaptation to the Effects of Climate Change and the Mitigation of Greenhouse Gas Emissions (Decree 7-2013). Furthermore, the GoG is committed to improve environmental management as reflected in the National Development Plan K’atun. The proposed operation will support these government initiatives by addressing technical and financial barriers to mainstream environmental and DRM policies and will thereby have a positive impact on the GoG’s efforts to adapt to and mitigate climate change with positive implications for the environment. 5.3. PFM, DISBURSEMENT AND AUDITING ASPECTS 78. The fiduciary risk is substantial. With respect to the public financial management (PFM) system, the Public Expenditure and Financial Accountability Assessment concluded in 2017 indicates that the fiduciary environment in Guatemala is generally adequate. There have been recent improvements in public expenditure management systems, and concrete actions have been taken by the Government to increase transparency. The major improvements include: (i) update to the Organic Budget Law (October 2013) which has proven to be very effective in decreasing the stock of arrears and there is now an effective monitoring 37 In Mexico and Dominica, for instance, conditional cash transfer mechanisms were used to increase cash transfers after the global financial crisis and in the aftermath of Hurricane Maria, respectively. Page 31 The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) system in place, to prevent the emergence of new arrears through the enactment of stricter sanctions; (ii) introduction and operation of the Treasury Single Account that has improved cash management, and enhanced controls over trust funds; (iii) consolidation of government financial statements that are prepared annually; (iv) consolidation of public accounts within three months of the end of the fiscal year, which include information on revenue, expenditure, and financial assets and liabilities of most central government entities; and (v) audits of public accounts by the General Audit Office annually, including information on municipal expenditures and trust funds, and are submitted to the legislature within five months of the end of the period covered. 79. Information on annual budget formulation, in-year and end-year reports, and external audit reports are publicly available; however, challenges remain. Challenges in the budget process and practices could hamper the effectiveness of public spending and reduce budget credibility. Some of these challenges which will require reform include: (i) addressing budget rigidity; (ii) ensuring budget preparation is based on sectoral plans; (iii) reducing the number of reallocations during the budget year; (iv) improving the registry of accruals (floating debt) and monitoring of arrears; (v) internal controls that are generally transaction based but may be deficient in some important areas; and (vi) audits which must address systemic issues affecting budget management and performance and not only compliance of individual transactions. 80. MINFIN has committed to strengthen its public finances. With respect to the public procurement system, Guatemala’s national procurement law (Decree 57-92) was reformed in December 2015 (Decree 9- 2015) to improve transparency and accountability within procurement functions. Currently, with the support of USAID, the Government is updating the web portal ‘Guatecompras’ to directly link the budget with purchasing planning, billing, and inventories. However, no dedicated emergency procurement system is currently in place apart from a general waiver of tender and bidding requirements during a state of emergency, which allows for rapid procurement but with little transparency and efficiency in post-disaster situations. In the context of the elaboration of the Disaster Risk Financing Strategy, MINFIN is working on a new procurement law, which will include provisions for emergency procurement and be complemented by a detailed regulation. Disbursement Arrangements 81. The proposed operation will follow the World Bank’s disbursement procedures for a DPL with CAT DDO. The CAT DDO feature gives the Borrower the option of drawing down the loan proceeds during a three- year period, which can be extended up to four (three-year) periods, during which the DPL with CAT DDO can be disbursed. Once the loan becomes effective, the loan proceeds may be drawn down at any time; however, only if a pre-specified trigger – linked to a declaration of a state of emergency resultant of a natural catastrophe or health emergency – has been met. Once the trigger has been met, at the request of the Borrower, the proceeds from the loan will be deposited into an account designated by the Borrower and acceptable to the Bank. The Borrower shall ensure that, upon the deposit of the loan proceeds into said account, an equivalent amount is promptly credited in the Borrower’s budget management system, in an account used to finance budgeted expenditures. The GoG will provide the World Bank with a written confirmation within 30 days of the disbursement date that confirms: (i) the amount disbursed is deposited in the designated account; and (ii) the amount is credited to the budget management system. If the proceeds of