for official use only international development

The World Bank Honduras DRM Development Policy Credit with a Catastrophe Deferred Drawdown Option (Cat DDO) (P172567)

Document of

The World Bank

FOR OFFICIAL USE ONLY Report No: PGD151

INTERNATIONAL DEVELOPMENT ASSOCIATION

PROGRAM DOCUMENT FOR A

PROPOSED CREDIT

IN THE AMOUNT OF US$119 MILLION

TO THE REPUBLIC OF HONDURAS

FOR THE

DISASTER RISK MANAGEMENT DEVELOPMENT POLICY CREDIT WITH A CATASTROPHE DEFERRED DRAWDOWN OPTION (CAT DDO)

April 2, 2020

Urban, Resilience and Land Global Practice Latin America and Caribbean Region

This document has a restricted distribution and may be used by recipients only in the performance of their official

duties. Its contents may not otherwise be disclosed without World Bank authorization.

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Republic of Honduras GOVERNMENT FISCAL YEAR January 1 – December 30

CURRENCY EQUIVALENTS

(Exchange Rate Effective as of April 2, 2020) Currency Unit: Honduras Lempira (HLN)

HLN 24.86 = US$1.00

ABBREVIATIONS AND ACRONYMS

AECID Spanish Agency for International Development Cooperation (Agencia Española de Cooperación Internacional para el Desarrollo)

AMHON Association of Municipalities (Asociación de Municipalidades de Honduras)

ANA National Water Authority (Autoridad Nacional del Agua)

APEC Asia‐Pacific Economic Cooperation

BCH Central Bank of Honduras (Banco Central de Honduras)

BVM Government Social Housing Program (Bono Vida Mejor)

CABEI Central American Bank for Economic Integration (Banco Centroamericano de Integración Económica – BECIE)

Cat DDO Catastrophe Deferred Drawdown Option

CCA Climate Change Adaptation

CEPREDENAC Coordinating Center for the Prevention of Natural Disasters in Center America (Centro de Coordinación para la Prevención de los Desastres Naturales en América Central)

CNBS Banking Commission (Comisión Nacional de Bancos y Seguros)

CONVIVIENDA National Housing Agency (Comisión Nacional de Vivienda)

COPECO National Disaster Risk Management Agency (Comisión Permanente de Contingencias)

COSUDE Swiss Agency for Development Cooperation (Cooperación Suiza de Desarrollo)

COVID‐19 Coronavirus Disease 2019

CPF Country Partnership Framework

CPI Consumer Price Index

CRRH Regional Water Resources Committee (Comité Regional de Recursos Hidráulicos)

DPC Development Policy Credit

DRFS Disaster Risk Financing Strategy

DRM Disaster Risk Management

DSA Debt Sustainability Analysis

DSF Debt Sustainability Framework

ENEE State‐Owned Electricity Company (Empresa Nacional de Energía Eléctrica)

FDI Foreign Direct Investment

FONAPRE National Fund for Preparedness and Response (Fondo Nacional de Preparación y Respuesta a Emergencias)

FRL Fiscal Responsibility Law

GDP Gross Domestic Product

GFDRR Global Facility for Disaster Reduction and Recovery

GNP Gross National Product

GoH Government of Honduras

GRS World Bank’s Grievance Redress Service

HFA Hyogo Framework for Action

IBRD International Bank for Reconstruction and Development

IDA International Development Association

IFC International Finance Corporation

IHR International Health Regulations

IMF International Monetary Fund

IUWM Integrated Urban Water Management

JEE Joint External Evaluation

LAC Latin America and the Caribbean

LDP Letter of Development Policy

MAPS Methodology for Assessment of National Procurement System

MOF Ministry of Finance

MTEF Medium‐Term Expenditure Framework

NCCS National Climate Change Strategy

NDC Nationally Determined Contribution

NFPS Non‐Financial Public Sector

NPL Non‐performing Loans

OECD Organization for Economic Co‐operation and Development.

ONCAE National Procurement Office (Oficina Normativa de Contratación y Adquisiciones del Estado)

PAHO Pan American Health Organization

PCGIR Central America Policy for Disaster Risk Management (Política Centroamericana de Gestión Integral del Riesgo de Desastres)

PCM Presidency of the Council of Ministers (Presidencia del Consejo de Ministros)

PDO Project Development Objective

PER Public Expenditure Review

PFM Public Financial Management

PPG Public and Publicly Guaranteed

PV Present Value

SBA Stand‐By Arrangement

SCD Systematic Country Diagnostic

SDR Special Drawing Rights

SECO Swiss State Secretariat for Economic Affairs (Secretaría de Estado de Economía de Suiza)

SEFIN Ministry of Finance (Secretaria de Finanzas)

SESAL Ministry of Health (Secretaria de Salud)

SEPLAN Ministry of Planning (former Secretaría de Planificación)

SGJD Ministry of Interior and Justice (Secretaría de Gobernación, Descentralización y Justicia)

SICA Central American Integration System (Sistema de Integración Centroamericano)

SINAGER National Disaster Risk Management System (Sistema Nacional de Gestión del Riesgo de Desastres)

TA Technical Assistance

TPS Temporary Protected Status

UN United Nations

UNDRR United Nations Office for Disaster Risk Reduction

US United States

USAID United States Agency for International Development

WBG World Bank Group

WCDRR United Nations World Conference on Disaster Risk Reduction

WHO World Health Organization

WRM Water Resources Management

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Regional Vice President: J. Humberto Lopez (Acting)

Country Director: Yaye Seynabou Sakho

Regional Director: Anna Wellenstein

Practice Manager Ming Zhang

Task Team Leaders:Lizardo Narvaez Marulanda,

Nicolas Collin Dit De Montesson


Page 1

TABLE OF CONTENTS

SUMMARY OF PROPOSED FINANCING AND PROGRAM ........................................................................ 3

1. INTRODUCTION AND COUNTRY CONTEXT .................................................................................... 5

2. MACROECONOMIC POLICY FRAMEWORK ..................................................................................... 8

2.1. RECENT ECONOMIC DEVELOPMENTS ............................................................................................ 8

2.2. MACROECONOMIC OUTLOOK AND DEBT SUSTAINABILITY ......................................................... 13

2.3. IMF RELATIONS ............................................................................................................................ 15

3. GOVERNMENT PROGRAM .......................................................................................................... 16

4. PROPOSED OPERATION .............................................................................................................. 18

4.1. LINK TO GOVERNMENT PROGRAM AND OPERATION DESCRIPTION .......................................... 18

4.2. PRIOR ACTIONS, RESULTS AND ANALYTICAL UNDERPINNINGS .................................................. 20

4.3. LINK TO CPF, OTHER BANK OPERATIONS AND THE WBG STRATEGY .......................................... 31

4.4. CONSULTATIONS AND COLLABORATION WITH DEVELOPMENT PARTNERS ............................... 32

5. OTHER DESIGN AND APPRAISAL ISSUES...................................................................................... 33

5.1. POVERTY AND SOCIAL IMPACT .................................................................................................... 33

5.2. ENVIRONMENT, FORESTS AND OTHER NATURAL RESOURCE ASPECTS ...................................... 34

5.3. PFM, DISBURSEMENT AND AUDITING ASPECTS .......................................................................... 35

5.4. MONITORING, EVALUATION AND ACCOUNTABILITY .................................................................. 36

6. SUMMARY OF RISKS AND MITIGATION ...................................................................................... 37

ANNEX 1: POLICY AND RESULTS MATRIX ............................................................................................ 40

ANNEX 2: INTERNATIONAL MONETARY FUND PRESS RELEASE ............................................................ 42

ANNEX 3: LETTER OF DEVELOPMENT POLICY ...................................................................................... 43

ANNEX 4: ENVIRONMENT AND POVERTY/SOCIAL ANALYSIS ............................................................. 51

ANNEX 5: MUNICIPALITIES WITH DRM AND EMERGENCY PLANS ....................................................... 54

ANNEX 6: SUMMARY OF HONDURAS INTERNATIONAL HEALTH REGULATIONS SELF‐ASSESSMENT .... 57

ANNEX 7: EMERGENCY DECLARATION PROCESS ................................................................................ 59

The proposed operation was prepared by an IDA team consisting of Lizardo Narvaez Marulanda (Senior DRM Specialist, SLCUR and Team Leader); Nicolas Collin Dit De Montesson (Economist, HLCHN and Co‐TTL); Alexandra Lelouch Loebl (Counsel, LEGLE); Rodrigo Andres Donoso Arias (DRM Specialist, SLCUR); Zoila Victoria Navarro Portocarrero (DRM Specialist, SLCUR); Felipe Montoya Pino (Urban Specialist, SLCUR); Marco Antonio Aguero (Senior Water Supply and Sanitation Specialist, SLCWA); Jose Simon Rezk (Senior Financial Management Specialist, ELCG1); Amparo Elena Gordillo‐Tobar (Senior Economist, HLCHN); Carlos Marcelo Bortman (Lead Health Specialist, HLCHN); Carolina Diaz‐Bonilla (Senior Economist, ELCPV); Cristina Elizabeth Coirolo (Social Development Specialist, SLCSO); Ricardo Marten (Social Development Specialist, SLCSO); Leanne Farrell (Senior Environmental Specialist, SLCEN); Elena Bondarenko (Economist, ELCMU); Maria Virginia Hormazabal (Finance Officer, WFACS); Jane C. Hwang (Senior Operations Officer; OPSIL); Elsa Lily Caballero Zeitun (Consultant, SLCUR); Carmen Rosa Zena Acosta (Consultant, SLCUR), Matthew Lyn (Consultant, SLCUR), and Deborah Davis (Senior Editorial Consultant). This operation was undertaken under the general guidance of Yaye Seynabou Sakho (Director, LCC2C); Andrea C. Guedes (Operations Manager, LCC2C); Eric Lancelot (Program Leader, ILCDR); Boris Weber (Country Manager, LCCHN); Ezequiel Miranda (Operations Officer, LCCHN); Oyebimpe Oyelese (Senior Operations Officer, LCC2C); Anna Wellenstein (Regional Director, SLCDR); Ming Zhang (Practice Manager, SLCUR); Michele Gragnolati (Practice Manager, HLCHN); Joaquin Toro (Senior DRM Specialist, SLCUR); Alexandra Ortiz (Lead Urban Development Specialist, SLCUR); Midori Makino (Lead Water Supply and Sanitation Specialist, SLCWA); Rita Cesti (Practice Manager SLCWA) and Daniela Marotta (Senior Economist, LCRVP). Peer Reviewers are Armando E. Guzmán (Sr. DRM Specialist, SSACD), Eric Dickson (Sr. Urban Specialist, SAFU2), Enrique Pantoja (Operation Adviser, OPSIL) and Mukesh Chawla (Adviser, HHNDR). The team wishes to express gratitude to the Government of Honduras for its collaboration in the preparation of this operation.


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SUMMARY OF PROPOSED FINANCING AND PROGRAM

BASIC INFORMATION

Project ID Programmatic

P172567 No

Proposed Development Objective(s)

The PDO is to strengthen Honduras's institutional and financial framework to manage the risk of adverse natural events including disease outbreaks

Organizations

Borrower: REPUBLIC OF HONDURAS

Implementing Agency: MINISTRY OF FINANCE (SECRETARIA DE FINANZAS ‐ SEFIN)

PROJECT FINANCING DATA (US$, Millions) SUMMARY

Total Financing 119.00 DETAILS

International Development Association (IDA) 119.00

IDA Credit 119.00

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


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. Results

Indicator Name Baseline (2020) Target (2023)

Results indicator 1: New financial instruments implemented to manage disaster risk and emergencies in accordance with the Disaster Risk Financing Strategy (DRFS) (number)

0 1

Results indicator 2 New or updated Sistema Nacional de Gestión de Riesgos (SINAGER) DRM instruments formulated and approved by the new Ministry of Disaster Risk Management and National Contingencies (COPECO) (number)

0 3

Results indicator 3: Municipalities that have formulated or updated and formally approved their local emergency plans in accordance with the new operational guidelines (percent)

6 40

Results indicator 4: Health regions with a Regional Pandemic, Epidemic and Health Emergency Response Plan adopted by the Ministry of Health (percent)

0 100

Results indicator 5: Weekly epidemiological reports of mandatory notifiable conditions, produced and disseminated following international standards (number)

0 52

Results indicator 6a: Water Basin Councils created and operating to reduce water‐related risks, in the Dry Corridor region, in line with the Water Security Strategy (number)

0 5

Results indicator 6b: A National Water Authority established and operational

No Yes

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IDA PROGRAM DOCUMENT FOR A DRM DEVELOPMENT POLICY CREDIT WITH A CATASTROPHE

DEFERRED DRAWDOWN OPTION (CAT DDO) TO THE REPUBLIC OF HONDURAS

1. INTRODUCTION AND COUNTRY CONTEXT

1. This proposed operation is a stand‐alone US$119 million Disaster Risk Management Development Policy Credit (DPC) with an IDA Catastrophe Deferred Drawdown Option (Cat DDO). The operation was designed before the COVID‐19 crisis to support Honduras efforts to improve its capacity to manage natural disasters, climate risk and disease outbreaks. Yet, in the current context1 it is even more relevant than before as the program supported by this operation contributes to the Government’s efforts to: (a) strengthen the country’s ability to manage natural hazards, including disease outbreaks and climate disasters; and (b) quickly mobilize resources in the aftermath of such catastrophic events. This operation builds on a comprehensive analysis and assessment of the country’s regulatory and institutional frameworks for disaster risk management (DRM) and climate change adaptation (CCA), as well as its system for responding to public health emergencies.

Box 1: Government response to COVID‐19 Pandemic (as of April 1st, 2020)

The Honduran Government has taken proactive measures to slow down the spread of infection. Starting with school closures on March 12, the Government gradually expanded borders controls and closed non‐essential businesses. Lockdown measures with strict curfews were implemented in major cities on March 16, and were expanded nation‐wide on March 23. Under lockdown, Hondurans have been encouraged to use delivery services for food, medicine, and other essentials; however, these services are limited and not accessible for most of the population. The Government has also begun distributing food to some of the poorest people under the ongoing lockdown. However, these services did not meet the needs of the population. The Government has subsequently adjusted and now allows its population to leave quarantine on certain days of the week to purchase essential goods; those days are determined by individual identification number (ID). The Government has already prepared a COVID‐19 Containment and Response Plan costed at 3.8 billion Lempiras (approximately US$152 million) and has requested support from multi‐lateral development banks and donors to help finance this Response Plan. Upon the launch of the Regional Contingency Plan, “Central America United Against the Coronavirus,” within the framework of the Central American Integration System (SICA), CABEI has granted US$1 million to the GoH, and committed to another US$50 million in budget support. Additionally, the IMF has disbursed SDR104.92 million (US$143 million) to Honduras under the IMF SBA/SCF arrangement approved in July 2019. The World Bank has engaged the Government in activating emergency components in ongoing operations and preparing a fast‐track emergency operation to respond to the COVID‐19. The Government has expressed its intention of reallocating nearly US$3 million from two ongoing operations, and is reviewing other operations to identify additional funds that could be used to respond to the emergency. The Bank is also preparing a US$20 million operation under the COVID‐19 Strategic Preparedness and Response Program (SPRP).

1 As of April 1, Honduras had 172 recorded cases of Coronavirus representing a 473% weekly increase.


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Finally, the GoH has started implementation of its Economic Rescue Plan. This plan includes a set of monetary policy measures making financial conditions more flexible, allowing the private financial system liquidity to provide access to credit in order to help mitigate the impacts of the pandemic. The Government has also announced a plan with fiscal and tax incentives for businesses to preserve jobs and guarantee workers' wages during the emergency period.

2. The DPC aims to enhance Honduras’s programmatic agenda for DRM by facilitating the implementation of critical and strategic policies. The existing DRM system, SINAGER (Sistema Nacional de Gestion de Riesgos), is an overarching policy framework designed to coordinate the work of a number of different agencies in charge of DRM, CCA, and disease response. The SINAGER framework is supported by comprehensive directives, policies and plans; however, the Government has recognized that gaps remain. Both the DRM and CCA frameworks under SINAGER require strengthening, with specific actions needed to: (a) promote a coordinated approach to strengthening the institutional frameworks for DRM and CCA; (b) improve the Government’s financial resilience to disasters, including its capacity to mobilize emergency fiscal resources; (c) improve the emergency preparedness of the health sector and its capacity to respond to disease outbreaks; and (d) strengthen both national and local capacity to manage risks from hurricanes and flooding. 3. With 9.6 million inhabitants and a per capita annual income of US$2,541 (2018), Honduras is the third poorest country2 in the Western Hemisphere, after Haiti and Nicaragua. The Systematic Country Diagnostic (SCD), carried out in 2016, found that the country’s high exposure to two main types of natural hazards—extreme climate events and disease outbreaks—threatens its economic stability and the safety and well‐being of its population3. According to the Global Climate Risk Index4, Honduras was the country most severely impacted by extreme weather events between 1996 and 2015, with annual average losses equivalent to 2.1 percent of GDP, affecting critical sectors such as transportation, telecommunications, health, education, water and sanitation. The impacts were far greater for the poorest segments of the population.5 Furthermore, the country’s mean annual temperature is projected to rise by 1.9°C within 30 years, with the largest increases in temperature expected to occur in the southwest regions. In the northeast, climate change is expected to bring more prolonged, intense heat waves and drought, an increase in heavy rainfall volume and flooding, and more frequent hurricanes.

