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The World Bank MALAWI-Disaster Risk Management Development Policy Financing with Cat DDO (P165056)

Document of of

The World Bank FOR OFFICIAL USE ONLY

Report No: PGD16

INTERNATIONAL DEVELOPMENT ASSOCIATION

PROGRAM DOCUMENT

FOR THE PROPOSED DEVELOPMENT POLICY GRANTS:

A DISASTER RISK MANAGEMENT DEVELOPMENT POLICY FINANCING

IN THE AMOUNT OF SDR 28.9 MILLION (US$40.0 MILLION EQUIVALENT)

FROM THE IDA CRISIS RESPONSE WINDOW

AND

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

IN THE AMOUNT OF SDR 21.7 MILLION (US$30.0 MILLION EQUIVALENT)

TO

THE REPUBLIC OF MALAWI

May 23, 2019

Social, Urban, Rural And Resilience Global Practice Finance, Competitiveness and Innovation Global Practice Africa 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 Malawi GOVERNMENT FISCAL YEAR

July 1 - June 30 CURRENCY EQUIVALENTS

(Exchange Rates Effective as of April 30, 2019) Currency Unit = Malawi Kwacha (MWK)

MWK 736.4 = US$1 SDR 0.7216256 = US$1

WEIGHTS AND MEASURES

Metric System

ABBREVIATIONS AND ACRONYMS ADMARC Agricultural Development and Marketing Corporation AFR Africa Region ARC Africa Risk Capacity BOP Cat DDO

Balance of Payments Catastrophe Deferred Drawdown Option

CDC Centers for Disease Control CDD Convention to Combating Desertification CERC Contingent Emergency Response Component CPS/F Country Partnership Strategy/Framework CRW Crisis Response Window CSO Civil Society Organization DCCMS Department of Climate Change and Meteorological Services DFID United Kingdom Department for International Development DoDMA Department of Disaster Management Affairs DPF Development Policy Financing DPRA Disaster Preparedness and Relief Act DRF Disaster Recovery Framework DRFS Disaster Risk Financing Strategy DRM Disaster Risk Management DRR Disaster Risk Reduction DSA Debt Sustainability Assessment ECF Extended Credit Facility EU European Union EWS Early Warning System FROIP Financial Reporting Oversight and Improvement Project FY20 Fiscal Year 2020 GDP Gross Domestic Product GFDRR Global Facility for Disaster Reduction and Recovery GoM Government of Malawi GRS Grievance Redress Service HFA Hyogo Framework for Action HIS Household Integrated Surveys IBRD International Bank for Reconstruction and Development IDA International Development Association IEG Independent Evaluation Group

IHR International Health Regulations IMF International Monetary Fund MASAF PWP Malawi Social Action Fund Public Works Program M&E Monitoring and Evaluation MNSSP Malawi National Social Support Programme MDA Ministry, Department or Agency MGDS Malawi Growth and Development Strategy MoEST Ministry of Education, Science and Technology MoFEPD Ministry of Finance, Economic Planning and Development MoHP Ministry of Health and Population MoLHUD Ministry of Lands, Housing and Urban Development MoTPW Ministry of Transport and Public Works MT Metric Ton MoU Memorandum of Understanding MPC MWK

Monetary Policy Committee Malawi Kwacha

NAO National Audit Office NDC Nationally Determined Contribution NDP National Decentralization Policy NDPRC National Disaster Preparedness and Relief Committee NDRMP National Disaster Risk Management Policy NGO Non-governmental Organization NPL NRS ODA

Non-Performing Loans National Resilience Strategy Overseas Development Assistance

PAC Public Accounts Committee PDNA Post Disaster Needs Assessment PA Prior Action PEF Pandemic Emergency Financing Facility PEFA Public Expenditure and Financial Accountability PER Public Expenditure Review PEFA Public Expenditure and Financial Accountability PER Public Expenditure Review PFM Public Financial Management PHIM Public Health Institute of Malawi RBM Reserve Bank of Malawi SADC Southern Africa Development Community SCT Social Cash Transfer SDR Special Drawing Rights SCD Systematic Country Diagnostic SME SOE

Small and Medium Enterprise State Owned Enterprise

TA Technical Assistance UBR Unified Beneficiary Registry UN United Nations UNDP United Nations Development Programme UNFCC United Nations Framework Convention on Climate Change UNICEF United Nations Children’s Fund USAID United States Agency for International Development USP ZCPN

Urban Structural Plans Zero Coupon Promissory Notes


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Regional Vice President: Hafez M. H. Ghanem

Country Director: Bella Bird Senior Practice Directors: Ede Jorge Ijjasz-Vasquez, Alfonso Garcia Mora

Practice Managers: Meskerem Brhane, Olivier Mahul Task Team Leaders: Ana Campos Garcia, Francis Samson Nkoka, Martin Luis Alton


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REPUBLIC OF MALAWI

MALAWI-DISASTER RISK MANAGEMENT DEVELOPMENT POLICY FINANCING AND DISASTER RISK MANAGEMENT DEVELOPMENT POLICY FINANCING WITH A CAT DDO

TABLE OF CONTENTS

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

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

2. MACROECONOMIC POLICY FRAMEWORK ....................................................................................7

2.1. RECENT ECONOMIC DEVELOPMENTS ............................................................................................ 7

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

2.3. IMF RELATIONS ............................................................................................................................ 16

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

4. PROPOSED OPERATION ............................................................................................................ 20

4.1. LINK TO GOVERNMENT PROGRAM AND OPERATION DESCRIPTION .......................................... 20

4.2. PRIOR ACTIONS, RESULTS AND ANALYTICAL UNDERPINNINGS .................................................. 22

4.3. LINK TO CPF, OTHER WORLD BANK OPERATIONS AND THE WBG STRATEGY ............................. 33

4.4. CONSULTATIONS AND COLLABORATION WITH DEVELOPMENT PARTNERS ............................... 35

5. OTHER DESIGN AND APPRAISAL ISSUES .................................................................................... 35

5.1. POVERTY AND SOCIAL IMPACT .................................................................................................... 35

5.2. ENVIRONMENTAL ASPECTS ......................................................................................................... 39

5.3. PFM, DISBURSEMENT AND AUDITING ASPECTS .......................................................................... 40

5.4. MONITORING, EVALUATION AND ACCOUNTABILITY .................................................................. 44

6. SUMMARY OF RISKS AND MITIGATION ..................................................................................... 45

ANNEX 1: POLICY MATRIX................................................................................................................. 48

ANNEX 2: IMF RELATIONS ANNEX ..................................................................................................... 53

ANNEX 3: LETTER OF DEVELOPMENT POLICY ..................................................................................... 56

ANNEX 4: ENVIRONMENT AND POVERTY/SOCIAL ANALYSIS TABLE .................................................. 67

ANNEX 5: STATE OF DISASTER DECLARATION PROCESS ..................................................................... 69

ANNEX 6: NATURAL DISASTERS AND HEALTH RELATED SHOCKS ........................................................ 71

ANNEX 7: DISASTER RISK FINANCING AND INSURANCE ..................................................................... 74

ANNEX 8: MAJOR DEVELOPMENT ACTS, POLICIES, AND STRATEGIES IN MALAWI RELATED WITH DRM AND CLIMATE RESILIENCE ................................................................................................................ 77

This Program Document was prepared by an International Development Association (IDA) team consisting of Ana Campos Garcia (Senior DRM Specialist), Francis Nkoka (Senior DRM Specialist), Luis Alton (Financial Sector Specialist), Sumati Rajput (DRM Specialist), Abigail C. Baca (Senior DRM Specialist), Jun Erik Rentschler (Young Professional), Carlos Costa (Senior DRM Consultant), Luis Rolando Duran Vargas (DRM Regulation Consultant), Cynthia Rosenberg (DRM Consultant), Innocent Pangapanga-Phiri (Consultant, Economist), Pilirani Achitenji Mwahara (Consultant, Engineer), Patrick Hettinger (Senior Country Economist), Priscilla Kandoole (Country Economist), George Ferreira Da Silva (Finance Officer), Ximena Talero (Lead Counsel), Hilari Asasira (Associate Counsel), Trust Chimaliro (Financial Management Specialist), Saidu Dani Goje (Senior Financial Management Specialist), Anjani Kumar (Senior Procurement Specialist), Steve Mhone (Senior Procurement Specialist), Violette Mwikali Wambua (Senior Social Development Specialist), Ian Munro Gray (Senior Environmental Specialist), Mercy Chimpokosera-Mseu (Environmental Specialist), Jane A. N. Kibbassa (Senior Environment Specialist), Rildo Santos (Program Assistant), Sonia Wheeler (Program Assistant), Gloria Pamela Chinguo (Team Assistant), and Tamara Mwafongo (Team Assistant). Extended team members and collaborators are: Colin Andrews (Senior Social Protection Specialist), Ivan Drabek (Senior Social Protection Specialist), Chipo Msowoya (Social Protection Specialist), Chikondi Clara Nsusa-Chilipa (Transport Specialist), Blessings Botha (Agricultural Specialist), Time Fatch (Senior Agricultural Specialist), Holger Kray (Lead Agricultural Economist), Thomas Moullier (Senior Urban Specialist), Ronald Mutasa (Senior Health Specialist), Musonda Rosemary Sunkutu (Senior Public Health & Nutrition Specialist) and Julia Mensah (Operations Officer). This operation was undertaken under the general guidance of Bella Bird (Country Director), Greg Toulmin (Country Manager), Preeti Arora (Country Program Coordinator), Andre A. Bald (Program Leader), Ede Jorge Ijjasz-Vasquez (Senior Director), Sameh Naguib Wahba Tadros (Driector), Meskerem Brhane (Practice Manager), Olivier Mahul (Practice Manager), Abebe Adugna (Practice Manager) and Niels Holm-Nielsen (Lead DRM Specialist). Peer reviewers Elif Ayhan ((Senior Disaster Risk Management Specialist)), Alanna Leigh Simpson (Senior Disaster Risk Management Specialist), Theo Davis Thomas (Economic Adviser), Lizardo Narvaez Marulanda (Senior Disaster Risk Management Specialist), Barry Patrick Maher (Senior Financial Sector Specialist), Enrique Pantoja (Operations Advisor).