the loan or any part thereof are used for ineligible purposes, as defined in the Loan Agreement, the World Page 32 The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) Bank will require the Borrower to promptly return such amount to the World Bank. The amount refunded shall be cancelled from the Loan. 82. The foreign exchange control environment of the Central Bank of Guatemala is adequate and, according to the last available IMF Safeguards Assessment Report,38 has strengthened safeguards in the areas of transparency of financial reporting and the management of foreign exchange reserves.39The World Bank reviewed the published audited financial statements of the Central Bank for 2017, which received an unmodified opinion from the external auditors and did not reveal any significant issues related to the internal control environment. These financial statements were prepared in accordance with accounting regulations of Guatemala’ s organic law and the audit was carried out in accordance with International Auditing Standards. 5.4. MONITORING, EVALUATION AND ACCOUNTABILITY 83. MINFIN is responsible for the implementation of the program supported by the proposed DPL with CAT DDO. As the main implementing agency, MINFIN will coordinate with other government agencies involved in the implementation of the DPL with CAT DDO, including SEGEPLAN, INSIVUMEH, MARN, MINEDUC and SE-CONRED as the main technical counterparts for this DPL. Each of these institutions will be co- responsible for the execution of the Policy Matrix and will inform MINFIN about its results. The GoG, through MINFIN, will be responsible for providing written progress reports to the World Bank on the implementation of the program, consolidating progress achieved. The Government and the World Bank will also maintain a close policy dialogue during the program implementation period, through implementation support missions that will take place no less than every six months. If at any time during the drawdown period the World Bank concludes that the DRM program is not being implemented in a manner satisfactory to the World Bank, the World Bank will promptly advise the Borrower of the need for improvement and review to confirm that the DRM program is being implemented satisfactorily before the World Bank could grant any requests for drawdown. In this case, follow-up monitoring would be more frequent until a review confirms that the program is being satisfactorily carried out. Once the World Bank is satisfied that the drawdown conditions are again in place, the World Bank would inform the Borrower that its eligibility to submit disbursement requests has been restored. 84. The indicators selected to monitor progress toward achievement of the PDO reflect defined areas of action and correspond to the expected outcomes of the prior actions. The pillars and results indicators in the policy framework are aligned with government priorities. Activities under complementary technical assistance to be provided in parallel by the World Bank will support some action areas of the proposed DPL with CAT DDO and will further enhance the regular monitoring and evaluation of the operation through progress reporting on technical activities. 85. 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 World Bank’s Grievance Redress Service (GRS). The GRS ensures that complaints received are promptly reviewed in order to address pertinent concerns. Affected 38 The last available IMF Safeguard Assessment of the Guatemala Central Bank was issued on September 9, 2009. 39 IMF Country Report No. 18/154: 2018 Article IV Consultation – Staff Report (June 2018) Page 33 The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) communities and individuals may also submit their complaint to the World Banks’s independent Inspection Panel which determines whether harm occurred, or could occur, as a result of World Bank 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 World Bank Management has been given an opportunity to respond.40 6. SUMMARY OF RISKS AND MITIGATION 86. The overall risk associated with this proposed operation is substantial. 87. At the program level, the political and governance risk is high, with potential impacts on the achievement of the operation’s PDO. In the face of corruption allegations against government officials in 2015, Guatemala’s governmental capacity to implement reforms has been negatively affected. Moreover, relations between the GoG and the Commission Against Impunity in Guatemala (CICIG) have been strained, and the Government has announced its intention of not renewing CICIG’s term in September 2019, once its two-year term ends. This situation could remove an important source of institutional support and check on corruption and poor governance and affect the inflow of foreign aid intended to fight corruption. 