2 According to revised official poverty estimates based on an updated methodology, an estimated 48.3 percent of Hondurans (around 4.3 million people) lived below the national poverty line in 2018, a decline from 50.2 percent in 2014. An estimated 22.9 percent of Hondurans (around 2 million people) lived below the national extreme poverty line in 2018, down from 26 percent in 2014. International headcount estimates for 2018 show that 16.5 percent of the Honduran population lived on less than US$1.90 per day (the international poverty line); and around half (50.3 percent) lived on less than US$5.50 per day (the upper middle‐income global poverty line). 3 Natural hazards also include geological events. Although Honduras has remained largely unaffected by the frequent earthquakes and volcanic activity that characterize other Central American countries, in 2009, a magnitude 7.1 earthquake killed 7 people and caused estimated losses of US$100 million, including US$35 million in damage to infrastructure. (World Bank 2010). 4 Germanwatch 2017. 5 Indigenous Peoples and Afro‐descendants are the groups most severely affected by poverty and social exclusion in Honduras, which is normally exacerbated by extreme water events and disaster risk. While these groups account for an estimated 8.6 percent of the national population, rough estimates from indigenous organizations indicate that more than 70 percent live in poverty and more than half are unemployed. A lack of information from household surveys has translated into a lack of official estimates of poverty rates among these groups.


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4. Honduras’s vulnerability to climate disasters is exacerbated by chronic institutional weaknesses, particularly in the Government’s ability to cope with water‐related disasters. These weaknesses are exacerbated by the diffusion of responsibility for water policymaking, financing, regulation and monitoring, which is spread across various ministries and agencies, with no established central body to effectively coordinate efforts.6 There is a need to strengthen management of the country’s five river basins that comprise the Dry Corridor7 (Corredor Seco): Sampile, Choluteca, Nacaome, Lempa and Goascorán, where most of the poor and extremely poor are located. This area suffers from cycles of drought and flooding associated with the El Niño phenomenon8: drought affects agriculture, creates food shortages; while flooding destroys homes and infrastructure. 5. While the ability of the SINAGER system to respond to natural and climate events has improved over the years, there are still persistent weaknesses in its ability to respond to health‐related emergencies. These systemic organization and operational weaknesses are particularly acute at the sub‐national level and hinder the early detection of outbreaks which hampers a timely response, ultimately increasing the probability of an outbreak escalating into a national emergency. With an assessed capacity of 34 percent, Honduras has one of the lowest capacities in the world to detect, assess, notify and respond to public health risks and emergencies, and is well below both global and regional average capacity (61 and 65 percent, respectively).9 These weaknesses translate into difficulties in early detection and control of disease outbreaks, epidemics and potential pandemics. Following outbreaks of Zika in 2015 and Chikungunya in 2016, Honduras is now facing a severe and uncontrolled outbreak of Dengue fever that so far has affected more than 110,000 people10 and caused 180 suspected deaths since its inception in 2019. In response, the Government declared a national health emergency in July 2019, followed by a new declaration in February 2020.11 6. In addition to the Dengue crisis, the increasing global movement of goods and people escalates the risk of rapid cross‐border disease transmission, including the Coronavirus Disease 2019 (COVID‐19). The first cases of COVID‐19 were first detected in China in December 2019 and, as of March 25, had spread to 195 countries with almost 400 thousand confirmed cases.12 On March 11, 2020, the first two cases of COVID‐19 were confirmed by the Ministry of Health in Honduras; by March 24 there were 30 confirmed cases. This outbreak poses a significant threat to the health and welfare of the Honduran population, particularly given the severe difficulty the country faces to address recurrent epidemics, including the current Dengue epidemic. Considering the expected impact of COVID‐19 and potential impact of emerging

6 While Honduras is well above water stress levels and uses less than 9.1 percent of its available water resources, there are significant spatial and temporal imbalances between water availability and demand (Honduras’s Water Security Strategy in the Dry Corridor. Ministry of Environment 2019). 7 The Dry Corridor is known for its variable precipitation patterns, which make it one of the regions that is most susceptible to an increasingly unstable weather regime. Guatemala, El Salvador, Honduras, and Nicaragua are ranked among the 15 countries most vulnerable to drought and floods. Chronology of the Dry Corridor: The impetus for Resilience in Central America. FAO 2017. 8 During El Niño years, precipitation in the Dry Corridor can drop by 30–40 percent, with rising temperatures and more frequent and longer extended rainless periods (World Bank Climate Change Knowledge Portal, data source: 2017) 9 International Health Regulations State Party Self‐Assessment Annual Report, Honduras. WHO 2017. https://extranet.who.int/sph/country/262. Also see Annex 6 of this report. 10 Epidemiological Bulletin EW52. Ministry of Health 2020 (January). 11 The second declaration of state of emergency, on February 10, 2020, was intended to strengthen the response to the Dengue epidemic and prepare for the potential impact of the coronavirus (COVID‐19). 12 World Health Organization, data updated March 25, 2020. Novel Coronavirus (COVID‐19) Situation. https://experience.arcgis.com/experience/685d0ace521648f8a5beeeee1b9125cd


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pathogens in the future, including difficulties in preventing and controlling them, the Government is acutely aware of the need to strengthen its preparedness and response systems. 7. Honduras is an outlier in terms of financial protection against natural disasters. While other Central American countries have adopted various measures aimed at increasing their fiscal resilience to natural disasters, the GoH is just beginning the process of defining and implementing a Disaster Risk Financing Strategy (DRFS), which would dramatically increase the effectiveness of the SINAGER system and mark the mainstreaming of disaster response as a national priority. In addition, despite its high level of exposure and risk, the country has yet to develop a targeted disaster risk financing (DRF) instrument to cover immediate response efforts after a catastrophe. Until such an instrument is in place, emergency resources could continue to be diverted from planned development programs.13 8. The design of the proposed operation has been informed by experience from ongoing World Bank technical assistance (TA) engagements related to DRM.14 In addition, an investment operation, the ongoing Honduras DRM Project (P131094), aimed at strengthening DRM response at the national and local levels, has yielded lessons critical for the identification of the policy program included in the proposed operation.

2. MACROECONOMIC POLICY FRAMEWORK

2.1. RECENT ECONOMIC DEVELOPMENTS

9. Over the past 30 years, Honduras has experienced broadly modest, volatile economic growth, insufficient to reduce poverty. Honduras’s real Gross Domestic Product (GDP) grew at an average annual rate of 3.8 percent over the past three decades, exceeding the Latin American and Caribbean (LAC) regional average of 2.6 percent and on par with the Central American (CA) average of 3.9 percent15. However, the country’s sensitivity to external shocks, exposure to natural hazards, fiscal instability, limited investment, crime, migration and other challenges to competitiveness, combined with political instability, weak institutions and the thin economic base for generating more and better jobs, have inhibited economic diversification, undermined productivity growth, and slowed progress in raising incomes and reducing poverty. 10. Real GDP growth slowed to 3.7 percent in 2018 from 4.8 percent in 2017 and was projected to decelerate to 2.8 further in 2019 due to lower agricultural exports and unfavorable domestic and external factors.16 Output in most sectors (except services) decelerated, most notably in agriculture, where lower coffee and palm oil prices, in conjunction with severe droughts and weaker terms of trade,

13 Article 5, PCM Decree 005‐2020 (Declaration of State of National Health Emergency), commands the reallocation of HNL$110.000.000 (approx. US$4.4 million) from the Trust Fund for Poverty Reduction (FINA 2) and from the National Budget to cope with this emergency. 14 Strengthening Hydromet Services, Disaster Preparedness and Urban Resilience in Honduras (P172149); Central American Regional Resilience and DRM Engagement (P168855); Strengthening Disaster Risk Financing Capacity in CA Countries (P157413). 15 Central Bank of Honduras; World Development Index, and WB staff calculations, March 2020. 16 GDP data for 2019 was estimated upon preparation of this operation when the official statistics were not yet released. On March 19th, The Central Bank of Honduras stated that the real GDP growth was 2.7 percent in 2019.


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significantly affected production.17 The resulting slowdown in agricultural exports was further exacerbated by sub‐regional trade disruptions due to the crisis in Nicaragua. In addition, the post‐election political crisis in Honduras curtailed investment, which further decelerated growth. In contrast, private consumption remained robust, supported by strong remittance inflows (22 percent of GDP in 2019). On the supply side, growth has been driven by services and supported by strong trade with the U.S and regional partners. The U.S. remains the country’s main trade and investment partner, counteracting the slowdown in agricultural exports. In addition, the customs union between Guatemala and El Salvador has facilitated greater intraregional trade flows which have benefited Honduras. Preliminary estimates indicate that the economy is expected to decelerate in 2020 amid COVID‐19 pandemic.18

Table 1. Key Economic Indicators, 2016‐202319

2016 2017 2018 2019 a 2020 b 2021 b 2022 b 2023 b

Real Sector Annual percentage change, unless indicated

Real GDP 3.9 4.8 3.7 2.8 3.2 3.4 3.5 3.7

CPI (average) 2.7 3.9 4.3 4.4 4.0 4.0 4.0 4.0

Unemployment rate (percent) 4.7 4.0 4.0 4.1

Fiscal Accounts (NFPS) Percent of GDP, unless indicated

Revenue 32.3 31.9 31.5 31.7 31.9 32.3 32.1 32.2

Expenditure 32.8 32.7 32.4 32.7 32.9 33.3 33.1 33.0

Overall Government Balance ‐0.5 ‐0.8 ‐0.9 ‐1.0 ‐1.0 ‐1.0 ‐1.0 ‐0.9

Primary Balance 0.3 0.1 0.0 0.1 0.1 0.7 0.8 1.0

Total Public Debt 40.1 40.2 42.3 43.4 43.2 42.7 42.1 41.5

Selected Monetary Accounts Annual percentage change, unless indicated

Broad Money 15.6 12.8 8.1 8.7 10.0 10.0 10.0 10.1

Credit to private sector 12.9 9.4 14.2 9.9 9.6 9.3 9.1 8.9

External Sector Percent of GDP, unless indicated

Current Account Balance ‐2.6 ‐0.2 ‐5.3 ‐3.3 ‐3.8 ‐3.8 ‐3.9 ‐4.1

Exports of goods 25.7 26.5 24.9 24.0 24.4 24.5 24.7 24.5

Imports of goods 37.7 38.1 39.6 38.8 40.3 39.8 39.9 39.9

Foreign Direct Investment 4.1 4.3 3.7 3.3 3.9 4.2 4.5 4.9

Net reserves (months of imports) 5.0 5.3 5.3 5.1 5.1 5.1 5.1 5.1

Total external debt 35.5 37.3 38.6 38.8 39.5 38.9 38.1 37.5

Terms of trade (deterioration ‐) 5.4 ‐2.2 ‐6.6 ‐0.3 1.8 1.7 0.6 ‐0.1

Real effective exchange rate (eop, depreciation ‐) ‐2.2 ‐0.7 1.1

Memorandum items

Nominal GDP (millions of U.S. dollars) 21,698 23,123 23,987 24,445 25,686 27,042 28,440 29,883

Sources: Government of Honduras, IMF, World Bank. Notes: a=preliminary; b=projected.

17 Strong dependence on agriculture has been identified as one of the core structural challenges hindering medium‐term growth in Honduras. IMF Debt Sustainability Analysis, Article IV, July 2019. 18 Preliminary scenarios based on global assumptions provided by the World Bank Global Economic Prospect teams, as of March 20, 2020, project that the economy will fall into recession in 2020, with negative growth that could range between ‐1.3 and ‐ 2.1 percent depending on the magnitude of shocks and slowdown in key trade and investment partners. 19 At the time of distributing this document, the Bank is preparing a new set of projections that will incorporate the impact of the COVID‐19 pandemic in Honduras.


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11. Honduras’s monetary policy has been prudent. A relatively stable exchange rate has brought down consumer price inflation. After peaking nearly 5 percent in mid‐2019 – the upper limit of the Central Bank of Honduras’s (BCH) inflation target band ‐ given the spikes in energy and food prices, inflation decelerated to 4 percent by end‐2019. As a result, and amid decelerating economic activity, the BCH decreased the key policy rate twice by 25 basis points to 5.25 percent around early 2020. The lempira stood at LA24.7 per US$1 at the end‐2019, having depreciated in nominal terms by 2.5 percent annually, which is within the BCH’s depreciation band of 3‐4 percent per year.20 Meanwhile, modest currency depreciation supported the country’s external competitiveness. Honduras’s external position has improved as depressed import demand offset the contraction in imports amid decelerated economic activity in 2019. The current account deficit (after accounting for remittances) was projected to narrow to around 3.3 percent of GDP in 2019—down from 5.3 percent in 2018 (Table 1). Robust growth in remittances (13 percent year over year by end‐2019) amid strong U.S. economic activity compensated for the current account deficit. The deficit is expected to be financed by Foreign Direct Investment (FDI) inflows (around 3.3 percent of GDP in 2019), which mainly consist of reinvested earnings in the maquila (textiles and other light manufacturing) industry and telecommunications. Net international reserves stood at around US$5.1 billion in December 2019, providing about 5 months of non‐maquila imports cover (Table 2).

Table 2. Balance of Payments Financing Requirements and Sources, 2016‐2023 (US$ million)21

2016 2017 2018 2019 a 2020 b 2021 b 2022 b 2023 b

Financing Requirements 1809 1994 3060 2438 2931 2515 2576 3176

Current Account Deficit 567 44 1263 808 988 1027 1105 1234

Amortization medium and long term (MLT) debt, public and private

1242 1951 1797 1630 1943 1489 1471 1942

Financing Sources 1809 1994 3060 2438 2931 2515 2576 3176

Capital Account Flows 130 181 168 176 185 195 205 215

Foreign Direct Investment 900 1003 890 806 999 1131 1273 1455

Public Sector Borrowing 325 431 504 700 464 548 516 573

Bonds (Public) 0 700 0 0 890 0 0 500

Other Capital Reserves 520 564 1547 1011 583 891 902 773

Change in Reserves (+decrease) ‐66 ‐884 ‐50 ‐254 ‐190 ‐250 ‐320 ‐340

Financing Gap 0 0 0 0 0 0 0 0


12. Fiscal policy has been prudent, anchored by the Fiscal Responsibility and Transparency Law (FRL) approved in 2016. The FRL is based on international best practices and codifies fiscal rules, which are embedded in the Medium‐Term Fiscal Framework and provide an anchor for fiscal policy. The FRL set

20 A crawling peg exchange rate regime against the US dollar, backed by foreign exchange reserves that have reached 20 percent of GDP (2019), has helped achieve price stability and support external competitiveness. 21 The projections presented in table 2 were prepared before the outbreak of the COVID‐19 pandemic in Central America and do not reflect its expected impact on Honduras economy, the global slowdown, collapse of oil prices and other risks and changes to the external environment.


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a 1 percent of GDP ceiling on the non‐financial public sector (NFPS) deficit (after a 2016‐2018 transition period where deficit targets were separately set and limits the growth of real current spending to average GDP growth over the previous ten years plus expected inflation in the year ahead.22 Since 2016, compliance with the FRL has helped keep fiscal accounts under control despite the materialization of fiscal contingencies, such as the deteriorating financial position of the state electricity company, Empresa Nacional de Energía Eléctrica (ENEE). Effective enforcement of the FRL has helped to build confidence in the Honduran economy and resulted in upgrades by the major rating agencies.23 13. The Government has mitigated the impact of weakening revenues and the deteriorating financial position of ENEE on the fiscal accounts. The NFPS deficit reached 0.9 percent of GDP in 2018, below the FRL’s 2018 ceiling of 1.2 percent of GDP, and is projected to be at or near the 2019 ceiling of 1 percent of GDP (Table 3). This is expected to be achieved despite: (a) weaker tax revenues, which are estimated to have fall by 0.75 percent of GDP over the medium‐term due to the phasing out of the minimum income tax and enactment of a new Tax Code in 2017, which reduced corporate taxation and introduced a tax amnesty, among other measures; and (b) the deterioration of ENEE’s operational balance due to the increase in oil prices, resulting in higher production costs in the context of large technical and commercial losses, rigid contractual obligations with generators, and increasing levels of suboptimal delivery of electricity services. Given that the FRL ceiling applies to the NFPS deficit, an increase in ENEE’s deficit requires improvements at the central government level to maintain compliance with the Law. Accordingly, the Government is committed to maintaining revenue mobilization efforts, containing current spending growth and resolving the energy sector crisis. 14. ENEE represents the key challenge to meeting the FRL targets. Increasing oil prices and electricity losses resulted in a 1.2 percent of GDP deficit of ENEE in 2018 (net of government subsidies), while its debt stood at 11 percent of GDP in early 2019. To rescue the country’s electricity system, reduce the debt of ENEE, and meet FRL targets, the Government committed to stronger fiscal consolidation in 2019 and is taking steps to resolve the energy sector crisis, including with the help of the new precautionary International Monetary Fund (IMF) program. (See section 2.3)

15. Addressing the structural issues of ENEE is critical to ensuring fiscal sustainability of the country. In early 2020, the authorities placed ENEE on the pseudo‐bankruptcy regime that applies to public entities. The Interventorship Commission has been given ample powers to restructure the company, convene a creditor´s committee and apply the sound framework for the sector that the Electricity Law provides. The Commission is currently preparing a restructuring plan. Table 3. Key Fiscal Indicators for the Non‐financial Public Sector (NFPS), 2016‐2023 (percent of GDP)24 2016 2017 2018 2019 a 2020b 2021b 2022b 2023b

Total Revenue 32.3 31.9 31.5 31.7 31.9 32.3 32.1 32.2

Tax Revenue 19.4 18.7 18.9 18.2 18.5 19.0 19.0 19.1

22 The FRL also includes escape clauses in the event of economic emergencies or natural disasters, with a clear convergence path to guide the return of fiscal aggregates to the mandated parameters if the escape causes are used. 23 Honduras’s sovereign credit rating was upgraded by Standard and Poor’s to 'BB‐' from 'B+' in July 2017, and by Moody’s to B1 from B2 in September 2017. The agencies maintained the ratings with stable outlook in 2019. 24 As indicated in Table 2, the Bank is preparing a new set of projections that will incorporate the impact of the COVID‐19 pandemic.