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SUMMARY OF PROPOSED FINANCING AND PROGRAM BASIC INFORMATION

Project ID Programmatic

P165056 No

Proposed Development Objective(s)

The overall objective is to strengthen the institutional and financial capacity of the Government of Malawi for multi-sectoral disaster and climate risk management.

Organizations

Borrower: MINISTRY OF FINANCE, ECONOMIC PLANNING, AND DEVELOPMENT

Implementing Agency: MINISTRY OF FINANCE, ECONOMIC PLANNING, AND DEVELOPMENT

PROJECT FINANCING DATA (US$, Millions) SUMMARY

Total Financing 70.00 DETAILS

International Development Association (IDA) 70.00

IDA Grant 70.00

INSTITUTIONAL DATA

Climate Change and Disaster Screening

This operation has been screened for short and long-term climate change and disaster risks

Overall Risk Rating

High ..


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Operation Type The proposed operation is a combination of two development policy operations, consisting of a single tranche to be disbursed upon effectiveness, and a single tranche to be disbursed under a Catastrophe Deferred Drawdown Option

Program Development Objective (PDO) and Pillars of the Operation

The overall objective is to strengthen the institutional and financial capacity of the GoM for multi-sectoral disaster and climate risk management supported through three pillars:

• Pillar A – Strengthening the institutional framework and coordination mechanisms for the implementation of the national disaster and climate resilience agenda

• Pillar B – Increasing climate and disaster resilience in physical developments and infrastructure

• Pillar C – Strengthening adaptive social protection mechanisms and government financial capacity to respond to disasters

Result Indicators

Pillar A – Strengthening the institutional framework and coordination mechanisms for the implementation of the national disaster and climate resilience agenda

i. Number of Technical Sub-committees operationalizing a more comprehensive DRM approach as established in the Malawi Disaster Risk Management Bill (evidenced by an independent assessment report). Baseline (2019): 0. Target (2022): 3.

ii. Annual reports on National Resilience Strategy (NRS) and/or Malawi Growth and Development Strategy (MGDS) III monitoring progress on results, budget allocations, and expenditures on disaster risk management and social protection from Government and development partners produced. Baseline (2019): 0. Target (2022): 3.

iii. Number of user sectors (i.e. agricultural sector, DRM institutional system) receiving tailor-made forecasts and early warning bulletins with the appropriate content, frequency, and communication channels and in local languages (Chichewa, Tumbuka and Yao). Baseline (2019): 0. Target (2022): 2.

iv. National Public Health Emergencies Committee established and operating in accordance with the MoU that clarifies all ministry roles and responsibilities relevant to International Health Regulations (IHR) capacity implementation. Baseline (2019): No. Target (2022): Yes.

Pillar B – Increasing climate and disaster resilience in physical developments and infrastructure v. Number of cities with appropriate hazard maps that inform the location of public

infrastructure and physical development. Baseline (2019): 0. Target (2022): 2. vi. Number of cities and districts where stakeholders have been trained on existing standards

and new building policy/regulations that incorporate multi-hazard resilience. Baseline (2019): 0. Target (2022): 15.

vii. Number of new national transport projects implemented by the Roads Authority that apply the new harmonized multi-hazard resilience standards. Baseline (2019): 0. Target (2022): 3.

viii. Percentage of new educational facilities constructed or rehabilitated in compliance with the technical hazard-resilient criteria adopted by MoEST. Baseline (2019): 0. Target (2022): 100.

Pillar C – Strengthening the Government’s social and financial protection mechanisms to respond to disasters

ix. Unified Beneficiary Registry (UBR) data sharing protocols implemented, as evidenced by percentage of shock-affected households identified through the UBR that are targeted for post-disaster support. Baseline (2019): 0. Target (2022): 90.

x. Number of new ex-ante risk financing instruments established in alignment with the National Disaster Risk Financing Strategy. Baseline (2019): 0. Target (2022): 2.

Overall risk rating High

Climate and disaster risks

Are there short and long-term climate and disaster risks relevant to the operation (as identified as part of the SORT environmental and social risk rating)? Yes , No X

Operation ID P165056


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IDA PROGRAM DOCUMENT FOR A PROPOSED DISASTER RISK MANAGEMENT DEVELOPMENT POLICY FINANCING AND A PROPOSED DISASTER RISK MANAGEMENT DEVELOPMENT POLICY FINANCING

WITH A CAT DDO TO THE REPUBLIC OF MALAWI

1. INTRODUCTION AND COUNTRY CONTEXT

1. The proposed Disaster Risk Management (DRM) Development Policy Financing (DPF) and the proposed DRM DPF with a Catastrophe Deferred Drawdown Option (Cat DDO) aims to boost the resilience of the Republic of Malawi with respect to significant natural disaster- and health-related risks threatening its sustainable growth and development. The DRM DPF and the DRM DPF with Cat DDO are part of a multi-pronged response (detailed below in paragraph 7) to alleviate the economic and humanitarian costs associated with the impact of Tropical Cyclone Idai, with a longer-term objective to strengthen the institutional and financial capacity of the Government of Malawi (GoM) for multi-sectoral disaster and climate risk management. This longer-term objective will be achieved by facilitating the implementation of key policy and institutional reforms that will enable the country to be better prepared for responding to future disaster- and health-related emergencies. The proposed operation is innovative as it provides, through a single operation, a combination of up-front financing as a DRM DPF (SDR 28.9 million - US$40.0 million equivalent from the Crisis Response Window (CRW)) for immediate financial needs in the aftermath of Cyclone Idai, and a DRM DPF with Cat DDO (up to SDR 21.7 million - US$30.0 million equivalent, from Malawi’s IDA national allocation) for future disasters. Adoption of the prior actions identified in Section 4.2 is a key step, but the shift to greater resilience will become evident in the next three years as the country implements the policy reforms and achieves the results as outlined by the indicators.

2. Natural disasters have jeopardized development progress and significantly contributed to macroeconomic instability. Malawi is exposed to a variety of natural hazards, notably floods, strong winds, dry spells, cyclones, earthquakes, and landslides, which are known to cause both rapid and slow on-set disasters. Among the weather-related shocks, droughts and floods have had the greatest impact on the country’s economy, people’s lives and livelihoods, and infrastructure. The country has faced successive and compounding climatic shocks. In 2015, the country experienced its worst floods in 50 years, followed by a drought in 2016 due to the strongest El Niño event in 35 years. These successive events resulted in annual estimated losses of US$500 million across all sectors. The resulting low capital accumulation is a key contributor to the country’s depressed growth trajectory.

3. Most recently, in March 2019, the country was struck by Tropical Cyclone Idai which led to heavy rains and strong winds severely affecting 15 of Malawi’s 28 districts, 2 of the 4 major cities, and an estimated 975 thousand Malawians. 731 thousand people are at risk of food insecurity (having lost their saved food commodities1). Based on the Government’s preliminary Post Disaster Needs Assessment, physical damage to the country’s capital stock totals US$220 million and recovery and reconstruction needs to “build back better” total US$370 million, representing 5.8 percent of Malawi’s gross domestic

1 Department of Disaster Management Affairs (DoDMA) and United Nations Office of the Resident Coordinator Malawi: Floods Situation Report No. 3 (as of 7 April 2019).


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product (GDP)2. A total of 109 thousand hectares of crops washed away leading to a loss of livelihoods for around 2.3 million farm families. More than 288 thousand houses have been affected, 154 schools have been damaged, of which many remain closed or are being used as emergency shelter for displaced communities, hence disrupting the education of 443 thousand children3. Cyclone Idai has also destroyed 129 bridges and 1.8 thousand km of the road network in the southern region of the country.