88. Despite recent approvals of external loans by the Congress, governance risk which involves the ability to approve reforms, has been challenging. The implementation of public policy reforms require actions across various levels of government and agencies with different priorities. Moreover, due to amendments to the electoral law approved in 2016, the general elections (Presidency, Congress and Municipalities) have been brought forward and will be held in June 2019 with a possible ballot in August 2019. The new administration will take office in January 2020, with a transition period of five months. This could add uncertainty to the possibility of generating the necessary consensus for the approval of this proposed operation by Congress during the last months of the current administration. If not approved by the current Congress, the loan would have to be approved by the new legislature. In order to pave the way for this approval, a broad communication and dissemination process will be implemented by the Government, both with the main actors during the transition period and the new authorities. The approval of the new proposed DRM Law may be also affected by the Congressional gridlock. The political and governance risk is largely mitigated by the Government’s significant ownership of the proposed program and by a broad support from Congress for the DRM agenda. Moreover, public scrutiny and pressure for enhanced DRM, particularly in situations of emergency, is significant due to the high frequency and intensity of natural events in Guatemala. 89. The risk related to institutional capacity for implementation and sustainability is considered substantial. Implementing the proposed CAT DDO will require the integrated work of several actors at the national and local levels to move the proposed policy actions forward. This inter-institutional and multi sectoral approach is not yet internalized by all key stakeholders. This could result in scattered, low impact or uncoordinated actions. To address institutional capacity risk during implementation, technical support would be provided through the current DRM and climate change adaptation programs that are being implemented in the country by the Government and supported by the World Bank and other international organizations. In 40 For information on how to submit complaints to the World Bank’s corporate 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 34 The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) addition, the World Bank is providing technical assistance to ensure representation of key institutions in implementing the DRM and CCA country agenda.41 90. Despite 2017 and 2018 advances in DRM public financial management, the fiduciary risk is considered substantial. Guatemala’s national procurement law does not include provisions for emergency procurement hampering efficiency, effectiveness, integrity, openness and transparency during a State of Public Calamity. To address this risk, the Law of Public Order requires the GoG to submit a detailed report of the event that triggered the declaration to the Congress. This report must include the description of all the measures taken during the emergency. In addition, the Government has demonstrated its commitment to promote the use of its information system for procurement (“Guatecompras”) to enhance the transparency of post disaster expenditures. Finally, the World Bank through the technical assistance on Disaster Risk Financing (P148729) is supporting the development of systems that promote greater efficiency and transparency of post disaster expenditures, and MINFIN is drafting a new procurement law, which will include provisions for emergency procurement and be complemented by a detailed regulation. Table 6. Summary Risk Ratings Risk Categories Rating 1. Political and Governance ⚫ High 2. Macroeconomic ⚫ Moderate 3. Sector Strategies and Policies ⚫ Moderate 4. Technical Design of Project or Program ⚫ Moderate 5. Institutional Capacity for Implementation and Sustainability ⚫ Substantial 6. Fiduciary ⚫ Substantial 7. Environment and Social ⚫ Low 8. Stakeholders ⚫ Moderate 9. Other Overall ⚫ Substantial . 41 The World Bank is providing technical support to the GoG through three Analytical and Advisory Services that contribute to designing policies and strengthening institutional capacity for DRM: (a) Strengthening DRM and Resilience of Central American Municipalities (P157269), (b) Central America Disaster Risk Financing Engagement (P148729), and (c) the Volcan de Fuego Resilient Recovery Project (P167980). Page 35 The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) ANNEX 1: POLICY AND RESULTS MATRIX Project Development Objective (PDO): The PDO is to help strengthen Guatemala’s legal, institutional and financial framework to manage the impact of adverse natural events and climate risk. Baseline Target43 Prior Action Result Indicators42 (January 2019) (January 2022) Pilar A: Strengthening the legal and policy framework for DRM and CCA Results Indicator A.1a: Percentage of municipalities that have included disaster 3.5% 29% risk reduction activities in their local development plans.45 Prior Action A.1: The Government has submitted to its Congress a bill of law to strengthen the legal DRM framework, establish a national system Result Indicator A.1b: Percentage of for DRM and define procedures and instruments to enhance risk municipalities that have created or updated 15% knowledge and reduction, disaster preparedness and response, and 0% local DRM committees in line with the new (Cumulative) resilient recovery. DRM framework.46 Legal evidence: The Bill of Law proposal 5543, dated January 18, 2019, Result Indicator A.1c: Number of submitted to Congress by the General Secretariat of the Presidency of the educational facilities constructed in Republic44. compliance with the technical criteria 100 220 adopted by the Ministry of Education about safe location and seismic-resistant infrastructure.47 42 These indicators reflect the expected results of the program, and do not bind the eligibility for the disbursement under a State Declaration of Public Calamity. 