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Taxes on income 6.0 6.2 6.3 5.7 5.6 6.0 6.1 6.2

Taxes on property 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1

Taxes on goods and services 11.0 10.8 10.8 10.7 11.2 11.2 11.2 11.2

Taxes on foreign trade 0.8 0.8 0.8 0.7 0.7 0.8 0.8 0.8

Other taxes 1.5 0.9 0.9 0.9 0.9 0.9 0.9 0.8

Social Contributions 3.1 3.3 3.4 3.6 3.6 3.6 3.6 3.6

Grants 0.8 0.6 0.7 0.7 0.6 0.7 0.7 0.6

Other revenue 9.0 9.3 8.5 9.3 9.2 9.0 8.8 8.8

Total Expenditure 32.8 32.7 32.4 32.7 32.9 33.3 33.1 33.0

Expense 29.6 28.2 28.1 28.8 28.7 28.8 28.6 28.4

Compensation of employees 11.3 11.2 11.3 11.2 11.4 11.1 11.1 11.1

Purchases of goods and services 8.1 8.3 8.2 8.5 8.2 8.1 8.0 7.8

Interest 2.7 2.4 2.4 2.6 2.6 3.0 3.0 3.1

Subsidies 0.0 0.0 0.1 0.1 0.0 0.0 0.0 0.0

Social Benefits 3.6 4.1 3.7 4.2 4.4 4.6 4.6 4.6

Other Expenses 3.8 2.2 2.3 2.3 2.2 2.0 1.9 1.9

Current 1.1 0.3 0.3 0.2 0.2 0.2 0.2 0.2

Capital 2.7 1.8 2.0 2.1 1.9 1.9 1.7 1.7

Net acquisition of nonfinancial assets 3.2 4.4 4.4 3.9 4.2 4.4 4.5 4.6

Overall Balance ‐0.5 ‐0.8 ‐0.9 ‐1.0 ‐1.0 ‐1.0 ‐1.0 ‐0.9

Primary Balance 0.3 0.1 0.0 0.1 0.1 0.7 0.8 1.0

Public Debt 40.1 40.2 42.3 43.4 43.2 42.7 42.1 41.5

Domestic Debt 11.7 9.6 11.2 11.5 10.5 10.6 10.8 10.8

External Debt 28.4 30.5 31.0 31.9 32.6 32.1 31.3 30.7


16. Total public debt increased slightly in 2018 and 2019 due mainly to ENEE’s financial situation, but the primary balance is stable, and a surplus is expected over the next few years. Gross non‐financial public‐sector debt stood at 42.3 percent of GDP at the end of 2018, up by 2 percent since 2017, with domestic debt comprising 1.6 percent of the increase (demonstrating the impact of ENEE’s financial imbalances on the overall fiscal framework). About 31 percent of the NFPS debt corresponded to external public and publicly guaranteed (PPG) debt, and 11.2 percent to domestic debt. The impacts of higher domestic real interest rates and real exchange rate depreciation on the debt‐to‐GDP ratio were partially offset by real economic growth. 17. The banking system is stable, liquid and well‐capitalized, but dollarization remains high. For the private banking system as a whole, bank capital is above regulatory requirements, non‐performing loans (NPLs) are at record low levels and liquidity is ample. Following the agenda to implement Basel III25, the Banking Commission (Comisión Nacional de Bancos y Seguros, CNBS) has mandated an additional 2.5 percent capital conservation buffer, of which 0.5 percent has already been implemented. The remaining

25 Basel III is a global, regulatory framework on bank capital adequacy, stress testing, and market liquidity risk. According to the IMF program review: “The authorities are strengthening supervisory practices in the financial system in line with Basel III and the Fund’s Financial Sector Stability Review (FSSR).


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2 percent will be phased in by end‐2022 at 0.25 percentage points semiannually. Additionally, the CNBS has prepared a methodology to identify systemically important banks, with the view of introducing further capital requirements. Although stable, dollarization remains high at about 30 percent, with around two‐thirds of foreign currency credit to the non‐financial private sector allocated to unhedged borrowers.

2.2. MACROECONOMIC OUTLOOK AND DEBT SUSTAINABILITY26

18. Medium‐term growth prospects are stable, given the Government’s commitment to prudent fiscal and monetary policies supported by the new IMF program (section 2.3). The authorities aim to support reforms in the energy sector, reforms to strengthen and maintain macroeconomic stability, and measures to protect the poor and bolster gender equality. The Government has already put strong containment measures to minimize the impact of the COVID‐19 pandemic and is implementing the first phase of its Economic Rescue Plan. Honduras’s economic growth is expected to moderate over the medium term as investment and external demand strengthens amid recovering U.S. growth and global trade. Remittances are also expected to continue to fuel domestic consumption. On the supply side, services will continue to drive growth. 19. Inflation is expected to remain within the 4+/‐1 percent tolerance band set by BCH. Policy rate changes in 2019 and early 2020 demonstrate BCH’s commitment to remain vigilant on inflation as well as on global financial conditions. The BCH has advanced in its preparation for the floating of the lempira and for the transition to an inflation targeting regime by development money and foreign exchange markets. This will provide a cushion against external shocks.

20. The external sector is expected to deteriorate slightly over the medium term. The current account is projected to widen to 3.8 percent of GDP by 2021 due to rising prices of imported commodities, vulnerability to fluctuation in U.S. import demand for manufacturing and agriculture output, and potentially declining remittances. Risks to external stability are mitigated to a certain extent by FDI, which is expected to largely finance the current account deficit; and by the expansion of free trade zones and improved investor confidence. International reserves are expected to remain solid over the medium term.

21. The Government is committed to comply with the FRL target of 1 percent of GDP for the NFPS deficit over the medium term. It is also preparing measures to address the energy sector crisis, and the Interventorship Commission is preparing a plan of action that would include lost reduction, a review of all supply contracts (active and non‐active) and enacting medium and long‐term structural reforms. Government spending is also expected to be adjusted while safeguarding public investment and social spending, which are vital for economic growth and poverty reduction. The authorities also envisage strict adherence to the FRL in the coming years, with the aim of maintaining the NFPS deficit at slightly below the FRL ceiling to maintain a sustainable level of public debt.

26 The macroeconomic framework and Debt Sustainability Analysis do not incorporate the impact on growth, external, fiscal accounts arising from the COVID‐19 pandemic, as the operation was appraised and negotiated on early March 2020.


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22. The Debt Sustainability Analysis (DSA) of 201927 indicates that Honduras stands at a low risk of debt distress for both public external debt and overall debt. This represents an upgrade from the 2018 DSA, which assessed the risk of debt distress as moderate. The Government’s proven record of compliance with the FRL and solid macroeconomic conditions contributed to these improved ratings. 23. Under the DSA, the present value (PV) of public and publicly guaranteed (PPG) external debt‐to‐GDP ratio was projected to peak at 31.7 percent in 2019, below the 55 percent threshold. The PPG external debt service‐to exports and PPG external debt service‐to‐revenues is expected to peak in 2019, well under their respective thresholds of 21 and 23 percent. Consequently, all solvency and liquidity indicators under the baseline scenario and under various stress tests remain below their respective thresholds (Figure 1). The peaks observed on debt service indicators are explained by the repayments of Eurobonds in 2019, 2022, 2026 and 2029 and the CABEI28 bullet repayment in 2025.

Figure 1. Honduras: Indicators of Public and Publicly Guaranteed External Debt under Alternative Scenarios, 2019‐29

Source: IMF Debt Sustainability Analysis, Article IV, Annex 2, July 2019.

24. Going forward, adherence to the FRL and institutional reforms to boost inclusive growth will be critical to maintaining debt sustainability. Debt indicators will remain sensitive to shocks, but impacts are expected to be below risk thresholds. Under alternative scenarios (Figure 1), a negative shock to exports

27 IMF Debt Sustainability Analysis, Article IV, Annex 2, July 2019. The DSA was undertaken under the revised debt sustainability framework for low‐income countries (LIC DSF). Under this new framework, the DSA upgraded Honduras’s debt‐carrying capacity from medium to strong and lowered its risk of debt distress. 28 Central American Bank for Economic Integration ‐ CABEI (BCIE in Spanish).


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equivalent to a one standard deviation decline in the nominal growth of exports in the second and third years of projection, combined with a decline in real GDP growth, generates the largest increase in the PPG external debt‐to‐GDP ratio, peaking at 44.5 percent in 2021. Under the same shock, the PPG external debt‐to‐exports ratio reaches 135.4 percent in 2021, the PPG external debt‐service‐to‐exports ratio reaches 17.1 percent in 2026, and the PPG external debt‐service‐to‐revenue ratio peaks at 17.7 in 2026, in all three cases well below the risk thresholds. 25. Honduras’s macroeconomic policy framework is adequate for this operation. First, the recent joint WBG‐IMF’s Debt Sustainability Analysis (DSA) and corresponding sustainability scenarios suggest the public sector debt is stable, the risk of debt distress for both public external and overall debt is low, and Honduras’s debt carrying capacity is strong. This is due, in part, to the Government’s commitment to the Fiscal Responsibility Law (FRL) and to adjusting fiscal policy as needed; and in part to its substantial progress on revenue mobilization and the containment of current spending. Second, the external situation is stable, with foreign reserves at about 20 percent of GDP, covering about five months of non‐free‐economic zone imports. In addition, the financial sector is well‐capitalized, liquid and profitable. The precautionary IMF program is well on track, with the first review successfully completed in December 2019. The most important internal risk to the macroeconomic framework comes from the state‐owned enterprises, in particular from the Empresa Nacional de Energía Eléctrica (ENEE); the authorities are mitigating this risk by putting the enterprise into the pseudo‐bankruptcy regime that applies to public entities, giving the Interventorship Commission a broad mandate to restructure it, convening a creditor’s committee, and implementing the Energy Sector Law. A plan to reorganize ENEE is currently under preparation. Additionally, the COVID‐19 pandemic poses macroeconomic risks and expected to weaken Honduran growth, external and fiscal accounts. The authorities are mitigating the impacts of the pandemic by enacting strong containment measures (including full border closure and a nationwide curfew since March 16, 2020) and implementing the first phase of the Economic Rescue Plan. 26. Macroeconomic stability will be supported under the IMF program by monitoring and technical assistance on tax policy and administration, fiscal governance and public financial management (PFM), data standards improvement, and the transition to an inflation‐targeting regime. The World Bank is also providing key technical assistance to advance structural measures under the IMF program, such as in the energy sector and on public sector wage issues.

2.3. IMF RELATIONS

27. In July 2019, the Honduran authorities and the IMF agreed to a 24‐month blended Stand‐By Arrangement (SBA) and Standby Credit Facility in the amount of US$311 million. This new program follows a three‐year SBA that expired in December 2017 but was not utilized. The Honduran authorities have stated their intention to treat this new arrangement as precautionary. The objective of the arrangement is to maintain macroeconomic stability by strengthening governance, fostering private sector‐led growth, and ensuring ENEE’s fiscal sustainability, while also allowing space for increased public investments and social spending. In particular, the arrangement commits the Ministry of Finance (SEFIN) to no reduction in health or education spending and no new taxes. Moreover, about 25,000 households will continue to receive support through the cash transfer program Bono Vida Mejor, aimed at the extreme poor, and through monetary transfers for health and education.


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28. The first review of the program was presented to the IMF’s Board of Directors on December 18, 2019. The review highlighted the productive dialogue on macroeconomic issues and the authorities´ commitment to reforms. It also noted the important progress made in implementing the country's economic program, particularly in the areas of electricity sector reform, governance, and increasing transparency in the budget process.

3. GOVERNMENT PROGRAM

29. The Government of Honduras has identified DRM and climate resilience as central issues in its policy agenda. The proposed activities in this operation, identified in close consultation with the Government, are consistent with the National DRM Plan (2014‐2019); the General Environment Law (1993), reinforced by the General Water Law (2009); and the SINAGER Law (2009). The proposed activities are also aligned with key policy instruments, including the National Climate Change Strategy (NCCS, 2010); the Action Plan Against Desertification and Drought, updated in 2014; the Long‐Term Visión de País (Strategic Development Plan) for 2010‐2038 and its medium‐term Plan de Nación (National Plan) for 2010‐2022; and the Agenda Climática de Honduras (Climate Agenda) of 2017. 30. Under these and other strategic instruments, all put in place after Hurricane Mitch devastated large parts of Central America in 199829, the Government has been shifting its focus from disaster response to disaster prevention, with the aim of becoming an effective risk manager rather than an emergency borrower reliant on international support. In 2003, a new National Territorial Law established a unified approach to local and regional territorial zoning strategies. In 2005, the Government adopted the UN Hyogo Framework for Action (HFA) 2005‐201530, and in 2009, based on the HFA framework, established the SINAGER system for disaster risk management31. 31. For health‐related emergencies such as communicable disease epidemics, the Ministry of Health (SESAL) has been the lead agency for epidemiological surveillance since 1991, and under the SINAGER Law is responsible for declarations of national health emergencies. Despite some important efforts, however, the health system has historically responded to emergencies on an ad‐hoc basis, without a clear definition of responsibilities or mechanisms to ensure a systematic and effective response. Moreover, there has been limited progress made in strengthening preparedness, although preparedness at both the central and local levels is critical to mitigating the impact of public health disasters. To address this situation, the Ministry of Health initiated a diagnostic of the country’s disease surveillance system in 2019 and finalized and adopted a National Pandemic, Epidemic and Health Emergency Response Plan 2020. The plan defines the responsibilities, procedures and coordination mechanisms for emergency response. 32. For other types of disaster response, the Government has taken steps under the SINAGER framework to incorporate DRM and CCA into urban and sectoral development policies and has been implementing numerous emergency and disaster response and disaster risk reduction activities. In 2015,

29 The hurricane overwhelmed the drainage capacity of Honduras’s natural watersheds, causing major rivers to overflow, resulting in extensive flooding and thousands of landslides through the country. Transportation infrastructure was devastated, and 90 bridges and nearly all secondary roads were damaged or destroyed. 30 UN Hyogo Framework for Action 2005‐2015: Building the Resilience of Nations and Communities to Disasters. 31 Sistema Nacional de Gestión de Riesgos (SINAGER) was established by Decree No. 151‐2009.


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Honduras adopted the UN Sendai Framework for Action 2015‐2030,32 and designated the National DRM Agency COPECO (Comisión Permanente de Contingencia) as focal point for coordinating actions under the Sendai framework. In 2016, the Government began the process of harmonizing its National DRM Plan (2014‐2019) with the Sendai Framework and also aligning it with the Central America Policy for DRM (PCGIR).33 In 2017, Honduras updated its National Emergency Operations Plan in alignment with these instruments; and in 2019, The existing DRM Agency (COPECO), was elevated to the ministerial level (renamed the Ministry of Disaster Risk Management and National Contingencies) and designated as SINAGER’s Executive Secretariat, responsible for coordinating DRM efforts among the relevant ministries and sectors. 33. For water‐related disasters, the Directorate General of Water Resources of the Ministry of Environment is the entity responsible for river monitoring and hydrological information management. Approval of the General Water Law (2009) and the SINAGER Law (2009), along with key policy instruments such as the National Climate Change Strategy (NCCS, 2010) and the updated Action Plan Against Desertification and Drought (2014) signaled the Government's long‐term commitment to reducing the risks associated with water‐related hazards. Yet few of these plans have been effectively implemented due to lack of investment in strengthening institutions and building resilience. As a result, droughts and floods have become more frequent and severe, and increasingly affect larger portions of the country. These emergencies, along with continued international calls for Honduras to update its Nationally Determined Contribution (NDC) to the UN Framework Convention on Climate Change (UNCCC),34 have led the Government to focus its efforts on strengthening inter‐institutional coordination for climate action, and to launch awareness campaigns aimed at civil society and the private sector on the need for enhanced integrated water management. 34. The Government’s commitment to building climate resilience and strengthening the capacity for water governance prioritizes the country’s most climate‐fragile region. In 2014, the Government put in place the Alliance for the Dry Corridor, aimed at sustaining the main productive sectors of the Dry Corridor to help reduce the high rates of rural poverty, which have remained stagnant over the last 10 years. In addition, in 2019, in line with the country’s National Adaptation Plan and the Honduras’s Strategic Program for Climate Resilience, the Government developed a Water Security Strategy for the Dry Corridor to coordinate and guide interventions to enhance water resources development and management.

35. The Government’s program also includes key policy reforms related to water governance that will aim at consolidating and strengthening the water resources management framework, thereby reducing the economic cost adverse natural events. At the national level, establishment of a National Water Authority ANA (Autoridad Nacional del Agua), will enhance the Government’s capacity to create and enforce water use regulations. At the regional level, implementation of the Water Security Strategy for the Dry Corridor will improve the Government’s ability to mobilize resources and optimize hydraulic

32 The Sendai Framework for Disaster Risk Reduction 2015‐2030 (Sendai Framework) was the first major agreement of the UN’s post‐2015 development agenda, with seven targets and four priorities for action. It was endorsed by the UN General Assembly following the 2015 Third UN World Conference on Disaster Risk Reduction (WCDRR). 33 PCGIR contains guidelines, commitments and general and medium‐term actions to be realized through a structure (consisting of policies, strategies and plans) based on regional commitments, with the aim of reducing and preventing disaster risk in Central America, thereby contributing to the region’s comprehensive and safe development. 34 Honduras updated its NDC in 2019.