4. Volatile economic growth and recurrent natural shocks have made it difficult to reduce poverty, malnutrition and public health disease outbreaks in Malawi. The 2015-2016 floods and droughts, respectively, thrust many of Malawi’s poor into food insecurity. During the El Niño-induced drought, nearly 6.7 million people (40 percent of the population), were affected and eventually classified as food insecure, of which 3.6 million were children. The Malawi food insecurity response plan indicated 975,000 children (aged 6-23 months) and pregnant and lactating women were at increased risk of food insecurity and malnutrition. According to the 2015/16 Demographic and Health Survey (DHS), 37 percent of children under age 5 are stunted, among the highest rates in Africa. Likewise, 67 percent of children (age 6-59 months) and 33 percent of women (age 15-49 years) are anemic. Extreme precipitation and flooding also increase the risk of disease outbreaks (like diarrhea, dysentery, malaria, cholera) and limit access to health care. The 2015 floods resulted in approximately 700 cases of cholera, and more than 11 deaths.4 The results from the fourth Integrated Household Survey (IHS-4) suggest a minimal change in the level of poverty since 2010. In fact, the poverty rate increased almost one percentage point, from 50.7 percent in 2010 to 51.5 percent in 2016. Estimates using the international poverty line of US$1.90 per day indicate that 69.2 percent of the population was classified as being poor in 2017, a higher proportion than in 2010.

5. Vulnerability to weather-related shocks is aggravated by poor access to timely and accurate climate and weather forecasts and early warnings. Limited resources affect the quality of weather forecasts in Malawi. Weather forecasts and early warnings are mainly produced in English, and not in the local dialects, and broadcast through main communication channels, and thus, are failing to reach many communities and decision makers. Farming decisions such as seeding, fertilizing, and pest control measures are all weather-dependent and can result in the full loss of the crop if, for example, seeding is not followed by rain. Flood early warnings are not issued systematically, and frequently fail to reach communities, with most flood victims taken by surprise. In spite of these structural systemic weaknesses, Malawi has advanced in having real time monitoring networks and higher resolution rainfall and flood forecasts. As demonstrated during the Tropical Cyclone Idai, the intersectoral technical committee in charge of the operation of the upgraded Kamuzu Barrage managed to use the capacity of Lake Malawi to reduce temporary releases from the barrage to a minimum of 40 M3 per second, saving lives and reducing the impact of the floods. Although the total volume of water in 2019 exceeded the volume in 2015, the number of deaths was much lower. Nonetheless, there is much room for improvement. New hydromet equipment, the barrage renovation, and the intersectoral committee all benefitted from IDA support under the Shire River Basin Management project and demonstrate that improved resilience is achievable in Malawi.

6. Unplanned urbanization and poor building and infrastructure construction standards are underlying factors of vulnerability. Although only 15.3 percent of Malawi’s population live in urban areas,

2 The Malawi Post Disaster Needs Assessment for the 2019 Floods was commissioned by the Government of Malawi with support from The World Bank, United Nations Development Programme (UNDP), European Union (EU) and African Development Bank (AfDB). 3 United Nations Children’s Fund (UNICEF) Malawi Floods Situation Report No. 2. 4 Mozambique/Malawi: Cholera Outbreak - Feb 2015. https://reliefweb.int/disaster/ep-2015-000015-moz.


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and its rate of urbanization is modest when compared with other African countries, Malawi’s urban population is expected to almost triple, from 2.2 million in 2015 to 6.3 million by 2040. Urbanization is concentrated in four major cities—Blantyre, Lilongwe, Mzuzu and Zomba—where growth is mostly informal and unregulated, largely because of lack of adequate and affordable housing for the urban poor, lack of enforcement capacity, and weaknesses in land use planning and building codes. Public infrastructure, mainly transport infrastructure and schools, is affected almost every year during the rainy season resulting in closure and repairs. In rural areas, construction of schools is mainly done by local artisans with limited technical skills and lack of guiding manuals, regulation and standards. In parallel, transport infrastructure designs and construction methods lack risk-sensitive guidance and standards. Direct damage to transport infrastructure during the 2015 floods alone was estimated at US$50.4 million, with 1,220 km of roads and 80 km of rail tracks damaged; and 121 bridges and 312 culverts destroyed.5

7. This operation is supported with World Bank technical assistance (TA) and complemented with other ongoing World Bank projects that help Malawi manage climate and disaster shocks. In the context of the recent Cyclone Idai, the World Bank is providing a financing package to address recovery and reconstruction needs through: (1) Triggering the Contingent Emergency Response Component (CERC) under the Malawi Drought Recovery and Resilience (P161392), US$10 million; and Agricultural Commercialization (P158434), US$20 million; (2) seeking US$120 million from the CRW which was presented to the Board on May 20, to: (a) top up the funds that will be drawn down from existing projects through the two CERCs totaling US$30 million; (b) provide US$50 million additional financing to the Malawi Drought Recovery and Resilience Project (P161392), which will be used to broaden the resilience aspects of the Project; and (c) provide US$40 million through the proposed DRM DPF. This operation will also be complemented by two new fiscal year FY20 pipeline proposals to support a national safety net program and to promote resilient and productive landscapes in the Upper Shire and Linthipe catchments; the ongoing Southern Africa Tuberculosis and Health Systems Support (P155658) supports malaria and cholera surveillance and control; and the recently approved Agricultural Commercialization (P158434) and Shire Valley Transformation (P158805) projects are targeted to support medium-term investments in diversified and more hazard-resistant agriculture and flood-resistant infrastructure. Building on these projects, the proposed DRM DPF with Cat DDO will help the GoM address strategic gaps in DRM and is aimed at building a comprehensive and holistic approach to managing disasters and developing greater climate resilience, while mitigating serious threats to long-term growth and poverty alleviation.

2. MACROECONOMIC POLICY FRAMEWORK 2.1. RECENT ECONOMIC DEVELOPMENTS 8. Malawi’s real GDP growth decelerated from 4.0 percent in 2017 to 3.5 percent in 2018, mainly due to lower agricultural output that resulted from dry spells and Fall Armyworm (FAW) infestation. There was a significant fall in the production of all food crops except cassava, sweet potatoes and coffee. In addition, the industry and service sectors performed poorly both due to energy supply challenges and the indirect impact of agriculture on agro-processing and the services sector.

9. Malawi’s undiversified economy remains highly vulnerable to exogenous shocks. Although agriculture contributes only 30 percent to GDP, it drives growth in other sectors, including in

5 Government of Malawi. 2015c. “Malawi 2015 Flood Post Disaster Needs Assessment Report.” World Bank, Washington, DC.


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manufacturing due to the significance of agro-processing activities. Furthermore, with 98 percent of the total installed electricity generation capacity coming from hydropower resources, energy supply remains vulnerable to weather and climate related shocks. Agriculture also further impacts the services sector through its impact on farmers’ disposable incomes and demand for services. Beyond the growth impact, climatic and weather shocks in Malawi also affect the fiscal outcomes: weather shocks generally lead to declines in agricultural output and depressed economic activity, which in turn result in a decline in Government revenue and an increase in expenditure on relief and disaster response. The end result is often a destabilized Government budget.

10. After six years of double-digit inflation, the year-on-year headline inflation rate has receded to single digits in 2018. Annual average year-on-year headline inflation stood at 9.2 percent in 2018 compared to 11.5 percent in 2017. Inflation has been on a downward trajectory since mid-2017, driven by a sustained fall in food inflation and a relatively stable exchange rate. Relative to the United States dollar, the Malawi Kwacha (MWK) has remained within a two percent band since 2017, trading at a monthly average of MWK 735/US$ in 2018. This exerted downward pressure on non-food inflation. Demand for foreign exchange by the domestic market was also subdued, reflecting weak economic activity.

Figure 1: Malawi’s current growth is positive but weak compared to the rest of the region… Real GDP growth, annualized, percent

Figure 2: … and it has moderated due to a weak maize harvest and erratic power supply Real GDP growth by sector, annualized, percent

Source: World Bank Global Economic Prospects January 2019.

Source: World Bank MFMod April 2019.

11. Since 2013, Malawi has struggled with a large fiscal gap arising from a mix of expenditure pressures and reduced on-budget Overseas Development Assistance (ODA) financing following the 2013 “cashgate” Public Financial Management (PFM) scandal6. Malawi receives around US$900 million in ODA annually, but since 2013, the share of this total that is disbursed through the budget has been sharply reduced. Government has struggled to adjust to this new pattern and consolidate expenditure around a new and lower volume of grants. However, expenditure overruns, particularly on agricultural subsidies

6 In September 2013, revelations came to light of misappropriation of about US$ 50 million in public funds through fraudulent transactions carried out in the Government’s Integrated Financial Management Information System (IFMIS).

0

1

2

3

4

5

6

7

8

2015

2016

2017

2018

2019

2020

2021

SSA excl. Angola, Nigeria & South AfricaSub-Saharan Africa (SSA)Developing countriesMalawi

Forecasts

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

2015

2016

2017

2018e

2019f

2020f

2021f

Agriculture Industry

Services GDP growth


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and the wage bill, have also played a role. In addition, increased recourse to domestic financing to fill the fiscal deficit has led to progressively higher domestic debt servicing costs, further compressing available fiscal space and crowding out private sector investment, as well as contributing to inflationary pressures.