43 The target date will be three years after loan signature. 44 All result indicators linked to the approval of the Law proposal 5543 will have no effect if the submitted proposal is not approved. 45 Refers to the capacity building provided by SEGEPLAN to municipalities on the updating of their local development plans regarding DRM. 46 There are 340 municipalities in the country. The 15% target is thus equivalent to 51 municipalities. It is expected a progress rate of 5% per year. 47 The target of 220 educational facilities by January 2022 has been defined by MINEDUC based on its institutional capacity and experience. Page 36 The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) Baseline Target43 Prior Action Result Indicators42 (January 2019) (January 2022) Prior Action A.2: The Government has adopted a DRM roadmap including Result Indicator A.2a: INSIVUMEH contingency plans and information dissemination activities to strengthen restructured, strengthened and providing No Yes risk management and resilience for volcanic hazards. enhanced hazard information related to volcano activity. Legal evidence: (a) Resolution CN-14-11-11.2-2018, dated December 12, Result Indicator A.2b: Coordination of 2018 of the National Council for Disaster Risk Reduction, (b) Roadmap to humanitarian assistance guided by the strengthen DRM of volcanic risk hazards in Guatemala, dated December No Yes updated National Humanitarian Assistance 10, 2018. Manual adopted by CONRED. Prior Action A.3: The Government has strengthened the DRM’s institutional framework in the environmental sector by creating the Result Indicator A.3a: Number of local Department of Integral Environmental Risk Management within the communities with environmental risk Ministry of Environment and Natural Resources. evaluations completed and disseminated 0 25 and trained to protect strategic ecosystems Legal evidence: Ministerial Accord No. 339-2018 (MARN), dated and the livelihoods provided by them.48 September 21, 2018. Pillar B: Incorporating disaster risk into the management of public finances for fiscal resilience Results Indicator B.1a: Number of new financial instruments established in line with 0 2 Prior Action B.1: The Government has approved and published a Disaster the DRFS. Risk Financing Strategy (DRFS) to promote diversification of disaster- Results Indicator B.1b: Accelerated related financial instruments and enhance capacity to respond to response time in providing emergency funds disasters. 14 days 14 days maintained after the declaration of the state of emergency.49 Legal evidence: (a) Ministerial Accord No. 206-2018, dated April 18, 2018, approving the DRFS; (b) DRFS published on MINFIN’s website. Results Indicator B.1c: Operations Manual for the implementation of the DRFS 0 1 designed and adopted by MINFIN. 48 The target of 25 communities has been defined by MARN considering its institutional capacity and the recent creation of the Department of Integral Environmental Risk Management. 49 Based on the disbursement time of the first CAT DDO. Page 37 The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) Baseline Target43 Prior Action Result Indicators42 (January 2019) (January 2022) Prior Action B.2: The Government has created the position of Fiscal Transparency and Procurement Vice-Minister within MINFIN and clarified Results Indicator B.2a: Number of new the functions and responsibilities of MINFIN; and approved an integrated emergency procurement tools and 0 2 analysis of fiscal risks to strengthen the management of fiscal risks and mechanisms in place for dealing with enhance transparency of public spending. adverse natural events50. Legal evidence: (a) Governmental Accord No. 25-2018 dated February 12 and published in the Official Gazette on February 14, 2018; (b) Results Indicator B.2b: Number of fiscal risk Governmental Accord No. 112-2018, dated June 27, 2018 and published in budget reports elaborated by the the official Gazette on June 28, 2018, (c) fiscal risk section (Separata de 2 4 Directorate of Fiscal Transparency that Riesgos Fiscales) of the Budget Law for the Fiscal Year 2019 dated consider natural hazards and climate risks. November 27, 2018 and published in the Official Gazette on December 27, 2018. Prior Action B.3: The Government has enhanced the efficiency of public Results Indicator B.3a: Number of spending, planning and budget allocation processes related to DRM and government institutions implementing CCA activities by clarifying the responsibilities of the thematic budget thematic classifiers in DRM and CCA in line 0 2 classifiers’ governing bodies and updating the scope of said instruments with the new conceptual guide and throughout its budget cycle. implementation manual. Legal evidence: (a) Article 18 of the Budget Law for the Fiscal Year 2019 Result Indicator B.3b: Permanent National dated November 27, 2018 and published in the Official Gazette on DRM Fund annually funded and operational No Yes December 27, 2018 ; and (b) Ministerial Accord No. 379 dated December in line with the DRFS51. 