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infrastructure in targeted river basins. And at the basin level, operationalization of the Water Basin Councils will strengthen local capacity for sound basin management and provide mechanisms to quickly respond to hydro‐climatic shocks, while helping communities to manage the social and economic consequences of severe events. 36. The Government is also shifting towards a comprehensive approach to financing disaster response. There is currently no financial instrument in place to facilitate the rapid disbursement of funds in response to disasters. Although a National Fund for Preparedness and Response (FONAPRE) was created as part of the National Disaster Risk Management System (SINAGER Law, Art. 21), this instrument has no dedicated funding but is merely a budget line that can receive funds taken from other ministries and programs in the event of a natural disaster. FONAPRE was intended to be a first line of fiscal defense against natural disasters but was never operationalized due to its poor technical design, inadequate identification of contingent liabilities, and unclear delineation of roles and responsibilities within the Ministry of Finance (SEFIN).

37. The proposed Cat DDO will support the operationalization of FONAPRE or other financing DRM instruments as identified in the SEFIN’s Disaster Risk Financing Strategy (DRFS). The DRFS will facilitate quantification of the investments needed to mitigate future risks and strengthen skills in disaster risk financing among SEFIN officials. All the financial instruments included in the DRFS will help national and municipal governments respond according to the type, magnitude, and frequency of the event, resulting in the more efficient use of public funds. By institutionalizing disaster risk financing, SEFIN aims to have the necessary tools in place for informed and timely financial decisions in the event of disasters, in coordination with COPECO, the Ministry of Health and other key institutions belonging to the SINAGER system.

4. PROPOSED OPERATION

4.1. LINK TO GOVERNMENT PROGRAM AND OPERATION DESCRIPTION

38. The proposed operation aims to strengthen Honduras's institutional and financial framework to manage the risk of adverse natural events including disease outbreaks. This will be achieved through institutional and regulatory reforms organized around the following key areas:

Improving public financial management and fiscal resilience against disaster risk

Enhancing the institutional framework for improved disaster risk management

Strengthening health emergency preparedness and response capacities

Enhancing water resources governance and climate resilience. 39. The proposed operation contributes to the country’s objective of enhancing resilience to disaster, as articulated in the Government’s National Plan (Plan Nación) 2010‐2022 and Strategic Development Plan (Visión de País) 2010‐2038. The proposed policy actions are based on Honduras’s long‐term development priorities and aim at better integrating disaster and climate risk into core elements of public policies. The operation also provides a dedicated line of contingent financing to enable the Government to respond quickly to eligible declared disasters, including climate‐related shocks and health‐related events such as epidemics.


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40. The design of the Cat DDO builds on lessons from more than a decade of World Bank DRM and Cat DDO operations in Costa Rica 2009 (P111926), Colombia 2009 (P113084), El Salvador 2011 (P122640), Philippines 2012 (P155656), Panama 2012 (P122738), Sri Lanka 2014 (P147454), Seychelles 2015 (P148861), Serbia 2017 (P157489), Peru 2011 & 2019 (P120860 & P149831), Dominican Republic 2018 (P259351), Kenya 2018 (P161562), Romania 2018 (P166303), Cabo Verde 2019 (P160628), Guatemala 2010 and 2019 (P112544 & P159710) and Malawi 2019 (P165056).35 Two key lessons emerging from those operations were that: (a) DRM policy is most effective when it is based on adequate risk identification, including both physical and fiscal risk; and (b) a Cat DDO operation should be set within the context of a broader disaster risk financing strategy (DRFS) that combines risk retention and risk transfer instruments to efficiently manage contingent liabilities associated with adverse natural events. In keeping with these lessons, the design of the proposed Cat DDO includes: (a) sufficient preparatory work, stakeholder consultations and technical support to enhance the Government’s understanding of the proposed disaster financial mechanism, while fostering stakeholder ownership of the reform agenda; and (b) parallel TA and supervision support during the life of the operation to help achieve the reform program’s targets, while building local capacity to achieve medium and long‐term goals and measured outcomes. 41. Cat DDO drawdown trigger. Funds may be withdrawn when an emergency is imminent or has already occurred in the Recipient’s territory related to the adverse impact of a natural catastrophe, including disease outbreaks and epidemics in the human population, which has been declared by the Recipient through a Presidency of the Council of Ministers PCM (Presidencia del Consejo de Ministros) Executive Decree and published in the Recipient’s Official Gazette, all in accordance with the provisions of the Recipient’s legislation: Articles 42 and 45 of the “Disaster Risk Management National System Act” (SINAGER Law) approved by Legislative Decree 151‐2009, and its Regulation approved by Executive Decree 032‐2010 (see Annex 7). 42. For the purposes of this operation, emergency refers to a formal declaration, through a PCM Executive Decree36, of an emergency that affects all or a part of the Recipient’s territory, as a consequence of the impact or the imminent impact of a natural catastrophe, including disease outbreaks or epidemics in human population, pursuant to Articles 42 and 45 of the SINAGER Law, and any other legal instrument compatible with the existing regulation of the declaration of an emergency that the Government of Honduras may introduce from time to time with the previous agreement of the Association. For clarity, any emergency that is predominantly political, technological, security, military, or fiscal in nature is excluded. 43. Drawdown period and renewal. As per standard practice, the drawdown period for this operation will be three years and is renewable one time for an additional three‐year period during which the funds can be disbursed. Renewal would require: (a) that the Government of Honduras is implementing its policy reform program described in the Letter of Development Policy (LDP) (Annex 3); (b) confirmation of the adequacy of the macroeconomic framework; (c) approval of the Regional Vice President of the World Bank; and (d) that it takes place no earlier than one year, and no later than six months, before the closing

35 As reflected in the Independent Evaluation Group (IEG) report, “Hazards of nature, risks to development: an IEG evaluation of World Bank assistance for natural disasters” (2006) and the IEG reports on the Peru and the Philippines Cat DDOs (2017). 36 In accordance with Art. 9, of Legislative Decree 74‐2001 “Procurement Law” (Ley de Contratación del Estado), the declaration of the state of emergency should be made by decree of the President of the Republic in the Council of Ministers (Executive Decree).


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date of the proposed Cat DDO. The ensuing drawdown will take place under the terms and conditions specified in the Financing Agreement. 44. Closing Date. The Closing Date is June 30, 2023.

4.2. PRIOR ACTIONS, RESULTS AND ANALYTICAL UNDERPINNINGS

Improving public financial management and fiscal resilience against disaster risk

Prior Action 1: The Recipient has strengthened SEFIN’s disaster risk financing capacity by establishing responsibilities and guidelines to improve financial resilience associated with climate and disaster risks; as evidenced by the Recipient’s Ministerial Agreement No. 195‐2020, dated February 4, 2020 and published in the Official Gazette on February 25, 2020.

45. Rationale: SEFIN currently has neither a comprehensive strategy for reducing contingent liabilities in relation to disasters, nor an institutional framework for managing the fiscal risk resulting from natural events. This situation has resulted in a fragmented and ad hoc approach to disaster risk financing, complicating public financial management in handling the cost of natural disasters. Recognizing these challenges, SEFIN has assumed a more active role in mitigating the fiscal risks from natural disasters. In 2014, under the framework of the Fiscal Responsibility and Transparency Law, SEFIN established a Fiscal Contingency Unit responsible for identifying, assessing and evaluating public contingent liabilities, including those linked to disasters.37 Subsequently, in line with the IMF program, the Government implemented reforms to the Budget Law and related ministerial agreements to allow SEFIN to institutionalize comprehensive management of fiscal risks, including those linked to disaster risks. However, results have been uneven with the lack of coordination among the relevant departments within SEFIN as well as with partner authorities. 46. Despite the creation of the National Fund for Preparedness and Response (FONAPRE) as part of the National Disaster Risk Management System (SINAGER Law, Art. 21) to facilitate the rapid disbursement of funds in response to disasters, in practice, this instrument is merely a budget line that can receive funding via reallocations from other ministries. FONAPRE does not have any dedicated funding for use in emergencies as a first line of fiscal defense against natural disasters. Moreover, the SEFIN’s General Directorate of Public Credit lacks information on what financial instruments could be appropriate to protect the fiscal framework against natural disasters. Likewise, while SEFIN’s National System of Public Investment has adopted DRM approaches in the preparation of new public investment projects, its corresponding budget system lacks codes to identify, monitor and evaluate DRM‐related public expenditures. Should a national or local disaster event occur, this lack of intra‐institutional coordination within SEFIN could jeopardize the timely release of public funds for response and recovery services. 47. Substance of prior actions: To improve the country’s fiscal resilience, SEFIN has established new institutional structures for quantifying and managing contingent liabilities associated with climate and disaster risks. These institutional changes are outlined in Ministerial Agreement No. 195‐2020, which strengthens SEFIN’s disaster risk financing capacity by: (a) granting legal authority to SEFIN’s Fiscal

37 Decree No. 115‐2014, Article 25‐A.


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Contingency Unit to identify and quantify contingent liabilities from disaster risk and climate change; (b) establishing its mandate to assess the impact of potential disasters on the main fiscal indicators in the Macro‐Fiscal Medium‐Term Framework; and (c) granting legal authority to SEFIN’s General Directorate of Public Credit to design and implement a Disaster Risk Financing Strategy (DRFS) that includes but is not limited to the implementation of financial instruments to build fiscal resilience. 48. Expected results: A key result of the Ministerial Agreement is resolving SEFIN’s intra‐coordination difficulties in addressing disaster risk financing. The Ministerial Agreement lays down responsibilities and results expected from each of SEFIN’s directorates toward that goal. Moreover, SEFIN is in the initial stage of developing a DRFS. This strategy will define an optimal combination of risk transfer and risk retention financial instruments to address disaster risk financing in a comprehensive manner through a series of measures aimed at: (a) identifying and assessing contingent liabilities; (b) assessing the potential macro‐fiscal impacts of different types of disasters; (c) implementing a budgetary instrument to track and inform DRM expenditures; (d) implementing a DRM component within the public investment framework to mitigate future risks; and (e) strengthening SEFIN officials’ disaster risk financing skills. The combination of these measures will result in a more efficient use of the public budget, Cat DDO funds and any other financial instruments that would be implemented based on a risk‐layered approach. Results indicators:

Results Indicator 1: New financial instruments implemented to manage disaster risk and emergencies in accordance with the Disaster Risk Financing Strategy (DRFS) (number)

Baseline (2020): 0

Target (2023): 1

Enhancing the institutional framework for improved disaster risk management

Prior Action 2: The Recipient has strengthened its institutional DRM capacity by establishing the Ministry of Disaster Risk Management and National Contingencies (Secretaría de Estado en los Despachos de Gestión de Riesgos y Contingencias Nacionales) and subjecting COPECO to said institution’s administrative jurisdiction; as evidenced by the Recipient’s Executive Decree No. PCM‐057‐2019, dated September 11, 2019 and published in the Official Gazette on September 12, 2019.

49. Rationale: The Government’s medium and long‐term strategy documents (Plan Nación 2010‐2022 and Visión de País 2010‐2038) establish DRM and CCA as core elements of its development program, which aims at increasing sustainable growth and reducing poverty and inequality. However, the Government has recognized that the current institutional system for DRM faces a number of obstacles to effectively leading the DRM policy agenda and managing disaster risks. Strengthening the institutional framework at the national level has become a critical priority. 50. Experience from past disasters and a deep assessment of the DRM system38 have highlighted the need to mainstream a systemic, intersectoral and comprehensive approach to managing disaster

38 The most recent legal and institutional assessment was led by COPECO with the support of the Swiss Agency for Development and Cooperation and the United Nations Development Programme in 2013.


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risks across different sectors and levels of government. COPECO was created with a clear focus on disaster response.39 Almost 20 years later, after several major disasters, SINAGER was created with a much broader mandate, including not only disaster response but also disaster risk knowledge, prevention and reduction, and COPECO was designated its Executive Secretariat, with responsibilities for: (a) contributing to the design of DRM‐related policies; (b) strengthening the technical and scientific capacities of SINAGER member organizations; (c) promoting a disaster prevention and risk reduction culture among the population; (d) mainstreaming DRM and climate change throughout relevant development sectors; and (e) adopting and coordinating national and subnational preparedness and emergency response efforts. To fulfill this mandate, COPECO requires greater capacity to convene and coordinate the organizations under the SINAGER framework. 51. Substance of prior actions: In September 2019, COPECO was upgraded to a ministerial‐level institution – Ministry of Disaster Risk Management and National Contingencies, the head of COPECO was appointed as its Minister, and based on its current organization, in November 2019, human and budgetary resources were allocated to strengthen its operation.40 The Ministry of DRM/COPECO was given responsibility for overseeing and coordinating the entire DRM programmatic agenda in Honduras, including the SINAGER system. This policy action represents a critical step toward improving disaster risk governance and reducing the country’s vulnerability to natural and climate‐driven hazards.

52. More specifically, the upgrade of COPECO to the Ministry for DRM provides a platform and legal framework for enhancing inter‐ministerial coordination, which is critical for disaster prevention and response. Elevating COPECO to the same legal and administrative level as other relevant ministries also strengthens its convening capacity, enabling it to better organize policy efforts by partner organizations and other government and civil organizations involved in DRM in the country.

53. Expected results: With its new legal and institutional mandate, COPECO now has the authority to promote reforms to enhance risk‐related knowledge, preparedness, response and resilience. In line with its new authority, the proposed operation will support COPECO in updating and strengthening: (a) the National DRM Act in line with international agreements and best practices; and (b) the National Emergency Operations Plan tested through at least one nation‐wide drill exercise. In addition, the proposed operation will support the establishment of a web‐based Geographical Information System (GIS) for DRM, which will be publicly available through a portal. Results indicators:

Results Indicator 2: New or updated Sistema Nacional de Gestión de Riesgos (SINAGER) DRM instruments formulated and approved by the new Ministry of Disaster Risk Management and National Contingencies (COPECO) (number)

Baseline (2020): 0

Target (2023): 3

39 COPECO was created under the Legislative Decree No. 9‐90, “Law of National Contingencies” (Law 9‐90) on December 18, 1990. 40 The information about budget allocation and execution is publicly available in the transparency portal: https://portalunico.iaip.gob.hn/portal/index.php?portal=339


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Prior Action 3: The Recipient has strengthened DRM and CCA at the municipal level by defining responsibilities for the formulation and adoption of local emergency plans that contribute to prevent and address climate risks; as evidenced by Art. 210 of the Recipient’s Legislative Decree No. 171‐2019, dated December 12, 2019 and published in the Official Gazette on December 31, 2019.

54. Rationale: In alignment with the Sendai Framework 2015‐2030, the Government has recognized that local governments must be empowered to manage their own disaster risks. The Sendai Framework emphasizes the need to tackle the drivers of disaster risks at all levels and across all sectors and actors, with each municipality having a risk‐informed long‐term plan to guide urbanization and urban growth. In

Honduras, however, only 18 municipalities (6 percent of municipalities) have formalized41 territorial plans

that integrate hazard zoning or exposure analysis, which are fundamental measures for effective risk planning. As a result, most municipalities have been unable to manage their urban expansion in ways that reduce vulnerability and exposure to natural hazards. 55. Success in achieving and maintaining disaster risk reduction depends on the capacity of local governments to advance and sustain locally rooted development processes and goals that integrate DRM and climate change adaptation. Over the past 10 years, the Government has produced at least four sets of guidelines on local DRM planning and has implemented many projects aimed at integrating DRM into local development agendas. These efforts have helped some municipalities to catalyze actions in partnership with a wider range of stakeholders. Nevertheless, few DRM and emergency plans have been formally approved or internalized as guiding tools for resilient local development. The main obstacles to effectively internalizing DRM planning in Honduras, according to local and international experts convened at the National Forum on Land Use Planning and DRM in May 2018 are: (a) the weakening and subsequent disappearance of the National Secretariat for Development Planning (SEPLAN), whose mission was to help develop the capacity of municipalities in the realm of land use planning42; (b) the absence of a legal mandate for formulating, renewing, and internalizing DRM plans; and (c) the complexity of the guidelines and their contents, particularly for low‐capacity municipalities. 56. Substance of prior action: In accordance with Article 210 of the Legislative Decree 171‐2019 (2020 General Budget Law), all municipalities are required to elaborate local emergency plans to reduce and respond to climate risk. This legal mandate also includes responsibilities for COPECO, SEFIN, the National

Association of Municipalities (AMHON) and the Ministry of Interior and Justice (Secretaría de Estado en los Despachos de Gobernación, Descentralización y Justicia) to provide support, technical and operational guidelines and procedures to help municipalities formulate and implement their plans. 57. The purpose of the guidelines (currently under preparation) is to advise local governments (authorities, planners, city managers) on developing and implementing holistic and integrated territorial development plans that define high‐risk areas and concrete measures to reduce risk, improve preparedness and respond to disasters. The technical guidelines are based on best practices, and outline

41 During the last 10 years, at least 116 municipalities have produced DRM or emergency plans, but as of November 2019, only 18 have integrated the latest methods for hazard zoning and exposure analysis into their formally approved Municipal Development Plans. 42 SEPLAN, the agency that produced the development and land use planning guidelines, no longer exists. Although some of its functions have been transferred to the Ministry of Interior, that institution lacks the resources and expertise to assist municipalities in the formulation of their development and land use plans.