12. In FY2017/18, the budget envisioned a fiscal deficit of 4.0 percent of GDP. The Government called for prudence in public expenditure, with a commitment to intensify revenue collection and avoid the recurrent slippages that had characterized fiscal performance in the past. Moreover, the Government budgeted for a relatively higher proportion of resources for development expenditure. After a four-year hiatus, the Government also benefitted from the proceeds of budget support provided by the World Bank.

Table 1: Key macroeconomic indicators [2014 – 2021]

2014 2015 2016 2017 2018 2019 2020 2021

Est. Proj. Proj. Proj.

National Accounts and Prices

GDP at constant market prices (% change) 5.7 2.8 2.5 4.0 3.5 4.5 4.9 5.2 Agriculture 5.9 -2.0 -2.3 5.0 2.4 4.8 3.8 4.5 Industry 4.7 3.5 2.4 2.2 2 3.0 3.5 3.7 Services 5.8 4.7 4.4 4.0 4.3 4.9 5.8 6.0 Consumer prices (annual average) 23.8 21.9 21.7 11.5 9.2 8.9 8.1 7.5

Central Government (% of GDP fiscal year)

Revenue and grants 23.2 21.4 21.6 23.5 20.8 21.3 22.6 23.5 Tax and nontax revenue 19.7 18.6 17.8 20.0 19.3 19.8 20.1 20.8 Grants 3.5 2.8 3.7 3.5 1.4 1.5 2.6 2.8

Expenditure and net lending 28.9 27.1 27.6 28.2 28.5 27.1 25.9 27.3 Overall balance (excluding grants) -9.2 -8.5 -9.8 -8.2 -9.2 -7.3 -5.9 -6.5 Overall balance (including grants) -5.7 -5.7 -6.1 -4.8 -7.8 -5.8 -3.3 -3.8

Foreign financing 2.0 2.5 1.9 2.5 2.5 1.3 1.7 1.7 Domestic financing 4.2 3.3 1.7 0.9 6.2 6.0 1.7 2.1 Amortization (zero coupon bonds) 0.0 0.8 2.5 1.3 -0.5 -1.5 0.7 0.7 Privatization Proceeds 0.0 0.0 0.0 0.3 0.0 0.0 0.0 0.0

Money and Credit Money and quasi money (% change) 20.7 23.7 15.2 19.7 11.9 12.9 12.8 12.5 Credit to the private sector (% change) 20.0 29.9 4.6 0.4 8.0 13.6 14.5 15.1

External Sector (US$m unless otherwise) Exports (goods and services) 1,737 1,616 1,502 1,675 1,852 1,993 2,134 2,281 Imports (goods and services) 2,399 2,346 2,569 2,606 2,709 2,771 2,946 3,123 Gross official reserves 588 670 605.0 757 703 699 760 837

(months of imports) 3.1 3.4 2.9 3.3 3.0 3.0 3.0 3.1 Current account (percent of GDP) -8.5 -9.2 -14.7 -11.3 -10.9 -9.5 -8.3 -7.8 Exchange rate (MWK per US$ average) 424.4 499.6 718.0 730.3 732.3 - - -

Debt Stock and Service

External debt (public sector, % of GDP) 33.1 37.0 33.2 32.6 31.2 31.4 31.5 31.2 Domestic public debt (% of GDP) 14.9 16.8 21.2 22.6 26.1 24.8 23.8 22.9 Total public debt (% of GDP) 48.0 53.8 54.4 55.1 57.3 56.2 55.4 54.1

Poverty Poverty rate (US$1.9/day, 2011 PPP terms) 69.5 69.6 69.9 69.4 69 68.8 67.6 66.6 Poverty rate (US$3.1/day, 2011 PPP terms) 86.8 86.8 87.9 87.7 87.6 87.3 86.7 86.0 Per capita GNI (in US$ Atlas Method) 360 340 320 320 - - - -

Source: World Bank staff calculations based on MOFEPD, RBM and IMF data April 2019.


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13. However, the actual fiscal deficit significantly deteriorated to 7.8 percent of GDP by end-FY2017/18, highlighting Malawi’s ongoing vulnerability to adverse weather and policy-induced shocks. The increase in the FY2017/18 fiscal deficit was due principally to three factors: a fall in revenue due to weaker economic activity resulting from dry spells and the FAW infestation (about 1 percent of GDP); a one-off securitization of payment arrears dating back to FY2012/13 (1.2 percent of GDP); and an increase in expenditure associated with Agricultural Development and Marketing Corporation (ADMARC) financing related to maize-stocking due to the food crisis following the 2015/16 floods and drought. Revenue and grants fell 2.7 percentage points of GDP below budget targets due to weak economic activity and lower-than-expected grants. Additionally, expenditures increased with an unplanned public-sector financing to ADMARC (of 1 percent of GDP), which intended to cover the large-scale maize stocking that ADMARC had undertaken during the food crisis in 2016 through commercial borrowing.7 Additional expenditure overruns were related to election-related security expenditure, as well as arrears payments arising from court rulings.

14. In FY2018/19, the fiscal deficit is expected to reach 5.8 percent of GDP, higher than budgeted at the beginning of the year (3.8 percent of GDP) but lower than the outturn in the previous year (7.8 percent of GDP). This would demonstrate progress over FY2017/18, particularly for an election year. At mid-year, the FY2018/19 fiscal deficit target has already been exceeded by roughly 1 percent of GDP due to front loading of capital expenditures and an increase in election-related spending. By end year, the fiscal year is projected to close about 2 percent of GDP over its initial deficit target, due to lower-than-expected revenues and grants (about 0.7 percent of GDP), and higher-than-expected recurrent expenditure (about 1.3 percent of GDP). The excess in recurrent expenditure is resulting from increased spending on election preparations, higher spending on goods and services, and statutory obligations, particularly claims for resolved court cases. Additionally, development expenditure is expected to be over-budget by 0.7 percent of GDP, as project implementation is frontloaded prior to elections in the second half of the fiscal year. Relief and reconstruction spending related to the natural disaster (from Tropical Cyclone Idai) will put further pressure on an already constrained budget, making fiscal consolidation efforts even more difficult. As a result, domestic borrowing is also likely to increase, raising concerns regarding debt sustainability as well as the risk of crowding out private sector investment.

15. Malawi’s public and publicly-guaranteed external debt is estimated at 31.4 percent of GDP (about US$2.1 billion) in 2018, up from 31.2 percent of GDP in 2017 (US$2.0 billion). Most of Malawi’s external debt (around 78 percent) has been contracted with multilateral creditors, principally the International Development Association (42 percent), the African Development Fund (14 percent) and the International Monetary Fund (IMF) (11 percent), on highly concessional terms. The proportion of bilateral external debt has decreased slightly, from 27 to 20 percent between 2015 and 2018. This is mostly contracted to China (10 percent) and India (7 percent). Gross domestic debt is estimated to have increased from 13.8 percent of GDP (MWK 206.6 billion) at the end of 2012 to 26.1 percent of GDP (MWK 1,305.9 billion) at the end of 2018. The increase reflects a progressive shift in recent years from external to domestic borrowing. While the stock of domestic debt is lower than that of external debt, the interest burden is substantially larger. The most recent Debt Sustainability Analysis (DSA) for Malawi shows that

7 During the 2015/16 floods and drought which led to a food crisis, ADMARC kept its intervention price for sales above market prices (and acted as an effective cap on speculation), and private traders were able to meet the non-humanitarian food requirements, leaving ADMARC with large carry-over stocks (of approximately 90,000 MT) at the end of the lean season. This led to a loan-maturity mismatch, where the government had to come in to support it financially.


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the country is at a moderate risk of external debt distress, but overall high risk of debt distress (see section 2.2 for more information).

16. Sustained single-digit inflation and reduced inflationary pressures provided a conducive environment for the Reserve Bank of Malawi (RBM) to reduce its policy rate by 150 basis points at the end of January 2019. The Monetary Policy Committee (MPC) reduced the Policy rate from 16 percent (which had been in effect since end-2017) to 14.5 percent at the end of January 2019. This was coupled with further measures to support credit growth, which included reductions in the Lombard rate to 14.9 percent; and reduction in Liquidity Reserve Ratio on foreign and local currency deposits to 3.75 percent and 5.0 percent, respectively. The MPC further advised commercial banks to use the Lombard rate as the base lending rate, with the intention to ensure stronger transmission of monetary policy to lending rates. These actions followed Parliament’s approval in December 2018 of the RBM Act, which should increase RBM’s autonomy and reduce avenues for monetizing deficits. As part of the IMF ECF program, since early 2018, the Government has avoided recourse to RBM financing of deficits.

17. Despite lower nominal interest rates, real rates have remained elevated, while private sector credit growth has been subdued. Even with the reductions in nominal terms, real base lending interest rates, at around 15 percent in 2018, remained high. Furthermore, lending to the Government has increased overall even though the composition of domestic government borrowing has in recent years shifted from RBM to commercial banks and the non-bank sector. Specifically, while the commercial banks’ holdings of Government securities increased by 145 percent, and the non-bank sector’s holdings increased by 75 percent over the same period, the overall spike in domestic lending to the Government has raised concerns around crowding out of private sector borrowing. Private sector credit has thus remained subdued reflecting both the high real interest rate, the difficult business environment and the elevated government borrowing.