29, 2017 and published in the Official Gazette on January 4, 2018. 50 This indicator depends on the approval of the new Procurement Law by the Congress of the Republic of Guatemala. 51 This fund refers to Article 43, of the proposed Law 5543, DRM Law. Page 38 The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) ANNEX 2: INTERNATIONAL MONETARY FUND RELATIONS ANNEX International Monetary Fund Press Release No. 18/224 June 8, 2018 IMF Executive Board Concludes 2018 Article IV Consultation with Guatemala On May 25, 2018, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation52 with Guatemala. Underpinned by a solid macroeconomic framework, the economy has endured significant political tensions since 2015. Supporting broad macroeconomic stability, a sound monetary policy management has helped keep inflation expectations firmly anchored. Fiscal deficits have remained at decade lows on the back of low debt tolerance and inadequate budgetary execution, partly a result of anti-corruption efforts. Terms of trade gains and an upsurge in remittances inflows moved the current account into a sizable surplus. The financial system is sound and well- regulated while vulnerabilities seem manageable. Growth performance nevertheless falls shorts of the rates needed to achieve Guatemala’s aspirations to meaningfully lift the living standards of its citizens. Income per capita over the past decade has grown at an average rate of 1.1 percent, a rate that is insufficient to meaningfully reduce Guatemala’s high levels of poverty (currently at 60 percent of the population). Over the past two years, growth slowed to 2.8 percent in 2017, down from 4.1 percent in 2015. The slowdown has been broad-based, evident in employment, private consumption, and investment. Near-term growth prospects remain subdued, at 3.2 percent in 2018 and 3.6 percent in 2019. Better U.S. growth, accommodative monetary conditions, and some support from pent-up government spending will support the growth pick-up. However, the fiscal impulse will remain moderate and key reforms that could help attract private investment are likely to be held back until after the presidential elections next year. In all, the economy is expected to operate with spare capacity over the near-term and inflation to fall below the mid-point of the central bank’s target band. The external position is projected to return to a modest deficit by 2021, driven by a partial normalization of the remittance and terms of trade positive shocks. Risks to the outlook are tilted to the downside. Domestic risks include an under-execution of budget spending and a delay in judiciary decisions that allow the resumption of operations of a large mining company. External risks include worsening global financial conditions and a step-up in the antiimmigration efforts by the U.S. government. 52Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) Executive Board Assessment53 They commended Guatemala for maintaining a solid record of macroeconomic stability and resilience, supported by prudent economic management. This has allowed the country to withstand economic shocks and politically difficult circumstances. Guatemala’s near-term growth has been good, although poverty levels remain high. Directors noted that a modest recovery can be expected with accommodative monetary conditions, recovery in budgetary spending from low levels and higher growth in the U.S. To guard against downside risks in the near term and foster growth over the medium term, Directors called for greater macroeconomic policy support for the economy. In addition, structural reforms are essential to sustain higher growth, help attract private investment, make growth more inclusive and reduce poverty. Directors generally encouraged the authorities to adopt a supplementary budget that raises spending limits and supports near term growth, with a particular focus on raising social and capital spending. A stronger effort is also needed to increase spending execution and flexibility. Directors emphasized that inadequate budgetary revenues constrain the government’s ability to invest in physical and human capital. In this context, Directors called for an integral fiscal reform encompassing better tax administration and tax policy changes. They underlined that strong governance is critical to durably raise investment and support revenue mobilization. Directors commended the authorities for keeping inflation expectations firmly anchored over the last several years. Directors considered that the central bank could remain open to lowering the policy rate if the contribution of fiscal policy to growth falls short of expectations, activity indicators have not strengthened by mid-year and inflation risks remain on the downside. Directors acknowledged the central bank’s efforts to gradually widen the band before exchange rate intervention is triggered and called for continuing efforts to increase exchange rate flexibility to buffer against shocks. They also underlined the need