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what a local plan should look like and what is needed to create and implement one; they also provide a rating score for the plans that details when they are complete and formally approved. 58. The process of formulating the DRM and CCA plans will have the effect of empowering local governments to convene local actors. Once the local plan is developed, it should be presented to a governing authority for adoption (such as the Mayor and the Municipal Corporation43) and receives formal authorization to implement the plan. It will also be presented publicly to local actors to convene involvement, support and ownership. 59. Expected results: COPECO, in coordination with SEFIN, AMHON, and the Ministry of the Interior and Justice, will support the formulation and validation of the municipal emergency plans. A total of 119 new municipal plans (40 percent of municipalities) will be produced or updated over the next three years, with priority given to municipalities that have sustained the highest level of damage from past natural disasters. (See Annex 5 for details on the number of municipalities that have formulated plans, and will require updating, and the priority list of municipalities most affected by disasters in Honduras). In the medium term, this Prior Action will result in more decentralized DRM planning, enhance local disaster responses and make local governments more accountable for their effectiveness, based on their proportionate capacities. In the longer term, this reform will develop municipalities’ capacity to prevent and respond to emergency situations. Results indicators:

Results Indicator 3: Municipalities that have formulated or updated and formally approved their local emergency plans in accordance with the new operational guidelines (percent)

Baseline (2020): 6

Target (2023): 40

Strengthening health emergency preparedness and response capacities

Prior Action 4: The Recipient has strengthened its preparedness and response capacities for pandemics, epidemics and health emergencies by approving the National Pandemic, Epidemic and Health Emergency Response Plan; as evidenced by the Recipient’s Ministerial Agreement No. 020‐2020, dated January 15, 2020 and published in the Official Gazette on February 29, 2020.

60. Rationale: Despite facing recurrent communicable disease epidemics and natural hazards, Honduras does not have a framework that defines the responsibilities, procedures and coordination mechanisms needed to prepare for and respond to health emergencies. Investing in preparedness is a far less costly investment in terms of lives and financial resources than responding to outbreaks once they have happened.44 As experienced by many countries during past epidemics and pandemics such as Severe Acute Respiratory Syndrome (SARS) in 2003 or swine flu (H1N1) in 2009, the lack of planning hinders the speediness and effectiveness of the response. Furthermore, the lack of proper preparation often results

43 The Municipal Corporation is the highest authority and the deliberative part of the municipality. It is composed of the Mayor and six Councilors elected by the community. 44 World Bank. 2017. From panic and neglect to investing in health security: financing pandemic preparedness at a national level (English). Washington, D.C.: World Bank Group. http://documents.worldbank.org/curated/en/979591495652724770/From‐panic‐and‐neglect‐to‐investing‐in‐health‐security‐financing‐pandemic‐preparedness‐at‐a‐national‐level


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in disorderly control measures, confusion in how to manage the response,45 and poor communication and targeting.46 Based on the experience of recent epidemics and Honduras’s score of zero for “planning for emergency preparedness and response mechanism” in the 2017 International Health Regulations (IHR) self‐assessment47 (see Annex 6), the Government has recognized the importance of strengthening multisectoral approaches for preparedness and response, and of establishing clear responsibilities and operational procedures within the health sector. In order to fill this gap, the Ministry of Health (SESAL) has developed a National Pandemic, Epidemic and Health Emergency Response Plan with the support of the Pan American Health Organization (PAHO). 61. Substance of prior action: For the first time, the National Pandemic, Epidemic and Health Emergency Response Plan provides Honduras with a preparedness and response framework for the health sector. The framework emphasizes the cross‐sectoral and inter‐institutional nature of health‐related emergencies and natural disasters, and defines clear responsibilities and procedures across key government agencies (depending on the type of emergency), including the National Water Authority (ANA), the National Institute of Migration, Customs, COPECO, the Ministry of Education, transportation agencies and the National Institute of Social Security, as well as local governments, civil society and international cooperation agencies. The National Pandemic Plan adds significant value to the SINAGER system, since it defines critical elements, such as: (a) health‐specific criteria for different levels of alert and emergency, and associated levels of response; (b) decision‐making bodies and processes for emergency situations; and (c) responsibilities and coordination mechanisms. It also identifies critical areas that need to be strengthened, including in human resources and communication. The Plan also mandates the development of the sub‐national level contingency plans to ensure the functionality of the local healthcare networks in case of health emergencies, including natural disasters. 62. Expected results: Through a Ministerial Agreement, this prior action will strengthen the Ministry of Health’s emergency and natural disaster preparedness by establishing a sound legal framework, operational procedures and coordination mechanisms for multiple types of emergencies. The Ministerial agreement fills the legal and normative framework gap that had previously prevailed. Moreover, the National Pandemic, Epidemic and Health Emergency Response Plan sets the framework for developing sub‐national operational plans for all of the 20 ‘health regions’48 that compose the health system and imposes these administrative entities to produce them. These regional plans are based on the National Pandemic Plan but will be specifically tailored to each of the 20 health regions in order to maximize the effectiveness of their implementation in case of an emergency by considering their distinctive characteristics and existing stakeholders. Following the same approach as the National Pandemic Plan, the regional plans will be developed in a participatory manner to ensure ownership at the local level. The plans are expected to be fully developed and adopted by the Ministry of Health before the end of the 3‐year period covered by this Cat DDO.

45 Lim, Sue, Tom Closson, Gillian Howard and Michael Gardam. 2004. Collateral damage: the unforeseen effects of emergency outbreak policies. The Lancet Infectious Diseases. 4. 697‐703. 10.1016/S1473‐3099(04)01176‐4. 46 Crosier, Adam, Dominic McVey and Jeff French. 2015. By failing to prepare you are preparing to fail: lessons from the 2009 H1N1 ‘swine flu’ pandemic. European Journal of Public Health, Volume 25, Issue 1 (February). https://doi.org/10.1093/eurpub/cku131 47 No Joint External Evaluation (JEE) has been conducted in the country. The JEE helps countries identify the most critical gaps in their human and animal health systems in order to prioritize opportunities for enhanced preparedness and response. 48 The health system consists of 20 health regions (regiones sanitarias), which correspond to the 18 administrative departments of Honduras plus the metropolitan regions of Tegucigalpa and San Pedro Sula.


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Results indicators:

Results Indicator 4: Health regions with a Regional Pandemic, Epidemic and Health Emergency Response Plan adopted by the Ministry of Health (percent)

Baseline (2020): 0

Target (2023): 100

Prior Action 5: The Recipient has strengthened its health surveillance system by adopting best international practices on early detection, monitoring and response to epidemics and disease outbreaks; as evidenced by the agreement set forth in paragraph 5 under the fourth point of the Minutes No. 2 of the meeting of the Directive Council of SINAGER, dated February 26, 2020.

63. Rationale: The capacity for early detection of a disease outbreak and for quickly coordinating a comprehensive response is critical to preventing a local outbreak from becoming a national health emergency. Early detection will be enhanced by strengthening the health surveillance system, including its capacity for continuous, systematic and complete collection of the epidemiological data needed to plan, implement and evaluate public health interventions. Such health surveillance systems: (a) provide early warnings of impending public health emergencies; (b) document the impacts of interventions and track progress toward specified goals; and (c) monitor and clarify epidemiological dynamics, to assist authorities in setting priorities and developing public health policies and strategies. Currently, the country’s health surveillance system does not provide complete epidemiological information for all parts of the country, and the reporting is not rapid enough to allow for quick decision making, particularly in the case of outbreaks. In addition, the surveillance system faces governance and capacity shortcomings, impeding the proper analysis and interpretation of critical data and resulting in a disconnect between surveillance and response. 64. Substance of prior action: Considering the existing challenges in the country’s health surveillance system, the Government of Honduras decided to adopt best international practices for early detection, monitoring and response to communicable diseases. With this decision, formalized by the Directive Council of SINAGER49, the Government recognized the critical need to strengthen the surveillance system to prevent and control epidemics and potential pandemics. This decision was also in keeping with the Prior Action, which committed the country to following recommendations contained in World Health Organization’s (WHO) Surveillance Standards and Vector Surveillance and Control at Ports, Airports, and Ground Crossings. 65. Expected results: The higher surveillance standards, combined with the expected allocation of resources into strengthening the health surveillance system, is expected to improve the detection of potential outbreaks. Moreover, it will systematize the collection of complete and timely epidemiological data through the production of weekly epidemiological reports for a set of health conditions which health workers have the obligation to report immediately. The weekly epidemiological reports are public. From an operational standpoint, they are critical for local and national health authorities to monitor epidemiological trends, detect potential unusual increases of health conditions, and adapt their response

49 The Directive Council of SINAGER is the ultimate DRM authority in Honduras. The Council is chaired by the President and composed of 11 ministers, including the heads of COPECO and other public institutions. According to Art. 8, numeral 5 of the SINAGER Law (Legislative Decree 151‐2009), the Council is responsible for the formalization of all the mandatory dispositions and directives related to disaster risk reduction in Honduras.


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accordingly. The availability of complete and timely information will contribute to faster and better‐ targeted response in case of disease outbreak. Results indicators:

Results Indicator 5: Weekly epidemiological reports of mandatory notifiable conditions, produced and disseminated following international standards (number)

Baseline (2020): 0

Target (2023): 52

Enhancing water resources governance and climate resilience

Prior Action 6: The Recipient has improved its national and local water management capacities, including DRM and CCA, through the adoption of a Special Regulation on Water Basin Organizations; as evidenced by the Recipient’s Ministerial Agreement No. 0840‐2019, dated September 27, 2019, and published in the Official Gazette on December 6, 2019.

66. Rationale. The lack of institutional capacity for water management limits the country’s ability to prevent and respond to water‐related emergencies. The absence of both a national water regulator and local Water Basin Organizations has resulted in unsuitable water management practices, including: (a) environmental degradation of river basins; and (b) lack of control over the occupation of drought and flood‐prone areas, which increase water‐related disaster risks, particularly in the Dry Corridor. 67. Water resource management is currently the responsibility of a unit within the Ministry of Environment,50 but the work of this unit has been hindered by limited technical and financial resources. As a result, Honduras has no water cadaster and lacks the data and knowledge necessary for adequate water resource management and planning. This has created extreme volatility between water supply and demand in agriculture, manufacturing and human consumption. It has also resulted in the Ministry of Environment or other authorities being unable to respond to water‐related natural disasters such as recurrent droughts and flooding. 68. There are no local governing councils for adequate water basin management, resulting in a lack of coordination among local stakeholders (municipalities, rural water supply and sanitation boards, irrigation associations). This lack of coordination is resulting in erosion, contamination, social conflicts and overall degradation of the water basins. It is also increasing the risks of water‐related disasters due the absence of any zoning or planning authority to keep people from living, working or planting in disaster‐prone areas. 69. Substance of prior action. The General Water Law, approved in 2009, represents the country’s main water reform. It supports an integrated approach to water resource management and facilitates coordination among various stakeholders at the national and local levels. The Law creates: (a) the National Water Authority (ANA) and establishes its institutional framework; and (b) the water basin organizations to regulate and manage water resources through sub‐basin and basin‐level water councils and promote inclusiveness and accountability on the part of local entities receiving water from the basin. The Water

50 The Directorate General of Water Resources (Secretaría General de Recursos Hídricos).


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Law also: (c) provides the ANA with the necessary human, technical and financial resources to formulate studies, carry out risk planning and research, prevent and manage emergency situations, issue declarations, and facilitate coordination among the different levels of basin councils.51 In 2019, the Government approved a comprehensive Water Security Strategy for the Dry Corridor. This strategy, a key instrument for DRM and CCA, will help guide and prioritize interventions to strengthen water resources planning, development and management in that vulnerable region. A key priority of the strategy is to strengthen the institutional framework and governance around water resources through, among other actions including: (a) the elaboration, with community participation, of watershed management plans; (b) establishment and operationalization of the Water Basin Councils, in accordance with the recently approved Special Regulation on Water Basin Organizations52; and (c) strengthening of the National Water Authority (ANA). The first set of priority interventions laid out in the strategy would be supported by the related Water Security in the Dry Corridor of Honduras project (P169901), currently under preparation, which is expected to be effective in 2021. 70. Expected results. Enhancing the management of Water Basin Organizations will strengthen local capacities and help to prevent environmental degradation, deforestation and occupation of disaster‐prone areas within the water basins. It will help to quickly respond to hydro‐climatic shocks that threaten livelihoods and production systems53. The Special Regulation on Water Basin Organizations will also facilitate coordination among different stakeholders and institutions currently working on the consultation process for the bylaws that will operationalize the ANA. It is expected that in the medium to long term, the ANA will be fully operational54, providing critical services and information to the Water Basin Organizations to reduce water‐related disaster risk. Results indicators:

Results Indicator 6a: Water Basin Councils created and operating to reduce water‐related risks, in the Dry Corridor region in line with the Water Security Strategy. (number)

Baseline (2020): 0

Target (2023): 5

Results Indicator 6b: A National Water Authority established and operational

Baseline (2020): No

Target (2023): Yes

71. Table 4 describes the analytical underpinnings for each Prior Action.

Table 4: Development Policy Credit – Prior Actions and Analytical Underpinnings

51 ANA’s responsibilities are elaborated in Chapter IV, Articles 34 and 36 of the Water bylaws. 52 The establishment of Water Basin Organizations is included in Chapter II of the General Water Law, which also assigns responsibility to the Ministry of Environment to regulate such organizations. In accordance with Legislative Decree 266‐2013, “Optimization of Public Administration Law,” which simplifies and reduces the need for legislative decrees for regulations of laws already approved by Congress, the approval of Special Regulations must be done via a Ministerial Agreement. 53 As established in Article 33 (4) of the newly approved Special Regulation of Water Basin Organizations: “Coordinate closely with ANA regarding the declarations of emergency or special management of water resources under extreme hydrological circumstances, such as drought and floods, preparing and implementing the management plans related to these risks”. In addition, the special regulation through Article 38, calls for the integration of the Community and Municipal Emergency Councils (CODELES and CODEM) to form part of the Water Basin Organizations at the different levels. 54 “Operational” implies a minimum HR structure and adequate planning, manuals and guidelines prepared and approved.


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Prior Actions Analytical Underpinnings

PA 1

Ghesquiere, Francis, and Oliver Mahul. 2010. Financial Protection of the State Against Natural Disasters: Policy Research Working Paper WPS 5429. World Bank, Washington, DC.

This publication shows how an effective disaster risk financing strategy relies on a combination of instruments, taking into consideration a country’s fiscal risk profile, the cost of available instruments, and the expected disbursement profile after a disaster. Financial protection will help governments mobilize resources in 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 identification, reduce the impact of adverse events, and strengthen emergency services.

OECD (Organisation for Economic Co‐operation and Development). 2017. Recommendation on Disaster Risk Financing Strategies.

This document provides a set of high‐level recommendations for designing a strategy to address the financial impacts of disasters on individuals, businesses and subnational levels of governments, as well as the implication for public finances. It specifically recognizes 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, drawing on lessons learned through the OECD’s work for the G20 and APEC Finance Ministers.

PA 2

United Nations Office for Disaster Risk Reduction. 2015‐2030. 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 among actors, enhanced early warning and preparedness, more rigorous risk assessments, and increased awareness.

World Bank and Global Facility for Disaster Reduction and Recovery (GFDRR). GFDRR Country Note Honduras. Washington, DC: World Bank. 2010

This document provides important information on Honduras’s risk profile and drivers of risk, such as inadequate application of building standards, lack of risk‐sensitive territorial planning at the municipal level, and the spread of informal settlements.

PA 3

World Bank, 2013. Building Resilience: Integrating Disaster and Climate Resilience into Development.

This paper highlights the importance of climate and disaster resilient development and contends that it is essential to eliminate extreme poverty and achieve shared prosperity by 2030. It argues for the need to integrate climate and disaster resilience at the local level as a key strategy for sustainability.


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Prior Actions Analytical Underpinnings

PA 4

World Bank. 2017. From panic and neglect to investing in health security: financing pandemic preparedness at a national level. Washington, D.C.: World Bank Group.

The publication makes the case for the much higher cost‐effectiveness of investing in preparedness rather than ex‐post response and provides recommendations to governments on how to strengthen preparedness and formulate national plans.

Beyond the human cost associated with pandemics, the document highlights their economic cost which, even by conservative estimates, reaches 1 percent of global GDP, on the par with natural disaster or climate change estimates. As an example, it is estimated that in 2015, Sierra Leone Guinea and Liberia lost US$2.2 billion in GDP due to Ebola (excluding medium‐term effects on the economy).

WHO 2016. A Strategic Framework for Emergency Preparedness. Geneva: World Health Organization.

This document provides the principles and elements of effective country health emergency preparedness.

PA 5

WHO 2017, Honduras International Health Regulations State Party Self‐Assessment Annual Report, https://extranet.who.int/sph/country/262

The assessment highlights severe deficiencies in Honduras’s capacity to establish and maintain the capacity to detect, assess, notify and respond to public health risks and acute events, including those at points of entry. With an overall score of 34 percent, Honduras fares well below the global average (61 percent) and the Americas region one (65 percent).

In particular, the assessment highlights: A score of 7 percent for Legislation and Financing; an extremely weak National Health Emergency Framework (including a score of 0 percent for “planning for emergency preparedness and response mechanism”); a relatively good capacity for multisectoral coordination, including zoonotic events and the human–animal Interface (80 percent); a score of 40 percent for emergency risk communication as well as for capacity at points of entry (airports, ports and ground crossing).

Adam Crosier, Dominic McVey, Jeff French, ‘By failing to prepare you are preparing to fail’: lessons from the 2009 H1N1 ‘swine flu’ pandemic. European Journal of Public Health, Volume 25, Issue 1, February 2015, Pages 135–139, https://doi.org/10.1093/eurpub/cku131:

Based on countries’ experience with H1N1, this paper highlights the importance of preparedness to maximize the effectiveness of response interventions to a pandemic or an epidemic, with a special focus on emergency communication.

PA 6

World Bank. 2019. Water Security Strategy in the Dry Corridor of Honduras.

This paper highlights the key constraints of water resources management (WRM)management in the Dry Corridor and provides recommendations to improve WRM in the country.