18. The financial sector remains broadly stable. Malawi’s banking sector is sufficiently capitalized, with the capital adequacy ratio (CAR) increasing from 18.8 percent in September 2018 to 21.0 percent in February 2019, as the RBM pursued a capital increase agenda. Asset quality has significantly improved, with the sector-wide average ratio of non-performing loans (NPL) to gross loans dropping from 18.8 percent in September 2018, to 5.8 percent by February 2019. The reduction of NPLs in the Small and Medium Enterprise (SME) sector is mostly due to write-offs. Banking industry profitability remains positive. The industry-wide profit, after-tax, grew by 17.1 percent between December 2017 and December 2018. This largely resulted from an increase in non-interest income by 26.0 percent, which offset a 2.3 percent decline in interest income. Return on Equity (ROE) moderated to 13.6 percent in February 2019, from 16.9 percent in June 2018, and 16.6 percent in December 2018, but remains solid.


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Table 2: Fiscal accounts [2014-2021] Percentage of GDP (rebased) 14/15 15/16 16/17 17/18 18/19 19/20 20/21 Estimated Revised Proj. Proj. Revenue and grants 21.4 21.6 23.5 20.8 22.0 21.3 22.6 23.5 Revenue 18.6 17.8 20.0 19.3 19.7 19.8 20.1 20.8 Tax Revenue 16.3 16.0 17.6 17.1 17.6 17.9 18.1 18.8 Nontax revenue 2.4 1.8 2.4 2.2 2.1 1.9 1.9 2.0 Grants 2.8 3.7 3.5 1.4 2.3 1.5 2.6 2.8 Budget support grants 0.0 0.5 0.3 0.0 0.0 0.0 0.0 0.0 Dedicated grants 1.1 1.8 1.5 0.5 1.0 0.6 1.2 1.1 Project grants 1.7 1.4 1.7 0.9 1.2 0.9 1.4 1.7 Expenditure and net lending 27.5 27.6 28.2 28.5 25.8 27.1 25.9 27.3 Recurrent expenditure 22.2 23.5 21.7 23.8 20.7 21.2 20.7 21.3 Wages and salaries 6.9 6.4 6.2 6.5 7.2 7.2 7.3 7.5 Interest payments 4.0 4.0 4.3 3.9 3.8 3.8 4.4 4.3 Foreign 0.3 0.3 0.3 0.3 0.4 0.3 0.3 0.3 Domestic 3.8 3.7 4.1 3.6 3.5 3.6 4.1 4.0 Goods and services 5.5 5.8 5.9 6.7 5.6 6.0 4.9 5.5 Maize purchases 0.2 0.8 0.7 0.7 0.2 0.2 0.2 0.2 Subsidies and transfers 4.9 4.9 3.8 5.0 4.0 4.1 3.9 3.9 Fertilizer subsidy 1.9 1.8 0.7 0.7 0.8 0.8 0.7 0.6 Arrears payments 1.1 2.5 1.4 1.6 0.1 0.1 0.1 0.1 ZCPN for securitizing arrears1 0.7 2.5 1.4 1.5 0.0 0.0 0.0 0.0 Development expenditure 5.3 4.0 6.4 4.7 5.0 5.7 5.2 5.8 Domestically financed 1.0 0.7 0.7 1.6 1.3 2.1 1.7 2.1 Foreign financed 4.4 3.3 5.8 3.1 3.6 3.6 3.5 3.8 Overall bal (inc. grants) excl ZCPN 3 (5.7) (3.1) (3.4) (6.2) (3.8) (5.8) (3.3) (3.8) Overall balance (inc. grants)2 (6.3) (6.1) (4.8) (7.8) (3.8) (5.8) (3.3) (3.8) Financing 5.8 6.1 4.9 8.2 3.8 5.8 3.3 3.8 Net foreign financing 2.5 1.9 2.5 2.5 0.6 1.3 1.7 1.7 Gross foreign borrowing 2.9 2.4 3.0 3.1 1.4 2.1 2.3 2.4 Budget support loans 0.0 0.0 0.0 1.3 0.0 0.0 0.0 0.0 Project loans 2.2 1.9 2.5 1.7 1.4 1.7 2.13 2.1 Other loans 0.7 0.5 0.5 0.1 0.0 0.4 0.2 0.3 Amortization (0.4) (0.5) (0.6) (0.6) (0.9) (0.9) (0.7) (0.7) Net Domestic borrowing 3.3 1.7 0.9 6.2 4.7 6.0 1.7 2.1 Securitization of domestic arrears 0.0 2.5 1.3 (0.5) (1.4) (1.5) 0.0 0.0 Privatization proceeds 0.0 0.0 0.3 0.0 0.0 0.0 0.0 0.0 Memorandum items: Primary balance including ZCPN2 (1.7) (2.1) (0.5) (3.8) (0.0) (2.0) 1.1 0.5 Primary balance excluding ZCPN 3 (1.0) 0.9 0.9 (2.3) (0.0) (2.0) 1.1 0.5 Source: World Bank staff calculations based on MOFEPD data April 2019. 1Issuance of zero coupon promissory notes (ZCPN). 2 Includes promissory notes issued for the repayment of domestic arrears accumulated since FY2012/13. 3 Excludes promissory notes issued for the repayment of domestic arrears accumulated since FY 2012/13.

19. The current account deficit is estimated to have narrowed from around 11.3 percent of GDP in 2017 to 10.9 percent of GDP in 2018, as the growth in exports exceeded the growth in imports. Substantially higher export volumes of tobacco, Malawi’s main export commodity, helped offset lower prices to contribute to an improving trade balance in 2018. Food imports, which were substantially higher in 2016 and 2017, due to humanitarian response, subsided in 2018. Despite a pickup in the fuel import bill, due to both higher international oil prices and imports of emergency diesel power generators, overall imports have grown by less than exports due to weak domestic demand.


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20. Malawi is highly dependent on grants and concessional loans from development partners to meet its financing requirements. A large current account deficit has, in effect, been financed consistently by net ODA disbursements in support of both public service delivery and capital investments. Foreign direct investment has tended to account for only a modest share of financing. Financing requirements rose significantly in 2016-17 as the country responded to the drought, with large-scale imports of food financed predominantly by ODA grants.

Table 3: External financing requirements and sources [2014-2021] 2014 2015 2016 2017 2018 2019 2020 2021 Est. Proj. Proj. Proj. Financing Requirements (US$ m) -747 -745 -814 -887 -648 -774 -805 -852

Current account deficit -514 -613 -743 -702 -636 -628 -604 -626 Debt amortization -42 -49 -137 -32 -74 -51 -56 -62 Gross reserves accumulation (- increase) -191 -83 65 -153 63 -95 -145 -163

Financing Sources (US$ m) 747 753 815 882 649 774 805 852

Grants 261 339 497 333 282 422 400 435 Debt disbursements 224 160 136 240 118 150 189 200 Private sector (net) 267 261 130 305 246 188 204 227 IMF credit (net) -5 -6 52 5 3 15 12 -10

Source: World Bank staff calculations based on MoFEPD, RBM and IMF data April 2019.

2.2. MACROECONOMIC OUTLOOK AND DEBT SUSTAINABILITY

21. Malawi’s medium-term growth outlook is positive, but remains vulnerable to weather and climatic shocks. Before the onset of Cyclone Idai, growth in 2019 was projected at 4.6 percent, gradually increasing to 5-5.5 percent over the medium term. Preliminary estimates from the Post Disaster Needs Assessment show that the impact of Cyclone Idai on growth is small: GDP growth is estimated to slow down by only 0.1 percentage point. Post-Cyclone Idai, real GDP growth is therefore estimated at a slightly lower rate of 4.5 percent in 20198, with medium-term growth still remaining in the range of 5-5.5 percent. With short term post-disaster needs assessed at US$162.8 million, this is likely to impact the fiscal deficit and balance of payments. The medium-term growth outlook assumes a return to normal weather and a rebound in the agriculture sector output, despite the short-term adverse impact of flooding due to Cyclone Idai. The rebound in the agriculture sector performance is also expected to support manufacturing as well as services growth, through agro-processing activities and demand for services. As rainfall patterns return to normal and power projects come onstream, energy supply is also expected to improve, further supporting medium-term growth. The continued vulnerability of agriculture and its spillovers to other sectors shows the critical importance of making progress on, and sustaining, the resilience agenda.

22. Inflation is projected to decline to around 7.5 percent over the medium term. The Government avoiding recourse to RBM financing since early 2018, combined with more consistent monetary policies over the last two years, has contributed to a steady decline in inflation and to an easing of exchange rate volatility. Combined with increased RBM autonomy following passage of the RBM Act in December 2018, this is expected to continue over the medium term. In addition, increased availability of food, coupled with better fiscal discipline, is expected to keep inflation in single digits. The IMF Extended Credit Facility

8 This impact is driven by losses in agriculture, construction, electricity and water, wholesale and retail trade, transport and accommodation and food services sectors.