for continued efforts to improve monetary transmission, including through a reduction in financial dollarization and development of domestic capital markets. Directors welcomed the soundness of the financial sector. Nevertheless, there remains a need to further develop macroprudential policies and move toward Basel III standards, implement consolidated supervision, reinforce bank resolution, and strengthen the AML/CFT framework. Directors called for continued efforts to raise living standards. Lifting investment and achieving the Sustainable Development Goals are important to capitalize on the demographic dividend that is expected over the next two decades. Directors encouraged efforts to expand social protection programs and combat informality to improve social outcomes. Directors stressed the importance of improving the business climate, including through pro competition reforms and by reducing the uncertainty weighing on extractive industries. Directors welcomed ongoing efforts to fight corruption, including measures to restore confidence in public procurement and to promote government transparency and accountability. Directors encouraged the authorities to strengthen judicial effectiveness and reinforce the asset disclosure regime for public officials. --- * Next Article IV mission is scheduled to take place in April 2019. 53At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summing up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm. The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) ANNEX 3: LETTER OF DEVELOPMENT POLICY The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) MINISTRY OF PUBLIC FINANCE GUATEMALA (Unofficial Translation) 0580 th April 8 , 2019 Mr. Axel Van Trotsenburg Vice President for Latin America and the Caribbean World Bank Washington, D.C., USA Dear Mr. Trotsenburg, The Government led by Mr. Jimmy Morales, designed its 2016-2020 Government Plan focused on the premise to improve the standard of leaving of Guatemalans and reduce poverty through results-oriented public management, with effectiveness, continuous monitoring and permanent evaluation, implementing policies that encourage the efficient provision of basic services in education, health and nutrition. To that end, the Government is implementing a plan based on participatory democracy and territorial management, which includes five areas (Transparency, Health, Education, Economic Development and Public Safety) that set public policy priorities developed by the current government administration. In the interest of reaching sustained and inclusive economic growth, focused on the well-being of the Guatemalan citizens and aware of being a country exposed to multiple natural hazards, reforms are being implemented in search of greater resilience to disaster risk. According to the Government program this can be achieved through a combination of measures allowing to: (a) enhance the disaster risk management legal framework; (b) invest in the identification and mitigation of risk, and disaster preparedness; and (c) increase the financial capacity to respond and recover from disasters and emergencies. The World Bank assistance strategy envisages, among other things, the accompaniment and support to the implementation of the mentioned Government Plan, through the granting of a loan with a Catastrophe Deferred Drawdown Option to provide liquidity upon the occurrence of an emergency or a natural disaster. In this regard, the Bank has provided support to the design of the reimbursable operation named “Second Disaster Risk Management Development Policy Loan with a Catastrophe-Deferred Drawdown Option (CAT DDO)”, with the objective to help strengthening the Guatemala’s legal, institutional and financial framework to manage the impact of adverse natural events and climate risk. It is worth noting that on April 14, 2009, the first CAT DDO was approved by the World Bank and formally contracted through the Loan Agreement No 76830, for up to US$85.0 million; which was been fully utilized. The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) Based on the above, the Second CAT DDO has been structured with the following two (2) pillars, and under the current Government administration’s commitment in this matter, the following actions have been completed: • Pillar A. The development of fundamentals for a disaster risk management and climate change policy and institutional framework. 1. A proposed bill for Integrated Disaster Risk Management (legislative propose 5543, that repeals the Decree 109-96 National Coordinator for the Reduction of Natural or Provoked Disasters Law) has been received by the Congress, to generate a new legal framework to address the country needs, modernize the organizational structure of the Executive Secretariat of the National Coordinator for Disaster Reduction (SECONRED), with a strategic approach on the financial management of disasters risks and interconnectivity with State institutions, civil society organizations, private sector, with an inclusive participation of vulnerable groups. 