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4.3. LINK TO CPF, OTHER BANK OPERATIONS AND THE WBG STRATEGY

72. The operation complements several ongoing World Bank Group‐financed activities aimed at improving resilience to disaster and climate risk in Honduras. Policy reforms included in the proposed operation complement the overarching World Bank lending and TA program in the country. In particular, the following operations have contributed to the design of the proposed operation: Disaster Risk Management Project (P121094); HN Integrated Urban Water Management in the Greater Tegucigalpa Area (P125903); Water Security in the Dry Corridor of Honduras (P169901); Strengthening Hydromet Services, Disaster Preparedness and Urban Resilience in Honduras (P172149); and Strengthening Disaster Risk Financing Capacity in CA countries (P157413). 73. Policy reforms supported under this operation will contribute to the WBG’s twin goals of ending extreme poverty and promoting shared prosperity in Honduras. The reforms are designed to reduce disaster vulnerability and climate risks, which are constraining economic growth; reduce the high economic and fiscal costs of disasters; and stabilize the livelihoods of the most vulnerable. The reforms will also improve the effectiveness of development programs as well as the Government’s development strategy to reduce extreme poverty and increase shared prosperity. 74. The proposed operation is aligned with the Central American Policy for DRM (PCGIR) led by the Coordinating Center for the Prevention of Natural Disasters in Center America (CEPREDENAC).55 The operation supports the following PCGIR objectives: (a) strengthening disaster risk governance; (b) creating robust financial systems; and (c) investing in better preparedness for emergencies. 75. The operation also builds on recommendations of the Systematic Country Diagnostic (SCD) for Honduras (2016), which identified the country’s vulnerability to natural hazards as a key constraint to its development. Natural disasters continually set back economic growth and are a main driver of persistent poverty, lack of shared prosperity and financial strain on both individuals and the public budget. The SCD explicitly recognized the Government’s progress in improving disaster risk management and climate adaptation, but outlined the need for improvement, particularly in disaster risk financing and the integration of DRM into public planning processes. These issues would be directly addressed in the proposed operation and are foundational for the SCD update, which is currently ongoing.

76. The proposed operation is fully consistent with the World Bank’s Country Partnership Framework (CPF) for Honduras FY16–20 (report number 98367), discussed by the Board of Executive Directors on December 15, 2015, which notes that Honduras is susceptible to extreme weather events which disproportionately impact the poor. Pillar 3 of the CPF, Reducing Vulnerabilities, includes “enhancing resilience to disasters and climate change” as one of its objectives. Priority actions under this objective include: (a) improving natural resource management as a cost‐effective and long‐term adaptive measure for climate change; (b) integrating disaster risk management (DRM) into subnational governments’ development planning and public investment decision‐making; and (c) reducing the country’s financial vulnerability to disasters to protect its long‐term fiscal balance. The proposed

55 The Coordinating Center for the Prevention of Natural Disasters in Central America (CEPREDENAC) is the DRM technical institution within the Central America Integration System (Sistema de Integración Centroamericano). All DRM guidelines for the region are defined under the Central American Policy for DRM (Política Centroamericana de Gestión Integral de Riesgo de Desastres, PCGIR).


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operation will help achieve the Pillar 3 objective by improving public financial management and fiscal resilience against disaster risk; strengthening the country’s institutional framework for disaster preparedness and response; and strengthening the legal and institutional framework for DRM and Climate Change Adaptation (CCA) in the critical sector of water resources management.

4.4. CONSULTATIONS AND COLLABORATION WITH DEVELOPMENT PARTNERS

77. The design of this operation has undergone an extensive consultation process, both with different government agencies and between government representatives and civil society stakeholders. The policy reforms supported by the proposed Cat DDO have been defined as development priorities by SEFIN and each of the responsible ministries. Furthermore, all the developmental priorities are embodied in PCMs and ministerial decrees and in the 2020 Budget Law. There have been scoping meetings immediately following the Government’s request for the DPC with Cat DDO; multiple missions (virtual and in situ) took place between October 2019 and February 2020 which have significantly improved the design, implementation and ownership of Prior Actions (PAs). PAs 2 and 3 were presented and discussed as part of a workshop led by COPECO on disaster preparedness with 27 members of SINAGER, including civil society organizations, in January 2020; and PA 4 was discussed by SESAL with civil society representatives in December 2019. The latter resulted in valuable feedback and the express support for the National Pandemic, Epidemic and Health Emergency Response Plan. Overall, consultations with relevant stakeholders have been developed in close collaboration with SEFIN, COPECO, the ministries of health and environment, and the Presidency’s legal team. Of note, it was agreed that the adoption of local DRM and CCA plans would require continuing consultations among COPECO, AMHON, the municipalities and the civil society stakeholders. These have been ongoing since the approval of the Water Security Strategy for the Dry Corridor, which has involved a wide consultation process with Honduran municipalities, whose feedback will be a determining factor for its implementation. 78. The proposed operation builds on past and ongoing work with the Honduran agencies responsible for DRM and CCA, as well on discussions at international forums on DRM and CCA. These forums have included:

Towards a More Resilient Central America Forum, held in Panama in February 2019, organized jointly by the World Bank and CEDEPRENAC, the United Nations Office for Disaster Risk Reduction (UNDRR), the Regional Water Resources Committee (CRRH) of the Central American Integration System (SICA), and other partners. This event helped to strengthen the Government’s disaster risk financing strategy. Reflected in Prior Action 1.

National Forum of Land Use Planning and DRM, organized by the World Bank in May 2018 in the city of Tela, with support from the Swiss State Secretariat for Economic Affairs and the Japan‐World Bank Program for Mainstreaming Disaster Risk Management in Developing Countries. This event discussed the responsibilities of Honduran municipalities in DRM, and the importance of embedding DRM and CCA in local development planning. Reflected in Prior Action 3.

Alliance for the Dry Corridor, a collaboration established in 2014 by the Government of Honduras with development partners to improve water management capacities. Partners include the European Union, the United States Agency for International Development (USAID), the Government of Canada, the Swiss Agency for Development Cooperation, and the Spanish Agency for International Development Cooperation. The work of the Alliance also fed into the design of the Prior Action 6.


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5. OTHER DESIGN AND APPRAISAL ISSUES

5.1. POVERTY AND SOCIAL IMPACT

79. The proposed operation will strengthen the capacity of the Government of Honduras to quickly and effectively respond to disasters, which will prevent poor and vulnerable households from falling deeper into poverty as a result of adverse natural events. However, the social risks inherent in DRM initiatives are challenging due to several factors: (a) at an institutional level, DRM institutions have had limited experience with national consultation processes and outreach to vulnerable communities, particularly in remote rural areas; (b) at a territorial level, climate change has impacted the access to and use of natural resources, often leading to conflict, with community groups and indigenous people affected by water scarcity, tensions over land use rights, and vulnerable agricultural production; (c) at a security level, the high level of crime and violence could pose a threat to how benefits and assistance are distributed and accessed; and (d) at a legal level, DRM policies and governance structures are very recent and might take time to be fully operationalized. The Prior Actions of this proposed operation can mitigate these risks by strengthening social engagement between national institutions and civil society; supporting consultation processes that reach out to the most vulnerable populations; establishing monitoring mechanisms to ensure citizen security and adequate distribution of disaster relief; and strengthening institutional capacity regarding legislation, norms and understanding of their social implications. 80. Prior Actions 1 and 2 focus on the preparation and implementation of a disaster risk financing strategy; and strengthening/operationalization of the newly established Ministry of Disaster Risk Management and National Contingencies. These Prior Actions will have indirect positive benefits on poverty and society by enabling the Government to assess and quantify the disaster‐related needs of the poor and vulnerable segments of the population and mobilize financing to deliver resources more quickly and effectively to disaster‐affected communities. 81. Prior Actions 1 and 2 should help to shorten the interval between a disaster and response/ recovery efforts, thereby reducing the prevalence of negative coping strategies by impoverished families in the aftermath of adverse climate‐related events. Prior Action 1 will also result in better access to information on the flow of disaster financing (for which purposes, to which communities), helping to increase social accountability around disaster risk financing. 82. Prior Action 3 focuses on institutionalizing emergency planning and recovery capacity in local development planning by municipalities. These local planning activities are intended to include vulnerable and marginalized groups who live in disaster‐prone areas and have had limited or no engagement with local authorities for disaster planning. The Prior Action will likely generate direct positive poverty and social impacts by improving the quality of municipal plans and ensuring that the specific disaster‐related needs of poor and vulnerable communities are taken into account. The Prior Action should help to promote better public understanding and dialogue within the municipality about what to expect if a disaster strikes, the responsibilities of the community and the kinds of support that will be provided. This Prior Action will not support resettlement actions related to these institutional reforms and zoning plans. 83. Prior Actions 4 and 5 will focus on strengthening multisectoral approaches to preparedness and response by improving health surveillance practices and establishing clear operational procedures within


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the health sector. These Prior Actions will enhance the health surveillance system by adopting best international practices for early detection, monitoring and response to communicable disease within the framework of the National Pandemic, Epidemic and Health Emergency Response Plan. Improving epidemiological surveillance and the sophistication of health‐crisis preparedness plans will improve knowledge about the health conditions of poor and extremely poor populations in each of the regions. Early detection of disease outbreaks is expected to have indirect positive poverty and social impacts by increasing the number of households that receive appropriate attention in the event of epidemiological crisis. 84. Prior Action 6 will focus on strengthening water resources governance and enhancing climate resilience in the Dry Corridor, through the formation of water basin governance organizations. Poor and vulnerable communities in the Dry Corridor have less access to water for human consumption and for agricultural production than do richer segments of the population. Resilience among poor rural households, i.e., their capacity to maintain viable agricultural livelihoods in the face of alternating flood and drought risks, is closely linked to the Government’s capacity to plan and manage water resources. This Prior Action will likely have indirect social benefits by increasing equitable access to and use of water resources, and by supporting community representation in water governance structures. Improved governance of water resources will also improve the local‐level preparation for disasters.

5.2. ENVIRONMENT, FORESTS AND OTHER NATURAL RESOURCE ASPECTS

85. Prior actions selected for the proposed operation are expected to have a moderate, positive and indirect impact on Honduras’s environment and other natural resources. In times of widespread disaster, a country’s natural resource stock provides a safety net of last resort for poor and vulnerable populations without access to credit or financial resources, particularly if they are cut off from basic services. In Honduras, this translates to the potential for natural disasters to increase the stress on forests and other natural resources. For example, communities that lose electricity service may resort to collecting and burning firewood for fuel; or farmers may unsustainably intensify land use to make up for short‐term losses following floods, drought or other climate‐related shocks. By taking steps to strengthen institutions and plans for disaster risk reduction and response—notably through Prior Actions 1, 2, 3 and 6—Honduras is indirectly reducing potential stressors on the land and forests. Prior Action 6, which focuses on improving water resource governance in the Dry Corridor, may lead to direct environmental benefits by strengthening the protection and sustainable management of upstream aquifer recharge zones, which will improve basin‐level climate resilience. Prior Actions 4 and 5, which focus on strengthening multisectoral approaches for health preparedness and response through approval of the National Pandemic, Epidemic and Health Emergency Response and the development of regional subplans, are expected to have a neutral impact on the environment. There is a possibility for negative environmental impacts stemming from increased use of chemical pesticides for vector control, such as widespread mosquito spraying for Dengue. Such impacts can be mitigated by ensuring compliance with regulations on the handling and use of pesticides for public health purposes (see Annex 4). 86. Climate co‐benefits for the proposed operation are expected to be high, as most of the policy actions directly contribute to building resilience to climate‐related disasters. CCA considerations are explicitly integrated in all the Prior Actions, translating to a very high percentage contribution to climate co‐benefits. In this context, by enhancing Honduras’s adaptive capacity and resilience, the proposed


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operation aims to reduce the vulnerability of people and critical sectors to the impacts of climate change and risks related to climate variability.

5.3. PFM, DISBURSEMENT AND AUDITING ASPECTS

87. According to the latest Public Expenditure and Financial Accountability Report, completed in March 2017, public financial management in Honduras has improved but challenges remain. The authorities are continuing their efforts to strengthen public financial management in key areas, including reducing unreported extra‐budgetary funds to an acceptable level; enhancing the transparency of budgetary information (the annual budget proposal and the approved budget, as well as the quarterly budget execution reports are now made publicly available within an adequate timeframe); and improving the efficiency of human resources controls. However, external audit coverage is still low, financial statements of the central government are not fully consolidated, and challenges persist in the management of budgetary deviations. Moreover, both the Executive and Legislative branches periodically reallocate or modify budget allocations after the budget has been approved. In addition, Trust funds (fideicomisos), remain a source of concern because of unaccountable amount and use of funds due to the lack of complete information. Arrears is another area where there is room for improvement, as there is still a lack of a mechanism to systematically collect data on arrears and floating debt of public enterprises (particularly, the case of the ENEE which raised concerns about the financial situation of the company and its impact on fiscal consolidation); although authorities are working at clearing them gradually. 88. Although some weaknesses were identified in the banking control environment into which the operation’s proceeds will flow, the BCH is implementing remedial actions to address them. The Bank has reviewed the latest IMF Safeguards Assessment performed in late 2019, which recommends remedial actions that are being carried out by the BCH and monitored under the IMF program. In addition, the Bank has reviewed the audited financial statements for fiscal years 2016, 2017 and 2018, which included unqualified opinions and did not report significant internal control weaknesses. The auditors observed that the financial statements were not based on International Financial Reporting Standards (IFRS); however, the BCH is transitioning to the IFRS accounting framework and adopt it for FY 2021 (this was also agreed and is being monitored under the IMF program). 89. In recent years, the Government of Honduras has successfully implemented critical actions to improve the efficiency and reliability of its public procurement system. Nonetheless, the system continues to have certain weakness, including inadequate staff and funding and unreliable information systems in the National Procurement Office, ONCAE (Oficina Normativa de Contratación y Adquisiciones del Estado). These weaknesses were identified in the MAPS56 self‐assessment of 2017, which the Government carried out to diagnose the quality and effectiveness of the system by comparing it with international best practices. That assessment found that system has been strengthened significantly since 2010, when the last MAPS assessment was carried out. Although there were no reforms to the National Procurement Law in the intervening period, new procurement procedures were adopted that strengthened control mechanisms and transparency. One important innovation was the adoption of framework agreements57, under which bidders for government contracts must comply with minimum requirements and display all of their products, services and purchase orders through electronic catalogs.

56 Methodology for Assessment of National Procurement System based on indicators developed by OECD/DAC. 57 Legislative Decree 36‐2013, Law for the Efficiency and Transparency of Public Purchases through Electronic Channels.


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As of 2017, eight electronic catalogs had been developed, resulting in an average savings of 60 percent for goods and services procured through the electronic system. The Government has also initiated a post‐graduate program to train and certify public procurement officials and is expected to make such certification mandatory for procurement officials and analysts. Training events on public procurement practices are also being held for potential private sector suppliers. 90. To further improve the system by addressing weaknesses identified in the 2017 MAPS assessment, the Government has initiated a revision of the Procurement Law. It has issued guidance notes and other documents to homogenize procurement operations and management; and has improved coordination between ONCAE and the National Control Office with the aim of standardizing procurement processes. Furthermore, the Government has initiated a program to include small and medium enterprises (SMEs) in public procurement processes to support the SME sector and boost economic activity. Finally, the Government is rolling out a procurement system with four modules under a program supported by the Government of the United States; that system is expected to be used by all government institutions by the end of 2020. Disbursement and Auditing Arrangements 91. The proposed operation will follow the disbursement procedures of the International Development Association (IDA or Association) for a DPC with Cat DDO. As per standard practice, the drawdown period for this operation will be three years and is renewable one time for an additional three‐year period during which the funds can be disbursed. Once the DPC becomes effective, the proceeds may be drawn down at any time, provided that a pre‐specified trigger—the declaration of a national emergency due to the impact of an adverse natural event, including a disease outbreak or epidemic—has been met. Once the trigger has been met, the proceeds will, at the request of the Recipient, be deposited into an account at the Central Bank of Honduras, designated by the Recipient and acceptable to the Association (in a foreign currency that forms part of the country’s official foreign exchange reserves). The Recipient shall ensure that, upon the deposit of the DPC proceeds into said account, an equivalent amount is promptly credited in the Recipient’s budget management system, in an account used to finance budgeted expenditures. The Government of Honduras will provide the Association with a written confirmation within 30 days of the disbursement date, that: (a) the amount disbursed has been deposited in the designated account; and (b) the same amount has been credited to the budget management system. If the proceeds of the DPC or any part thereof are used for ineligible purposes, as defined in the Financing Agreement, the Association will require the Recipient to promptly return such amount to the Association. The amount refunded shall be canceled from the DPC.

5.4. MONITORING, EVALUATION AND ACCOUNTABILITY

92. SEFIN is responsible for implementation of the proposed program with the technical support of COPECO, SESAL and the Ministry of Environment. As the main implementing agency, SEFIN will coordinate with other government agencies involved in the implementation of the Cat DDO, including COPECO, the Ministry of Environment and the Ministry of Health; and will be responsible for providing written progress reports to the World Bank on a timely basis. The Government and the World Bank will also maintain a close policy dialogue during the program implementation period through support missions, which will take place no less than every twelve months.


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93. The results indicators selected to monitor progress toward achievement of the Project Development Objective (PDO) reflect defined areas of action and correspond to the expected outcomes of the Prior Actions. The policy actions and results indicators in the policy framework are aligned with government priorities. Technical assistance activities provided in parallel by the World Bank will support some action areas of the proposed operation and reporting on the progress of technical activities will further enhance the regular monitoring and evaluation of the operation. 94. Grievance Redress. Communities and individuals who believe they are adversely affected by specific country policies supported as Prior Actions or by tranche release conditions under a World Bank supported 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 communities and individuals may also submit their complaints to the World Bank’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. For information on how to submit complaints to the World Bank’s corporate Grievance Redress Service (GRS), please visit http://www.worldbank.org/GRS. For information on how to submit complaints to the World Bank Inspection Panel, please visit www.inspectionpanel.org.