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(ECF) arrangement will also provide a supportive anchor to macroeconomic management over the next three years.

23. The fiscal outlook envisages a moderate fiscal consolidation over the medium term. Although the FY2018/19 budget is expected to fall short of its ambitious fiscal deficit target of 3.8 percent of GDP, the projected outcome of 5.8 percent of GDP is an improvement over the FY2017/18 fiscal deficit of 7.8 percent of GDP. Over the last two years, the Government has shown progress in resolving the domestic arrears of over 5 percent of GDP which had been accumulated since FY2012/13: it resolved about 1.3 percent of GDP in FY 2017/18 and about 1.6 percent of GDP in FY 2018/19. Beyond FY2018/19, further fiscal consolidation is expected, supported by the IMF program. The current path for consolidation over the next two years does not assume any major revenue and expenditure policy changes but rather a continuation of the tax administration efforts that have already been underway for some time. The bulk of the fiscal consolidation assumed for next year (about 2 percent of GDP) will come from the expiry of one-off election-related expenditure (about 1 percent of GDP) and of frontloading of development expenditure. A projected pickup in growth should also support the fiscal transition towards a slightly positive primary balance in FY2019/20. However, Malawi is likely to continue being buffeted by various climactic shocks, which, if they occur, could setback the progress on fiscal deficits.

24. Malawi’s current account deficit is projected to narrow to 9.5 percent of GDP in 2019 and remain in the range of 8-10 percent of GDP over the medium term. Exports are expected to grow, supported in part by incremental shifts towards tobacco production, as occurred in 2018, due to higher tobacco prices in 2017. The import bill is expected to increase due to Cyclone Idai-related humanitarian assistance as well as recovery and reconstruction work. However, demand for other imports is estimated to continue to be subdued as economic activity is projected to pick up only slightly. The current account deficit, as a percentage of GDP, is therefore estimated to remain in the range of 8-10 percent over the medium term. The current account deficit will continue to be financed by official development assistance, and to a lesser extent, foreign direct investment (FDI). The financing requirements, after having reached a peak in 2016-17, are expected to moderate over the medium term (see Table 3).

25. The most recent joint World Bank/IMF DSA for low-income countries concludes a moderate risk of external debt distress for Malawi, but an overall high risk of debt distress, mainly reflecting the high public domestic debt9. Total public debt is estimated to edge down from 57.7 percent of GDP in 2017, to 57.3 percent in 2018. Public domestic debt is projected to peak at 26.1 percent of GDP in 2018, before gradually declining to just below 20 percent by 2023, supported by continuous improvements in primary balances. Increased fiscal restraint and close attention will be needed on the financing terms of any proposed infrastructure investments given the limited headroom for further borrowing. Stress tests highlight vulnerabilities of total public debt to exogenous shocks, especially export revenues, exchange rate, weather-related, and contingent liabilities (Figures 3 and 4). This reflects the country’s narrow export base, heavy reliance on rain-fed agriculture, and the currently limited coverage of public debt as well as risks arising from weak state-owned enterprises (SOE) oversight and monitoring.

9 November 2018.


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Figure 3: External debt, present value of debt to GDP under alternative scenarios Percentage of GDP

Figure 4: Domestic/public debt, present value of debt to GDP under alternative scenarios Percentage of GDP

Source: IMF-World Bank Joint DSA November 2018. Source: IMF-World Bank Joint DSA November 2018.

26. Malawi’s macroeconomic outlook faces significant downside risks. The key risks relate primarily to (i) Malawi’s continued vulnerability to weather shocks; (ii) the risks of fiscal slippages; and (iii) deterioration in the Balance of Payments -BOP due to increased import demand arising from recovery and reconstruction as well as a potential fall in tobacco prices.

• The country, and its growth performance, is expected to remain vulnerable to climate variability over the medium term. To mitigate this risk, the country will need to boost agricultural commercialization, improve the functioning of agricultural markets, target resources toward increasing productivity and diversifying away from maize as well as strengthening disaster response mechanisms and social protection programs. The World Bank is supporting the country in many of these areas, including through this DRM DPF and the DRM DPF with CAT DDO which will strengthen DRM.

• Similarly, despite recent efforts towards fiscal consolidation, experience shows that Malawi will continue to face the risks of fiscal slippage in the face of weather and climatic shocks. Such pressures are likely to be amplified by additional election-related spending, and lower-than-expected grants and concessional financing, which could, in turn, squeeze capital spending and increase domestic borrowing. Contingent liabilities related to government guarantees to state-owned enterprises could also materialize. The fiscal risks are to a large extent mitigated by the authorities’ commitment to appropriate policy responses, but also by the IMF and World Bank programs currently in place to support the authorities in fiscal consolidation. The DPF element of this operation could also provide fiscal relief to manage the cost of the shock while the Cat DDO element of the operation is crucial to help build the resilience that will allow Malawi to better manage such shocks in the future, and to do so without jeopardizing their fiscal framework.

0

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• Last but not least, a decline in tobacco prices, Malawi’s primary export commodity, could put pressure on the external balance. In light of the recent Cyclone Idai, import demand is expected to pick up due to recovery and reconstruction, which could also result in a deterioration in the BOP. Increased external financing in response to Cyclone Idai, which is currently being mobilized by the World Bank and other development partners, should lead to aid inflows which can offset the anticipated draw down of reserves for imports.

27. Overall, the macroeconomic policy framework is considered adequate for the purposes of this operation. While Malawi is expected to continue to be vulnerable to weather shocks, the adequacy of the macroeconomic framework is premised on the authorities’ commitment to sound macroeconomic management, including fiscal consolidation, tight monetary policy and the implementation of reform commitments to restore the credibility of public finances and address governance weaknesses. In recent years, weather and climatic shocks have adversely impacted not only growth but also fiscal outcomes. Against this context, the authorities have been able to demonstrate significant improvements in reducing inflation, maintaining exchange rate stability, and avoiding central bank financing and non-concessional external borrowing. The IMF ECF program, currently in place, will support the authorities in making the needed adjustments to keep the fiscal consolidation on track. Complementary assistance from the World Bank and other development partners, particularly in the areas of agriculture and DRM, will play a supportive role. While recent short-term policy efforts have focused on addressing food security challenges, efforts are beginning to refocus around the medium-term agenda to strengthen resilience, broaden the export base and manage risks through agricultural commercialization, as well as invest in critical infrastructure (in DRM, irrigation, power and transport connectivity) that will be essential for sustainability.

2.3. IMF RELATIONS

28. The proposed DPO is consistent with the IMF’s ECF-supported program for Malawi. In April 2018, the IMF Executive Board approved a new three-year program supported by an arrangement under the ECF, as well as concluded the 2018 Article IV discussions. The economic program aims to entrench macroeconomic stability and foster higher, more inclusive, and resilient growth. In November 2018, the IMF Executive Board completed its first review of Malawi’s ECF arrangement and approved the disbursement of US$15.4 million. The IMF initiated discussions underlying the second and third reviews of the ECF in March 2019. Discussions are expected to resume in September with the new Government. Staff of the IMF and World Bank cooperate closely, including through the preparation of joint DSA on a regular basis. Overall guidance is provided through a Joint Management Action Plan. Additional detail is presented in the IMF Relations Note in Annex 2.

3. GOVERNMENT PROGRAM

29. Current development policies and strategies for Malawi contribute to the “Vision 2020” strategy and include the importance of managing disaster and climate risks. “Vision 2020”, developed in 1998, presents the country’s development goals for 2020. It emphasizes the need for environmental sustainability and effective DRM. Over the years, the country has developed medium-term (five year) development strategies such as the Poverty Reduction Strategies and Malawi Growth and Development Strategy (MGDS) I (2006) and II (2011) to attain this vision. However, ambitious objectives set in prior


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strategies remain unmet due to numerous factors, including: (i) macroeconomic instability; (ii) recurrent natural shocks; and (iii) governance challenges with Malawi’s PFM resulting in the reduction of the development assistance budget. Building on lessons learned from these factors and the implementation of previous strategies, the new MGDS III (2017-2022), launched in March 2018, focuses on fewer development areas. MGDS III emphasizes the need for different sectors to work together to achieve its development goals. MGDS III is inspired by the theme of: “Building a Productive, Competitive and Resilient Nation”, fully aligned with the objective of this DRM DPF and the DRM DPF with Cat DDO.