2. By Resolution of the National Council for the Reduction of Natural or Provoked Disasters of December 12, 2018 (CN-14-11-11.2-2018), a Roadmap to strengthen Guatemala risk management of volcanic disasters was approved on December 12, 2018, which proposes six (6) strategic actions with the objective to define programmatic priorities and public investments for strengthening resilience in volcanic areas in Guatemala. 3. The Government has strengthened the disaster risk management institutional framework in the environment sector, through the creation of the Department of Integrated Environmental Disaster Risk Management within the Ministry of the Environment and Natural Resources (MARN), by the Ministerial Agreement 339-2018, of September 21 of 2018. • Pillar B. Integration of fiscal risks associated to disasters within public finance management. 1. The Ministry of Public Finance approved a Disaster Risk Financing Strategy (Ministerial Agreement 206- 2018, of April 18, 2018) that aims to strengthen the country’s fiscal resilience, and its response capacity to severe events. 2. The Government has institutionalized and reinforced the fiscal risk management and the transparency of public spending, through: (i) the creation of the Vice-ministry of Fiscal Transparency and State Procurement within the Ministry of Public Finance (Governmental Agreements 25-2018 and 112-2018 of February 14, and June 27, 2018 respectively); and (ii) the chapter of fiscal risks contained in the State General Revenue and Expenditure Budget for Fiscal Year 2019 and Multiannual 2019-2023, published in the MoF website. 3. The Government has improved public spending efficiency, planning and budget allocation processes related to disaster risk management and climate change as reflected in (i) Article 18 of Decree 25-2018, State Revenue and Expenditure General Budget Law for Fiscal Year 2019; and (ii) Ministerial Agreement 379-2017 of December 29, 2017, through which the Ministry of Public Finance approves the Public Sector Budget Classification Manual update of the Guatemalan public sector. In that regard and considering the relevance to continue to make progress in disaster risk management in the country, as Governor of the Republic of Guatemala at BIRF, I request the World Bank financial support through the The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) Second Disaster Risk Management Development Policy Loan (CAT DDO) in the amount of up to US$200 million, a project of high relevance to strengthen the fiscal accounts in the event of a disaster, that will allow to respond in a timely manner to benefit the affected population. We welcome your support to continue the necessary internal steps to obtain the Bank’s approval for this operation. I appreciate the continued support the World Bank is providing us and avail myself of this opportunity to renew to you the assurances of my highest consideration and esteem. Victor Martinez Minister of Public Finance DCP/RMO/MR/MA/edem The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) ANNEX 4: ENVIRONMENT AND POVERTY/SOCIAL ANALYSIS TABLE Significant Poverty, Significant Environment Prior Action Social, or Distributional Effects Effects Pilar A: Strengthening the legal and policy framework for DRM and CCA Prior Action A.1: The Government has submitted to its Congress a bill of law to strengthen the legal DRM Indirect positive effects framework, establish a national system for DRM and define procedures and instruments to enhance risk Positive likely knowledge and reduction, disaster preparedness and response, and resilient recovery. Prior Action A.2: The Government has adopted a DRM roadmap including contingency plans and information Indirect positive effects No dissemination activities to strengthen risk management and resilience for volcanic hazards. likely Prior Action A.3: The Government has strengthened the DRM’s institutional framework in the environmental Indirect positive effects sector by creating the Department of Integral Environmental Risk Management within the Ministry of Positive likely Environment and Natural Resources. Pillar B: Incorporating disaster risk into the management of public finances for fiscal resilience Prior Action B.1: The Government has approved and published a Disaster Risk Financing Strategy (DRFS) to Indirect positive effects promote diversification of disaster-related financial instruments and enhance capacity to respond to No likely disasters. Prior Action B.2: The Government has created the position of Fiscal Transparency and Procurement Vice- Minister within MINFIN and clarified the functions and responsibilities of MINFIN; and approved an integrated No No analysis of fiscal risks to strengthen the management of fiscal risks and enhance transparency of public spending. Prior Action B.3: The Government has enhanced the efficiency of public spending, planning and budget Indirect positive effects allocation processes related to DRM and CCA activities by clarifying the responsibilities of the thematic budget No likely classifiers’ governing bodies and updating the scope of said instruments throughout its budget cycle. Page 47 The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) ANNEX 5: IMPACTS OF MAJOR DISASTERS AND NATIONAL DECLARATIONS OF DISASTERS 1. From 1975 to 2018 the most significant disasters in Guatemala provoked damages and losses amounting to US$9.8 billion.54 This represents an annual average cost of US$228 