6. SUMMARY OF RISKS AND MITIGATION

95. The risk associated with this operation is considered Substantial, given that there are several obstacles to achieving the program’s objectives.

a. Political and governance risk is substantial. Political polarization has traditionally delayed approvals of internationally financed projects, and political changes may result in deviations in the focus of interventions away from key objectives thereby limiting achievement of the PDO. This risk would be mitigated by strong consultation and information provided to all stakeholders by the Government on national development plans, allowing key stakeholders to express their perspectives on public policies. Project preparation also involved multiple consultations, ensuring “buy‐in” for the objectives of this operation from key agencies. Moreover, there is broad understanding across political actors of the importance of DRM and the need to be prepared for emergencies.

b. Macroeconomic risk, stemming from both external and domestic factors is substantial. Externally, adverse weather conditions and lower international prices for key agriculture products (especially coffee) could create large agricultural losses and lower exports. Domestically, the increasing political polarization poses a risk to macroeconomic stability by delaying reforms. Cumulatively, these risks are expected to negatively impact the economy, especially poor households that are highly dependent on agriculture outputs and remittance income. In addition, the persistent deficit of ENEE threatens Honduras’s fiscal position, while changes to the Tax Code have weakened tax revenues. The resulting limited fiscal space could impact program execution by reducing resources to obtain the expected results. At the same time, the Government aims to strengthen fiscal sustainability through reforms to increase the quality of fiscal policy and the


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business environment — by sustaining revenue mobilization, securing financial sustainability of ENEE, and enhancing transparency and governance, supported by the precautionary IMF program. The country is buffered by a large stock of foreign‐exchange reserves (20 percent of GDP) that could mitigate the impact of shocks. Additionally, the COVID‐19 pandemic has already triggered macroeconomic risks and expected to weaken Honduran growth, external and fiscal accounts. The authorities are mitigating the impacts of the pandemic by enacting strong containment measures (including full border closure and a nationwide curfew since March 16, 2020) and implementing the first phase of the Economic Rescue Plan.58 Furthermore, the implementation of the Disaster Risk Financing Strategy by SEFIN, would provide a fiscal buffer to mitigate the risk to fiscal stability in the event of natural disasters. Other measures supported by this Cat DDO will also help promote climate resilience and emergency response, which should help to reduce the fiscal risks and economic impacts of extreme events.

c. Institutional capacity for implementation and sustainability risk is Substantial due to weak inter‐institutional coordination and the lack of technical experts. Implementation of the proposed operation will require the collaborative work of several actors at the national and regional/local levels to move the proposed policy actions forward. The 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 addition, the World Bank is providing technical assistance59 to train key government staff in areas of disaster risk financing, disaster preparedness and emergency response, including diseases outbreaks.

58 https://www.bch.hn/download/boletines_prensa/2020/boletin_de_prensa_13_20.pdf 59 Particularly, training will be provided through the “Strengthening Hydromet Services, Disaster Preparedness and Urban Resilience in Honduras TA (P172149)”; and “Strengthening Disaster Risk Financing Capacity in CA countries TA (P157413)”.


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Table 5: Summary Risk Ratings

Risk Categories Rating

1. Political and Governance Substantial

2. Macroeconomic Substantial

3. Sector Strategies and Policies Moderate

4. Technical Design of Project or Program Moderate

5. Institutional Capacity for Implementation and Sustainability Substantial

6. Fiduciary Moderate

7. Environment and Social Moderate

8. Stakeholders Moderate

9. Other

Overall Substantial

.


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ANNEX 1: POLICY AND RESULTS MATRIX

Prior Actions and Triggers Results

Prior Actions Indicator name Baseline (2020) Target (2023) Responsible agency

Prior Action 1: The Recipient has strengthened SEFIN’s disaster risk financing capacity by establishing responsibilities and guidelines to improve financial resilience associated with climate and disaster risks; as evidenced by the Recipient’s Ministerial Agreement No. 195‐2020, dated February 4, 2020 and published in the Official Gazette on February 25, 2020.

New financial instruments implemented to manage disaster risk and emergencies in accordance with the Disaster Risk Financing Strategy (DRFS) (number)

0 1 Ministry of Finance (SEFIN)

Prior Action 2: The Recipient has strengthened its institutional DRM capacity by establishing the Ministry of Disaster Risk Management and National Contingencies (Secretaría de Estado en los Despachos de Gestión de Riesgos y Contingencias Nacionales) and subjecting COPECO to said institution’s administrative jurisdiction; as evidenced by the Recipient’s Executive Decree No. PCM‐057‐2019, dated September 11, 2019 and published in the Official Gazette on September 12, 2019.

New or updated Sistema Nacional de Gestión de Riesgos (SINAGER) DRM instruments formulated and approved by the new Ministry of Disaster Risk Management and National Contingencies (COPECO) (number)

0 3 Ministry of Disaster Risk

Management and National Contingencies

Prior Action 3: The Recipient has strengthened DRM and CCA at the municipal level by defining responsibilities for the formulation and adoption of local emergency plans that contribute to prevent and address climate risks; as evidenced by Art. 210 of the Recipient’s Legislative Decree No. 171‐2019, dated December 12, 2019 and published in the Official Gazette on December 31, 2019.

Municipalities that have formulated or updated and formally approved their local emergency plans in accordance with the new operational guidelines (percent)

6 40

Ministry of Finance & Ministry of Disaster Risk

Management and National Contingencies


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Prior Actions and Triggers Results

Prior Actions Indicator name Baseline (2020) Target (2023) Responsible agency

Prior Action 4: The Recipient has strengthened its preparedness and response capacities for pandemics, epidemics and health emergencies by approving the National Pandemic, Epidemic and Health Emergency Response Plan; as evidenced by the Recipient’s Ministerial Agreement No. 020‐2020, dated January 15, 2020 and published in the Official Gazette on February 29, 2020.

Health regions with a Regional Pandemic, Epidemic and Health Emergency Response Plan adopted by the Ministry of Health (percent)

0 100 Ministry of Health

Prior Action 5: The Recipient has strengthened its health surveillance system by adopting best international practices on early detection, monitoring and response to epidemics and disease outbreaks; as evidenced by the agreement set forth in paragraph 5 under the fourth point of the Minutes No. 2 of the meeting of the Directive Council of SINAGER, dated February 26, 2020.

Weekly epidemiological reports of mandatory notifiable conditions, produced and disseminated following international standards (number)

0 52 Ministry of Health

Prior Action 6: The Recipient has improved its national and local water management capacities, including DRM and CCA, through the adoption of a Special Regulation on Water Basin Organizations; as evidenced by the Recipient’s Ministerial Agreement No. 0840‐2019, dated September 27, 2019, and published in the Official Gazette on December 6, 2019.

Water Basin Councils created and operating to reduce water‐related risks, in the Dry Corridor region in line with the Water Security Strategy (number)

0 5 Ministry of Environment

A National Water Authority established and operational

No Yes Ministry of Environment


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ANNEX 2: INTERNATIONAL MONETARY FUND PRESS RELEASE

Press Release No. 19/474 December 18, 2019

IMF Completes First Reviews Under SBA and SCF Arrangements with Honduras On December 18, 2019, the Executive Board of the International Monetary Fund (IMF) completed first reviews of Honduras’s performance under an economic program supported by a two‐year Stand‐By Arrangement (SBA) and a two‐year arrangement under the Standby Credit Facility (SCF). This program was approved on July 15th, 2019 in the amount of about US$ 309.2 million (SDR 224.8 million), the equivalent of 90 percent of Honduras quota in the IMF60. The completion of the reviews enables the authorities to access resources in the total amount of about US$144.7 million (SDR 105 million). The authorities have expressed their intention to continue to treat the arrangements as precautionary. Following the Executive Board’s discussion on Honduras, Mr. Mitsuhiro Furusawa, Deputy Managing Director and Acting Chair, made the following statement: “Despite headwinds to growth and a challenging external environment, the Honduran authorities remain fully committed to the economic program supported by the IMF. They have maintained prudent macroeconomic policies—the fiscal position is in line with the Fiscal Responsibility Law, inflation is within the central bank’s target band, and the current account deficit has narrowed despite adverse terms of trade—and have taken initial steps on structural reforms to promote sustained, inclusive growth. “The authorities have made progress on electricity sector reforms, improving the institutional framework by strengthening the regulatory agency, creating an independent system operator, and issuing regulations that will facilitate an open, transparent, and competitive electricity market. They have also taken important steps to improve operations and governance in the public electricity company, and to implement the plan to reduce electricity losses, notably by creating a task force to address the issue. “Important measures to strengthen the governance and anti‐corruption frameworks have been incorporated into the program, adding to the ongoing efforts to strengthen the institutional framework in the central bank and in public finances, and to improve the business environment. The measures focus on reforms in the framework to manage public‐private partnerships, the registry of beneficial ownership, the public officials’ asset declaration system, and public procurement. “The authorities will protect the revenue mobilization efforts made over the past years in order to reduce the infrastructure gap and increase social spending. These efforts will be critical to reduce poverty and inequality, while maintaining a prudent fiscal position that secures debt sustainability over the medium term. “These policies and reforms should help improve the medium‐term outlook, paving the way to gradually boost productivity, growth and employment, and ultimately foster inclusive growth.”

60 Press release 19/285, can be consulted in this link: Press Release 19/285

International Monetary Fund 700 19th Street, NW Washington, D. C. 20431 USA


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ANNEX 3: LETTER OF DEVELOPMENT POLICY


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Letter of Development Policy [Unofficial Translation] Tegucigalpa, M.D.C., March 9th, 2020 DGCP‐FE‐231‐2020 Mr. David Malpass President World Bank Group Washington D.C., 20433 United States of America

Ref.: Disaster Risk Management Development Policy Credit with a Catastrophe Deferred

Drawdown Option (Cat DDO)

Dear Mr. Malpass: I am pleased to inform you that the Ministry of Finance, on behalf of the Government of the Republic of Honduras, has formally requested the approval of a Development Policy Credit with a Catastrophe Deferred Drawdown Option (DPC with Cat DDO) for the sum of US$119 million. This operation is particularly relevant to the country’s efforts to mobilize resources and manage natural hazards, including disease outbreaks and climate‐related events that could affect the Honduran population. This letter summarizes the critical commitments made by the Government of the Republic of Honduras in implementing disaster and climate risk reduction policies and increasing resilience against future disasters. The Government has shown its commitment to strengthening the country's institutional, technical, and financial capacity by incorporating disaster risk and climate change adaptation considerations into key policies. Those policies have increased overall resilience and economic sustainability against natural disasters by enhancing fiscal transparency and accountability, while also reducing extreme poverty and boosting people prosperity. The Republic of Honduras’s population and national assets remain highly exposed to natural disasters, including disease outbreaks and epidemics and the potential consequences of climate change. These risks pose significant obstacles to ensuring Honduras’s macroeconomic stability, as well as the safety and well‐being of its population. It is clear that without risk reduction policies, the growing likelihood more frequent and severe disasters will exacerbate Honduras’s poverty and development challenges. The high economic, social and physical impact that disasters have historically had in the country demonstrates an urgent need to increase disaster risk management capacities and ensure sustainable development.


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A strong resilience‐policy agenda is being implemented to catalyze economic growth and reduce fiscal volatility from disasters. They following key policy reforms will support sustained and inclusive economic growth, focused on to: (a) promoting a coordinated approach to strengthening the institutional frameworks for DRM and CCA, (b) investing in risk identification and improving the emergency preparedness and capacity to respond to disasters (c) improving the Government’s financial resilience to disasters, including its capacity to mobilize emergency fiscal resources. In light of the above, the World Bank has been a key partner of the Government of the Republic of Honduras by supporting capacity building to manage natural hazards and improving its financial capacity to better respond to future events. Therefore, this letter refers to the operation called Development Policy Credit (DPC) for Disaster Risk Management with a Catastrophe Deferred Drawdown Option (Cat DDO), which strengthens Honduras's institutional and financial framework for managing natural disaster impacts, including outbreaks of infectious diseases. The main policy reforms proposed are part of this operation are described below. 1. Disaster Risk Financing: The Ministry of Finance is responsible for the formulation,

coordination, execution, and evaluation of financial policies and the General Budget of Income and Expenditures of the Republic. The Ministry of finance thereby ensures their compatibility with the national priorities defined by the President of the Republic, including the following key responsibilities: (a) the administration of the Public Treasury; (b) public credit and the internal and external debt affairs, and (c) safeguarding and programming public investment in accordance with the policies approved by the President in the Economic Cabinet. In addition, the Ministry is responsible for regulating the financial administration of the public sector and the management of fiscal risks, including those linked to disaster risks. In compliance with the Fiscal Responsibility and Transparency Law, the Ministry of Finance, through Ministerial Agreement No. 195‐2020, has established new institutional structures for improving the country’s fiscal resilience of disasters associated with climate and disaster risks. More specifically, this new structure will: (i) grant legal authority to SEFIN’s Fiscal Contingency Unit to identify and quantify continent liabilities from disaster risk and climate change; establishing its mandate to assess the impact of potential disasters on the main fiscal indicators in the Macro‐Fiscal Medium‐Term Framework; (ii) grant legal authority to SEFIN’s General Directorate of Public Credit to design and implement a Disaster Risk Financing Strategy (DRFS) that includes, but is not limited to, the implementation of financial instruments to build fiscal resilience, (iii) grant the SEFIN’s Directorate of Macro‐fiscal policy to identify potential economic impact of natural disasters and the adverse effects of climate change and, and in case of activating the exception rule established in the Fiscal Responsibility Law, it will carry out the financial analysis using the information provided by SINAGER and the Central Bank of Honduras; and (iv) grant the SEFIN’s Directorate of Public Investment to determine the methodology to incorporate disaster risk management and climate change


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adaptation and mitigation considerations as part of the new public investment projects, in close coordination to the Ministry of Disaster Risk Management and National Contingencies (COPECO).

2. Enhancing the institutional framework improved disaster risk management: Through

Executive Decree PCM‐057 of September 2019, the President of the Republic in the Council of Secretaries of States approved the establishment of the Ministry of Disaster Risk Management and National Contingencies (Secretaría de Estado en los Despachos de Gestión de Riesgos y Contingencias Nacionales) and is subordinating COPECO to said institution’s administrative jurisdiction. With this new ministerial level, COPECO will be responsible for overseeing and coordinating disaster risk management efforts at the national, regional, and local level. This policy action demonstrates the Government of Honduras´s commitment toward improving its disaster risk governance framework, and the acceptance of their responsibilities in (a) contributing to the design of DRM‐related policies; (b) promoting a disaster prevention and risk reduction culture among the population; (c) adopting and coordinating national and subnational preparedness and emergency response efforts. (d) mainstreaming DRM and climate change throughout relevant development sectors.

3. Disaster risk management at the municipal level: The Government has strengthened

resilience at the local level through its Legislative Decree No.171‐2019 that approves the General Budget of Income and Expenditures of the Republic, Fiscal Year 2020; Article 210. This legislative decree establishes that all municipalities are required to iteratively elaborate local emergency plans to reduce and respond to disaster and climate risk. Likewise, this legal provision defines responsibilities at the national level to provide support and operational guidelines and procedures to help municipalities formulate and implement their plans. The National Government confirms that the integration of disaster risk management at the local level is a high priority, and therefore, will continue to support this policy action beyond the validity of the current Budget Law. The integration of similar articles in budgetary provisions will continue for years to come until the country's municipalities have risk management tools in accordance with their technical and budgetary capacities.

4. Strengthening health emergency preparedness and response capacities: The Government

has adopted and approved the National Pandemic, Epidemic and Health Emergency Response Plan, as evidenced by the Ministerial Agreement 020‐2020. This Plan provides the National Health system and the Ministry of Health (SESAL) with improved preparedness and response capacities to deal with health‐related emergencies and natural disasters. Likewise, the Government has adopted best international practices, defined by the Pan American Health Association, on early detection, monitoring and response to epidemics and disease outbreaks; as evidenced by the agreement set forth in paragraph 5 under the fourth point of the Minutes No. 2 of the meeting of the Directive Council of SINAGER, dated February 26, 2020. Both actions represent a strong commitment to improving the definition of responsibilities and mechanisms for the management of epidemiological emergencies. In addition, SINAGER has


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committed to strengthening the health system for emergencies associated with natural hazards, such as: geological, hydrometeorological, radiological, chemical and environmental threats. The adoption of the plan provides Honduras, for the first time, with a preparedness and response framework for the health sector.

5. Enhancing water resources governance and climate resilience: through the adoption of a

Special Regulation on Water Basin Organizations, the Government has improved its national and local water management capacities for regulating all technical and administrative aspects for water‐basin management organizations. In addition to promoting the participation of public and private sector in water administration and compliance, the special regulation also strengthens local capacities to prevent environmental degradation, deforestation and occupation of disaster‐prone areas within the water basins

In summary, the Government of the Republic of Honduras consistently demonstrates its strong commitment to the reforms contemplated in the Development Policy Credit with Catastrophe Deferred Drawdown Option. Especially with the implementation of a comprehensive monitoring plan, which will be developed jointly with the respective technical entities. We believe that this program will help holistically strengthen disaster risk management for sustained and inclusive development and increase Honduras’s resilience to natural events and health emergencies. We look forward to the Bank’s continued support towards building a more disaster resilient Honduras. Thank you for your continuing cooperation, and we look forward to the favorable consideration of this program by the World Bank´s Board of Directors. ROCÍO IZABEL TÁBORA Minister of Finance.


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ANNEX 4: ENVIRONMENT AND POVERTY/SOCIAL ANALYSIS

Prior Actions Significant positive or negative environment

effects Significant poverty, social or distributional

effects positive or negative

Prior Action 1: The Recipient has strengthened SEFIN’s disaster risk financing capacity by establishing responsibilities and guidelines to improve financial resilience associated with climate and disaster risks.