30. The international policy agenda has helped shape the way climate and disaster resilience challenges are being addressed in Malawi’s national policies. Malawi is signatory to many international and regional agreements, including the United Nations Framework Convention on Climate Change (UNFCCC, ratified in 1994, plus the accompanying Kyoto Protocol signed in 2002); the Convention to Combating Desertification (CCD, signed in 1996); the Sendai Framework of Disaster Risk Reduction (DRR) 2015 – 2030; the Sustainable Development Goals (SDGs); the Africa Regional Strategy for DRR (2004); and the Southern Africa Development Community (SADC) Regional Indicative Strategic Plan (2001-2016). As a WHO member state, Malawi is a signatory to the IHR, 2005, which is a legally binding instrument requiring countries to develop, strengthen and maintain the capacities to detect, assess, notify and report public health events. The focus of DRM shifted from climate mitigation in the 1990s (as guided by the Kyoto Protocol and other United Nations (UN) treaties) to reduction of disaster-related losses (in lives as well as social, economic and environmental assets) since the 2000s (through the Hyogo Framework for Action (HFA)) to the current focus on developing community resilience and early warning systems (EWS). The number of DRM-related policies and legislative instruments increased significantly from 1991 to 2017 in Malawi (Annex 8), emphasizing the importance of EWS, preparedness and resilience. These policies also recognize the importance of gender-dimensions in DRM and support the calls for inclusiveness and engagement of all members of society in implementing related programs and projects.

31. Health is an important aspect of resilience and DRM in Malawi given the country’s vulnerability to disease outbreaks like cholera. Health is included the National Disaster Risk Management Policy (NDRMP) of 2015 and Ministry of Health and Population (MoHP) is leading the ongoing efforts to review the Public Health Act (drafted in 1948) as well as the drafting of the Public Health Institute of Malawi Bill. In addition, the country is accelerating efforts to assess its capacity to prevent, detect and manage disease outbreaks in line with the requirements of the IHR. All these efforts are especially critical now because of the establishment of the Africa Centers for Disease Control, which has created an impetus for stronger national preparedness against public health threats. Emerging infectious diseases such as avian flu has also necessitated the need for national policy or strategy with a ‘One Health’ approach10.

32. However, these efforts have still not reached their potential because several challenges remain. There is limited national budget for meaningful and effective activities for climate resilience and DRM. The limited investments on disaster risk reduction are focused on food security and agricultural risks without addressing underlying and inter-connected challenges, especially related to hazards. Meteorological services for decision making are not advanced enough and often have limited data processing and information dissemination capacity. There is also a need for systematic disaster risk assessment and mapping for hydro-meteorological and geological hazards to guide new development as

10 Njoka P.E.C (2015), One Health Concept, Malawi Perspective, Paper presented at the International Health Regulation Monitoring.


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well as disaster risk-informed standards and regulations for building safe and resilient public infrastructure.

Cyclone Idai Impact and Response

33. Cyclone Idai and subsequent flooding and landslides affected Malawi, Mozambique and Zimbabwe over the period of March 4–17, 2019, wreaking severe repercussions on an already fragile part of southern Africa and raising the prospects of significant cross-border impact. The cyclone has affected around two million people across the three countries and left a trail of destruction with many people dead, missing or displaced, as well as crops and livestock lost, and critical infrastructure destroyed. Regional effects are already being felt through trade disruptions, disease outbreaks and rising outmigration. Notably, the cyclone’s impact on the important Beira trade corridor interrupted supplies of essential goods such as fuel, wheat and fertilizers, affecting already volatile prices and exchange rates (particularly in Zimbabwe), and impacting trade revenue. The Beira corridor is a trading route for countries including Malawi, Zambia and Zimbabwe that links hinterland countries to the ocean through the port of Beira. Cyclone winds and floods destroyed or damaged critical infrastructure such as roads and bridges, as well as buildings in Beira used to facilitate trade, such as warehouses. The scale of the cyclone and cumulative effects from preceding shocks on an already fragile region could also lead to rising outmigration—to illustrate, about 0.5 million Zimbabweans migrated to neighboring countries as a direct consequence of the droughts in 2002 and 2004, and historical evidence suggests that this is likely to cause severe socioeconomic strain in receiving countries. With the Ministry of Health in Mozambique declaring a cholera outbreak on March 27 and over 4,000 cases of cholera recorded along the corridor as of May 1, a coordinated regional effort to control the spread of diseases is critical. Mounting an effective response and addressing the spillover effects of this crisis requires an integrated regional intervention from the World Bank. This operation is part of the World Bank’s broader regional package which comprises a set of operations totaling some US$700 million in IDA resources – including up to $545 million from the IDA Crisis Response Window (CRW) – to support cyclone response in Malawi, Mozambique and Zimbabwe.

34. The devastating heavy rains and floods generated by Tropical Cyclone Idai, over the period of March 6–24, 2019, resulted in substantial damage to infrastructure and physical assets, and changes in economic flows in both the public and private domains. The assessment revealed that the total effects of the disaster in 15 districts and 2 cities, amounts to US$220.2 million of which US$157.7 million (72 percent) represents the value of destroyed physical, assets and US$62.5 million (28 percent) refers to production losses. The total effects of floods were concentrated mostly in the Social Sector (US$130.3 million – 59 percent) followed by infrastructure (US$51.5 million – 23 percent) and productive activities (US$28.4 million – 17 percent). 35. Tropical Cyclone Idai has affected an estimated 975 thousand people. The poor population represents between 60 and 80 percent of total affected in the hardest hit districts (Chikwawa, Machinga and Mulanje). The impact received by this population is cumulative considering the magnitude of the 2015 floods and the 2016 drought. Events such as Idai widens the inequality gap by preventing affected populations from reaching critical infrastructure and public services (health facilities, market centers, schools and work stations) burdening their ability to recover quickly.

36. With respect to physical infrastructure, Cyclone Idai damaged 1,841 km of the road network, 129 bridges, 154 schools, and halted operations in two hydroelectric power plants as well as affected the electricity distribution lines. Damages have displaced communities and disrupted the provision of other public services such as water supply and sanitation facilities (e.g., pit latrines which have been


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damaged and washed away). Most of the affected population, dependent on subsistence agriculture, have lost nearly all their saved food commodities which were stored in their homes11. Commodity prices increased 50 percent in the aftermath of the cyclone and remain volatile. Among affected households, there is only a small proportion that are close to bodies of water such as rivers who can consider re-planting through irrigation. 37. Malawi’s 2019 Post-disaster recovery and reconstruction needs are valued at US$370.0 million (see Table 4). Recovery and reconstruction needs include the costs of prioritized interventions identified through a recovery strategy (short-, medium- and long-term). It includes interventions: (i) to assist affected people to recover their pre-disaster level of household income; (ii) to restore the supply and access to basic services of health, education, water and sanitation, etc.; and (iii) to ensure recovery of production in sectors of agriculture, industry, and commerce, etc. The Post Disaster Needs Assessment (PDNA) 2019 has identified short-term (up to one year) needs totaling US$162.8 million, of which: 43 percent of the total to finance the social sectors (Housing, Health and Nutrition, and Education sub-sectors), 32 percent is required recovering the infrastructure sector (Transport, Energy, Water and Sanitation and Water Resources sub-sectors), 15 percent is needed to finance the recovery of the cross-cutting sectors, and 10 percent is necessary for the recovery of the productive sectors (Crops, Livestock, Irrigation, Fisheries and Commerce and Industries sub-sectors). Table 4: Damage, Loss, and Needs for Recovery by Sector and Cross Cutting Issues (US$, million) Sector Sub-Sector Damage Loss Total Effects Total Needs

Social Housing 82.7 23.9 106.6 105.9 Health 0.2 2.4 2.6 30.6 Education 20.3 0.8 21.1 62.6

Productive

Agriculture Crops 0 11.1 11.1 19.4 Livestock 0.5 7.7 8.2 2.4 Irrigation 4.2 9.6 13.8 17.9 Fisheries 1.8 1.4 3.2 1.4 Trade 0.3 1.7 2.0 3.3

Infrastructure

Transport 36.1 0.9 37.0 42.6 Energy 2.8 0.3 3.1 4.3 Water and Sanitation 3.7 2.7 6.4 12.3 Water Resources 5.1 0 5.1 17.0

Cross Cutting Issues

DRR 10.9 Environment 1.0 Governance 1.3 Persons with Disabilities 0.3 Social Protection 28.9 Gender 4.0 Older Persons 0.4

Child Protection 3.4 Total 157.7 62.5 220.2 370.0 Source: PDNA Floods – March 2019

38. The immediate response needs, as of March 28th, from the Malawi Flood Response Plan and Appeal stand at US$45.2 million12, of which US$19.8 million has been raised so far. Available resources, however, are not adequate to meet post-cyclone needs. Taking into account available resources from 11 DoDMA and United Nations Office of the Resident Coordinator Malawi: Floods Situation Report No. 3 (as of 7 April 2019). 12 Republic of Malawi, 2019 Flood Response Plan and Appeal of March 28, 2019.


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Malawi’s existing IDA portfolio, there remains a financing gap of US$211 million. The overall strategic objectives for this Plan are to ensure that affected households receive timely assistance. The prioritization followed a life-saving criterion seeking to support humanitarian interventions mainly related to food security (38 percent of total), agriculture (22 percent) and WASH (10 percent). The Government activated the Malawi Humanitarian Country Team (HCT) to coordinate the ongoing response and has released $5.3 million for immediate response. The largest donations are from DFID and CERF, which are contributing US$4.5 million and US$3.2 million respectively. The Government has also dispatched relief food items (maize flour, soya pieces, oil and salt) for the affected population and has been supplying all the temporary shelters and camps with non-food items (chlorine, blankets and household utensils) for safe water domestic purposes.