million, equivalent to 0.30 percent of GDP (2017). While disasters originated by hydrometeorological hazards are more frequent, their economic impacts have not exceeded 5 percent of GDP. Seismic events are less frequent but can have more devastating impacts, as exhibited by the 1976 earthquake, which caused damages and losses equivalent to 20.7 percent of the 1976 GDP (see Figure 5.1). Figure 5.1. Damages and Losses from the Most Significant Disasters in Guatemala (2018 US$, millions and percentage of GDP) EQ 1976 Source: Damages and losses data are extracted from post-disaster needs assessments as compiled by the GFDRR. Table 5.1. Damages and Losses from Major Adverse Natural Hazards in Guatemala (in 2018 US$, millions and as percentage of given year’s GDP) Event Damages Losses Total Total as Percentage (US$, millions) (US$, millions) (US$, millions) of GDP (in year of occurrence) 1976 Earthquake 3,831 135 3,966 20.7 1982 Floods 66 177 243 0.9 1998 Hurricane Mitch 412 957 1,369 4.2 2001 Drought 33 18 51 0.1 2005 Hurricane Stan 646 870 1,516 4.1 2010 Hurricane Agatha 1,392 670 2,062 3.9 54US$ in 2018. The post-disaster need assessments account for direct damages to assets and buildings (that is, damages) and indirect losses due to variation in prices or revenues (that is, losses). Page 48 The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) Event Damages Losses Total Total as Percentage (US$, millions) (US$, millions) (US$, millions)of GDP (in year of occurrence) 2011 Tropical Depression 12-E 105 321 426 0.8 2012 San Marcos Earthquake 117 37 154 0.3 2018 El Fuego volcano eruption 156 63 219 0.3 Source: Damages and losses data are extracted from post-disaster needs assessments as compiled by the GFDRR. The total of damages and losses as percentage of GDP is calculated based on GDP data from the World Economic Outlook of the IMF. Table 5.2. List of Nationala Declarations of Emergency for a Public Calamity (1976 to Present) Declaration Date Duration Year of State of Extension Source Details (days) Emergency Government Decree 1-2018 El Fuego volcano 2018 June 4, 2018 Yes 30 (Extension: No. 2-2018) eruption Heavy rainfall because of the tropical 2011 October15, 2011 No 30 Government Decree 10-2011 depression 12E and earthquakes Government Decree No. 15- Tropical storm Agatha 2010, (Extensions: 16-2010, May 29, 2010– and the continuous 2010 Yes 300 17-2010, 18-2010, 19-2010, March 19, 2011 rains affecting the 20-2010, 21-2010, 22-2010, 2- country 2011, 3-2011) October 6, Hurricane Stan hit the Decree No. 1-2005 (Extension: 2005 2005–December Yes 60 country and extensive No. 2-2005) 4, 2005 flooding Forest fires throughout the 2003 March 24, 2003 No 30 Decree No. 1-2003 country, particularly in the northeast Devastating drought September 3, Government Decree No. 5- that has caused the 2001 2001–October Yes 60 2001 (Extension: No. 6-2001) starvation deaths of 29, 2001 at least 41 people Excessive rainfall during the rainy June 5, 2000– Government Decree No. 5- season created 2000 No 30 July 5, 2000 2000 disasters throughout various zones across the country October 31, Governmental Decree No. 1- 1998 No 30 Hurricane Mitch 1998 98 Page 49 The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) Declaration Date Duration Year of State of Extension Source Details (days) Emergency Presidential Decree No. 1- 1976 (Extensions: 3-1976, 4- 1976, 5-1976, 6-1976, 7-1976, February 6, 1976 8-1976, 9-1976, 10-1976, Earthquake on 1976 –November 18, Yes 660 11,1976, 12-1976, 13-1976, 1- February 4, 1976 1977 1977, 2-1977, 3-1977, 4-1977, 5-1977, 6-1977, 7-1977, 8- 1977, 9-1977, 10-1977) Note: In addition to national declarations of emergency, there were 17 subnational declarations of emergency made for public calamities between 1986 and 2015 (plus 38 extensions made upon those 17 declarations). Page 50 The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) ANNEX 6: EVOLUTION OF THE DRM FRAMEWORK IN GUATEMALA Page 51 The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) ANNEX 7: ORGANIZATION CHART OF THE NATIONAL COORDINATOR FOR DISASTER REDUCTION Page 52 The World Bank Guatemala DRM Development Policy Loan with CAT DDO II (P159710) ANNEX 8: GENERAL DESCRIPTION OF A DISASTER RISK FINANCING STRATEGY The DRFS considers the temporal dimension of post-disaster financing requirements and adopts a layered approach, seeking to diversify risk transfer and retention instruments in line with international best practices. Considering the temporal dimension of post-disaster processes means taking into account the different financing needs of each post-disaster stage (immediate response and recovery, rehabilitation, and reconstruction). Likewise, the DRFS promotes a combination of financial instruments to allow for addressing events of different magnitude and frequency based on an assessment of respective opportunity costs and benefits. Figure 8.1. Temporal Dimension of Post-Disaster Resource Needs Source: Francis Ghesquiere and Oliver Mahul; Financial Protection of the State Against Natural Disasters: A Primer. Policy Research Working Paper; no. WPS 5429. Washington, DC; World Bank 2010. Figure 8.2. Layered Disaster Risk Financing Approach Source: Financial Protection Against Disasters, World Bank 2014. Page 53