No direct adverse effects on the environment are expected. Indirect moderate positive effects may result if the flow of resources to communities after a disaster are improved enough to offset the increased pressure on natural resources as a “safety net” of last resort.

No direct adverse effects on poverty are expected. Indirect, positive effects are likely if response and recovery resources reach impoverished communities after a disaster event, and if increased transparency and accountability mechanisms reduce potential social unrest over use of disaster risk financing.

Prior Action 2: The Recipient has strengthened its institutional DRM capacity by establishing the Ministry of Disaster Risk Management and National Contingencies (Secretaría de Estado en los Despachos de Gestión de Riesgos y Contingencias Nacionales) and subjecting COPECO to said institution’s administrative jurisdiction.

No direct adverse effects on the environment are expected. Indirect moderate positive effects may result if the implementation of emergency plans leads to smoother restoration of services and livelihoods, offsetting the increased pressure on natural resources as a “safety net” of last resort.

No direct adverse effects on poverty are expected. Indirect positive effects are likely: by having in place an effective, well‐coordinated response system at the national level that supports the affected vulnerable population after a disaster.

Prior Action 3: The Recipient has strengthened DRM and CCA at the municipal level by defining responsibilities for the formulation and adoption of local emergency plans that contribute to prevent and address climate risks.

No direct adverse effects on the environment are expected. Indirect moderate positive effects may result from improved institutional coordination and planning for disasters if they incentivize more sustainable land use management practices and lead to reduced pressure on natural resources as a “safety net” of last resort.

No direct adverse effects on poverty are expected. Direct positive social effects likely by adopting an inclusive approach to development of an effective local response system at the municipal level that engages vulnerable populations in the planning process and supports their targeted needs after a disaster. This Prior Action takes into consideration consultation issues, particularly the inclusion of vulnerable populations in decision‐making processes. This can be mitigated with validated consultation processes. This Prior Action will not support resettlement actions related to these policy reforms and zoning plans.


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Prior Action 4: The Recipient has strengthened its preparedness and response capacities for pandemics, epidemics and health emergencies by approving the National Pandemic, Epidemic and Health Emergency Response Plan.

The impacts on the environment are expected to be neutral. However, some moderate negative environmental impacts could result if adopted procedures for response to vector borne diseases include fumigation of spraying of chemicals for vector control, and also as a result of potentially hazardous medical wastes resulting from outbreak response and treatment of patients. To address these risks, Honduras has an existing national legal framework on medical waste management, which is understood to be enforced in most hospitals. With respect to vector control activities, publicly available information suggests that in 2019 Honduras launched an integrated strategy for prevention and control of dengue, which takes a comprehensive approach in which fumigation activities are just one tool of many, including sanitary awareness and education and proper disposal of household solid waste, with fumigation efforts relying on commonly used larvicides such as Bacillus thuringiensis israelensis (BTI), which is considered non‐toxic to humans and wildlife when used as directed. Risks are therefore considered to be acceptably low for potential vector control activities.

No direct adverse effects on poverty expected. Indirect positive effects are likely: by having in place an effective local response system that better identifies local health‐related needs of vulnerable populations, the equipment improves surveillance and responds more quickly and effectively after a disaster.

Prior Action 5: The Recipient has strengthened its health surveillance system by adopting best international practices on early detection, monitoring and response to epidemics and disease outbreaks.

No direct adverse effects on the environment expected. Indirect environmental benefits may result from strengthening surveillance protocols, institutional coordination and compliance with international standards.

No direct adverse effects on poverty expected. Indirect positive effects are likely: by having in place an effective national response system that better identifies health‐related needs of vulnerable populations, the equipment improves surveillance and responds more quickly and effectively after a disaster. Any risk of exclusion of specific populations, such as Indigenous People and Afro‐Descendants, will be mitigated by developing consultation processes for multi‐cultural inclusion.


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Prior Action 6: The Recipient has improved its national and local water management capacities, including DRM and CCA, through the adoption of a Special Regulation on Water Basin Organizations.

No direct adverse effects on the environment expected. Direct environmental benefits may result from strengthening the incentive regime for protection and sustainable management of upstream aquifer recharge zones. This will improve basin level climate resilience.

No direct adverse effects on poverty expected. Indirect positive effects likely by increasing government capacity to support water governance and climate adaptation through adequate WRM. This Prior Action takes into consideration current equity issues in access to and use of water resources for vulnerable communities acutely affected by climate‐related hazards (droughts and flooding) and will support community representation in these water governance structures.


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ANNEX 5: MUNICIPALITIES WITH DRM AND EMERGENCY PLANS

1. As of November 18, 2019, 116 municipalities (38 percent of total) have formulated at least one Municipal DRM or Emergency Plan in the last 20 years. Of this total, 18 municipalities are considered “updated,” meaning that the current DRM plan has been formulated and approved in the last two years. In all cases, these plans were produced as part of DRM projects supported by international organization (table 5.1).

Table 5.1. Number of Municipalities with DRM/Emergency Plans Formulated in the Last 10 Years

Project Fiscal Year Number of municipalities provided

with DRM/Emergency Plans

Natural Disaster Mitigation Project ‐ PMDN (P064913) (IDA Financing).

FY00 81

Disaster Risk Prevention and Mitigation Project – MITIGAR (HO‐L1031/2052) (IDB Financing).

FY09 20

Disaster Risk Management Project ‐ PGRD (P131094)* (IDA Financing).

FY13 18*

TOTAL 119**

* These 18 plans were formulated and approved in 2018/2019. ** Three municipalities of PGRD were already included in MITIGAR (final number is 116) 2. Since 2010 at least 4 guidelines have been produced in Honduras defining the contents and the methodology for formulating municipal DRM and emergency plans (table 5.2).

Table 5.2. Guidelines Produced in Honduras for Formulating Municipal DRM/Emergency Plans

Guide Name (Spanish) Year Leading institutions Remarks

Methodological Guidelines: Preparation of Municipal Development Plans (PDM) (With a Land Use Approach) Based on the “Higuito” Inter‐municipal Council Experience”.

2010

Strengthening Local Capacities in the Western Region Project (implemented by JICA, and the Honduras Social Investment Fund, Higuito Inter‐municipal Council, SGJD, Ministry of Labour and Social Security, and AMHON)

According to this guide, in case of available data regarding DRM, the Municipal Development Plan must include activities for risk reduction or disaster Preparedness

Technical guidelines for the formulation of local emergency plans that contribute to prevent and address climate risks.

2013 European Commission (DIPECHO VIII) Including DRM and Climate Change, was tasted in the Mosquitia region


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Guide Name (Spanish) Year Leading institutions Remarks

Guidelines to incorporate disaster risk management in local development plans for better water resources development and management.

2016

Global Water Partnership Central America. Earth Sciences Institute of the National Autonomous University of Honduras UNDRR

Integration of risk management with a focus on water resources in Municipal Development Plans

Methodological guidelines to elaborate municipal territorial planning (Disaster Risk Management, Urban Land Use Planning, and Municipal Environmental Management)

2017

Secretariat of the Presidency, Executive Directorate of the Nation Plan. COPECO MiAmbiente

It contains a specific module on Disaster Risk Management.

3. According to the DesInventar Data Base, between 2005 and 2015, 137 disasters were reported at the municipal and regional (department) level. 114 disasters were triggered by climate‐water related events, 18 by geophysical hazards and 5 by epidemics. Table 5.3. Municipalities most affected by disasters between 2005 and 2015 (DesInventar Data Base)

Department/municipalities Climate events Geophysical events Epidemics Total

Fr. Morazán/Distrito Central 6 6 2 14

Cortes 9 9

Atlántida 4 4

Atlántida/La Ceiba 4 4

Colón 4 4

El Paraiso/Danli 4 4

Intibucá 4 4

Santa Barbara 4 4

Yoro 4 4

Yoro/El Progreso 4 4

Choluteca 3 3

Choluteca/El Triunfo 3 3

Comayagua 3 3

Copan 3 3

Cortes/ San Pedro Sula 3 3

Cortes/Santa Cruz de Yojoa 2 1 3

Fr. Morazán 3 3

La Paz 3 3

Valle 3 3

Atlántida/Jutiapa 2 2

Choluteca/Choluteca 2 2


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Department/municipalities Climate events Geophysical events Epidemics Total

Choluteca/El Corpus 1 1 2

Choluteca/Pespire 2 2

Colon/Tocoa 2 2

Comayagua/Siguatepeque 1 1 2

Copan/Santa Rosa de Copan 2 2

Cortes/Puerto Cortes 1 1 2

Intibucá/Colomoncagua 1 1 2

Lempira 2 2

Ocotepeque 2 2

Olancho 2 2

Olancho/San Esteban 1 1 2

Olancho/San Francisco de la Paz 1 1 2

Yoro/Santa Rita 1 1 2

Atlántida/Arizona 1 1

Atlántida/Tela 1 1

Choluteca/Apacilagua 1 1

Choluteca/Marcovia 1 1

Colon/Limón 1 1

Colon/Sonaguera 1 1

Comayagua/El Rosario 1 1

Comayagua/La Libertad 1 1

Copan/Dolores 1 1

Cortes/La Lima 1 1

Cortes/Potrerillos 1 1

El Paraiso 1 1

El Paraiso/Texiguat 1 1

El Paraiso/trojes 1 1

Intibucá/La Esperanza 1 1

Intibucá/Yamaranguila 1 1

Islas de la Bahia/Guanaja 1 1

Islas de la Bahia/Roatan 1 1

Lempira/La Iguala 1 1

Lempira/San Francisco 1 1

Olancho/Juticalpa 1 1

Olancho/Santa Maria del Real 1 1

Sta Barbara/San Marcos 1 1

Valle/Nacaome 1 1

Yoro/Morazán 1 1

Total 114 18 5 137 Source: DesInventar Data Base. Consulted on March 14, 2020 (https://www.desinventar.org/)


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ANNEX 6: SUMMARY OF HONDURAS INTERNATIONAL HEALTH REGULATIONS SELF‐ASSESSMENT

1. Summary Table 6.1 of the International Health Regulations State Party Self‐Assessment Annual Report for Honduras (2017), by capacity and indicator (score maximum per indicator: 100).

Table 6.1. Honduras Self‐assessment International Health Regulation (2017)

Item State Party of International Health Regulations (IHR) Honduras

IHR

Regional Average IHR

Capacity 1. Legislation and Financing

c. 1.1 Legislation, laws, regulations, policy, administrative requirements or other government instruments to implement the IHR (2005)

20

c. 1.2 Financing for the implementation of IHR capacities 0

c. 1.3 Financing mechanism and funds for the timely response to public health emergencies

0

Level C1 7 66

Capacity 2. IHR Coordination and National IHR Focal Point Functions

c. 2.1 National IHR focal point functions under IHR 80

c. 2.2 Multi‐sectoral IHR coordination mechanisms 80

Level C2 80 76

Capacity 3. Zoonotic Events and the Human–Animal Interface

c. 3.1 Collaborative effort on activities to address zoonoses 80

Level C3 80 66

Capacity 4. Food Safety c. 4.1 A multisectoral collaboration mechanism for food safety events 20

Level C4 20 69

Capacity 5. Laboratory

c. 5. 1 Specimen referral and transport system 80

c. 5. 2 Implementation of a laboratory biosafety and biosecurity regime 20

c. 5. 3 Access to laboratory testing capacity for priority diseases 80

Level C5 60 75

Capacity 6. Surveillance

c. 6.1 Early warning function: indicator‐ and event‐based surveillance 80 c. 6.2 Mechanism for event management (verification, risk assessment analysis,

investigation) 80

Level C6 80 74

Capacity 7. Human Resources

c. 7.1   Human resources to implement IHR (2005) capacities 20

Level C7 20 67

Capacity 8. National Health Emergency Framework

c 8. 1 Planning for emergency preparedness and response mechanism 0

c 8. 2 Management of health emergency response operations 40

c 8. 3 Emergency resource mobilization 20

Level C8 20 66

Capacity 9. Health Service Provision

c 9.1 Case management capacity for IHR relevant hazards 0

c 9.2 Capacity for infection prevention and control (IPC) and chemical and radiation decontamination

0

c 9.3 access to essential health services 0

Level C9 0 57


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Item State Party of International Health Regulations (IHR) Honduras

IHR

Regional Average IHR

Capacity 10. Risk Communication

c 10.1 Capacity for emergency risk communications 40

Level C10 40 63

Capacity 11. Points of Entry

c 11.1 Core capacity requirements at all times for designated airports, ports and ground crossings

40

c 11.2 Effective public health response at points of entry 40

Level C11 40 61

Capacity 12. Chemical Events

c 12.1 Resources for detection and alert 0

Level C12 0 55

Capacity 13. Radiation Emergencies

c 13. 1 Capacity and resources 0

Level C13 0 54

Total Average 34 65

Source: WHO 2017, International Health Regulations State Party Self‐Assessment Annual Report, Honduras, https://extranet.who.int/sph/country/262 For more information on the methodology: https://apps.who.int/iris/bitstream/handle/10665/272438/WHO‐WHE‐CPI‐2018.17‐eng.pdf?sequence=1


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ANNEX 7: EMERGENCY DECLARATION PROCESS

Legal Framework 1. The drawdown trigger for this DPC with Cat DDO follows all the provisions defined in accordance with the national legislation that regulates the management of emergency situations: (a) Disaster Risk Management National System Act No. 151 of 2009 (Ley del Sistema Nacional de Gestión d Riesgos – SINAGER) published in the Official Gazette on December 26, 2009; and (b) its Regulation, approved by Executive Decree No. 032‐2010. 2. The Disaster Risk Management National System Act (SINAGER Law) was enacted to create the National Disaster Risk Management System (SINAGER) and to establish the national legal and institutional framework for Honduras to manage disaster risk, including not only disaster response but also disaster risk knowledge, prevention, reduction and recovery efforts. Process to Declare a Disaster 3. Articles 42 to 45 of the SINAGER Law and Chapter VIII of its Regulations define the formal process and technical content required for the declaration of a disaster, which involves several state agencies with technical, executive, legislative and administrative functions.

i. The process for the declaration of a disaster is initiated upon the occurrence of an emergency in the territory related to the impact of an adverse natural event, including disease outbreaks and epidemics in the human population.

ii. At the technical level, the Minister of DRM (COPECO) advises the President of Honduras to declare a disaster, detailing the following key information: (a) the type of hazard and the geographical local of the affected area(s); (b) description of damage, loss and economic impacts in productive sectors, and impacts on livelihoods, incomes and human development; (c) recovery and reconstruction needs caused by the emergency; and (d) specific inter‐institutional coordination measures required.

iii. In the case of a health emergency, the Ministry of Health (SESAL) will be the entity responsible for providing the technical inputs and key features to recommend the emergency declaration. The declaration of a national health emergency follows a formal process to assess the degree of emergency of a given situation, as referred to in Ministerial Agreement 020‐2020 and in the Health Code (Decree 65 of May 28, 1991).

iv. Based on this information, the President prepares a formal Presidential Decree (PCM Executive Decree), which is then issued by the Council of Ministers in accordance with Art. 9 of Legislative Decree 74‐2001, Procurement Law (Ley de Contratación del Estado).

v. The emergency declaration includes at least the following details: (a) delimitation of the affected zone; (b) determination of the amount of financial resources and sources of funds; (c) definition of mandatory measures and their duration; (d) the line agencies involved at the national and subnational levels; and (e) the local authorities involved.

vi. Finally, the PCM Executive Decree is published in the Government Gazette.


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Recent Declarations Related to Natural Events and Epidemics 4. Table 7.1 summarizes the most recent declarations of state of emergencies based on the SINAGER Law (from 2014 to 2020)

Table 7.1. Honduras, list of recent emergency/disaster declarations

Decree # and year Declaration name Trigger

PCM‐032‐2014 National Emergency Declaration in the Dry Corridor Natural event

PCM‐072‐2014 Emergency Decree, heavy rainfall Natural event

PCM‐036‐2015 Emergency Declaration, drought Natural event

PCM‐031‐2015 Reform to PCM‐72‐2014, Ampliation of the Emergency Declaration Natural event

PCM 003‐2016 Declaration of Emergency for Extraction, Use and Exploitation of Forest Products and By‐Products Affected by the Pest of the Pine Bark Beetle

Health

PCM 008‐2016 Declaration of National Sanitary Emergency for the ZIKA Virus. Health

PCM 0024‐2016 Declaration of Emergency due to Landslide Hazard in the Housing Project Zone “Ciudad del Angel”

Natural event

PCM 039‐2016 State of Emergency in CUCULMECA, Community of San Juan Arriba, Municipality of El Corpus, Department of Choluteca

Natural event

PCM 052‐2016 Emergency due to the flushing of river beds and streams in order to prevent floods in inhabited, productive areas and for the protection of the country's road infrastructure

Natural event

PCM‐068‐2017 Declare a State of Regional Emergency in Cucuyagua Copan Natural event

PCM‐069‐2017 Declare a State of Emergency in 6 Departments Natural event

PCM‐072‐2017 Reform to PCM 069‐2017 (National Emergency) Natural event

PCM‐054‐2018 Emergency Declaration in the Dry Corridor of Honduras Natural event

PCM‐066‐2018 State of Emergency at the National Level for Rains and Showers due to the Low‐Pressure System in the Gulf of Fonseca and in the Department of Gracias a Dios

Natural event

PCM‐033‐2019 National Emergency Declaration to Search Control Mechanisms Against Dengue Transmission

Health

PCM‐005‐2020 Declaration of Health Emergency Situation to Strengthen the Response to the Dengue Epidemic and Potential Importation of Coronavirus (COVID‐19)

Health

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