4. PROPOSED OPERATION

4.1. LINK TO GOVERNMENT PROGRAM AND OPERATION DESCRIPTION 39. The proposed DRM DPF and the DRM DPF with Cat DDO is directly in-line with the Government’s objectives of enhancing climate and disaster resilience in a comprehensive manner. This operation aims to support the Government’s efforts to shift from a disaster response approach toward a more proactive management of disaster and climate risks. Adoption of the prior actions identified below is a key step toward this objective, with gradual shift expected over the next three years as the country begins to implement the policy reforms and the expected results indicators are achieved.

40. The overall program development objective is to strengthen the institutional and financial capacity of the GoM for multi-sectoral disaster and climate risk management. The Program is structured around three pillars, fully aligned with MGDS III and the GoM’s Program described in Section 3 and in the Letter of Development Policy (LDP) (Annex 3).

Pillar A: Strengthening the institutional framework and coordination mechanisms for the implementation of the national disaster and climate resilience agenda. Pillar B: Increasing climate and disaster resilience in physical developments and infrastructure. Pillar C: Strengthening adaptive social protection mechanisms and government financial capacity to respond to disasters.

41. Climate co-benefits for the proposed operation are expected to be high. Climate change adaptation considerations are explicitly integrated in all prior actions, likely representing 100 percent climate co-benefits. Malawi is exposed to negative impacts of climate change which will likely increase temperatures coupled with increasing frequency and severity of hydro-meteorological hazards (floods and droughts) (see Section 1). In this context, the pillars and prior actions will directly enhance Malawi’s capacity to adapt to climate change and manage disaster risks.

42. The design of the proposed operation considers lessons learned from years of World Bank DRM-related operations, hybrid DPO with Cat DDO and standalone Cat DDO operations. Many of these lessons are also reflected in the Independent Evaluation Group (IEG) Report Hazards of Nature, Risks to Development.13 The proposed operation will be the third Cat DDO in the Africa Region (after Seychelles,

13 World Bank. 2006. Hazards of Nature, Risks to Development: An IEG Evaluation of World Bank Assistance for Natural Disasters


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and Kenya). The World Bank has approved 15 International Bank for Reconstruction and Development (IBRD) Cat DDOs, and two IDA Cat DDO for Kenya and Samoa, for an approximate total value of US$3 billion in IBRD/IDA Financing, approved since 2008.14 The hybrid design of this DRM DPF and the DRM DPF with Cat DDO operation draws on the successful model of the Samoa Second Resilience DPO including a DRM Policy Grant with a Cat DDO, which aims to strengthen Samoa’s macroeconomic and financial resilience, strengthen the country’s capacity to cope with natural hazards and climate change; and reduce Samoa’s vulnerability to non-communicable diseases. Key lessons learned include: (i) successful DRM Policy Operations should align actions with government priorities and complement dialogue with TA; (ii) multi-sectoral prior actions help institutionalize a comprehensive approach to DRM; (iii) a Cat DDO is an effective entry point for designing a risk financing strategy and complementary financial instruments.

43. The Program leverages the Government’s efforts on poverty reduction. The project will advance the achievement of results of the Malawi National Social Support Programme (MNSSP II, 2018-2023), which recognizes that the needs of poor and vulnerable people change over their life cycles and during times of shocks. The MNSSP II recognizes the need for all social support programs to coordinate and work together to provide consumption support and build resilient livelihoods. Improving the shock-sensitivity of the social protection system will better protect people’s livelihoods against shocks.

44. The proposed DRM DPF will support Malawi’s need for immediate liquidity in the wake of Tropical Cyclone Idai—as set out in paragraphs 33 to 38 above-- and if a subsequent catastrophic disaster strikes, in the following way:

45. Upfront financing: SDR 28.9 million (US$40.0 million equivalent), potentially from the IDA CRW, would be provided once the operation has been approved by the Board, signed, and declared effective, subject to a withdrawal application from the GoM. This will secure a prompt financial support to alleviate the economic and humanitarian costs associated with the impact of Tropical Cyclone Idai.

46. Contingent (Cat DDO) financing: Subject to the triggering of the drawdown condition in the event of future crises (see below in paragraph 48), an IDA grant of up to SDR 21.7 million (US$30.0 million equivalent) – consisting of US$15 million from Malawi’s national IDA allocation, and US$15 million from IDA’s overall resources – would be available for full or partial disbursement at any time within three years from the signing of the development policy grant.

47. TA will support the Government with implementation of the DRM DPF and the DRM DPF with Cat DDO. Since Cat DDOs are relatively new financial instruments for IDA countries and given Malawi is repeatedly subject to large shocks which lead to deviation from fiscal targets, the World Bank will continue to provide targeted TA during implementation of this Program with funds pre-secured through the Africa, Caribbean, and Pacific Natural DRR Program hosted by the Global Facility of Disaster Reduction and Recovery and financed by the European Union (EU). Technical assistance will specifically support the country to achieve the results linked with the different prior actions, particularly for prior actions (PA) A.1., A.2., B.1., B.2., and B.3. Trust fund resources from the Africa Disaster Risk Financing Initiative, also financed by the EU, will support TA for implementation of results for prior actions C1. and C2.

Independent Evaluation Group. Washington, DC: World Bank. 14Cat DDOs: IBRD (US$): Romania (2018, 493.06), Dominican Republic (2017, 150m), Serbia (2017, 70m); Philippines (2015, 500m; 2011, 500m), Peru (2015, 400m; 2010, 100m); Seychelles (2014, 7m), Sri Lanka (2014, 102m); Colombia (2012, 250m; 2008, 150m); Panama (2011, 66m); El Salvador (2010, 50m); Guatemala (2009, 85m); Costa Rica (2008, 65m); and (IDA): Kenya (2018, 200m) (IDA): Samoa (2018, 9.35m).


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48. Cat DDO features:

• Drawdown trigger. No withdrawal shall be made of the Single Withdrawal Tranche unless the Association is satisfied, based on evidence satisfactory to it, that (a) the President of the Recipient has declared a “State of Disaster” in accordance with Article 32 of Malawi’s Disaster Preparedness and Relief Act (DPRA) of December 17, 1991, or such other law applicable to DRM as may be in force in Malawi at the time; and (b) there is an imminent or occurring (i) natural disaster as a result of natural geological phenomena, including but not limited to earthquakes, volcanoes and landslides, hydro-meteorological phenomena such as floods, droughts, tropical cyclones, and El Niño /La Niña events, or (ii) health disaster as a result of a plague or epidemic of disease that threatens the life or well-being of a community. See Annex 5 for more detail.

• 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: (i) that the GoM is implementing its policy reform program described in the Letter of Development Policy (Annex 3); (ii) confirmation on the adequacy of the macroeconomic framework; (iii) approval of the Regional Vice President of the World Bank; and (iv) that it takes place no earlier than one year and no later than six months before closing date of the Cat DDO.

4.2. PRIOR ACTIONS, RESULTS AND ANALYTICAL UNDERPINNINGS

Prior Action A.1: The Recipient’s Cabinet of Ministers has approved the Malawi Disaster Risk Management Bill that will define a shift in the institutional framework from emergency response to a more holistic and comprehensive DRM approach.

49. Rationale. DRM in Malawi is currently institutionalized under the National DPRA 1991. This Act established the Office of the Commissioner for the Department of Disaster Management Affairs (DoDMA), and the National Disaster Preparedness and Relief Committee (NDPRC). However, provisions for action are required only after a disaster has occurred, enabling an institutional framework for disaster response, declaration of a state of disaster, and creation and management of a disaster fund. Although this Act was an important step forward for GoM to manage disasters, it is responsive in nature (after the fact), and lacks regulation for a more comprehensive, proactive and preventive approach to DRM with clear roles and responsibilities of relevant sectors. To address this institutional void, the 2015 National DRM Policy outlined the need for Malawi to achieve “national resilience to disasters”, helping to advance a more comprehensive approach to DRM with responsibilities for coordinating the implementation of the policy decentralized to DRM Committees at the city, municipal, district, traditional authority (area) and village levels.

50. While recognizing the advances of the DPR 1991 and DRM Policy (2015), there is still need for a more comprehensive legal framework that supports a multi-sectoral and preventive approach to DRM. Within the current institutional arrangements, a mandate for mainstreaming DRM and climate resilience in key sectors of the economy as well as in development processes and programs is absent. Activities as

Pillar A: Strengthening the institutional framework and coordination mechanisms for the implementation of the national disaster and climate resilience agenda


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well as roles of government ministries, departments, and agencies across different levels (i.e. national, municipal, district, tribal authority and village), as well as roles of private sector and communities are not defined for comprehensive risk management, which includes, risk assessment and awareness, risk reduction, disaster preparedness and response, and recovery and reconstruction.

51. Policy. The new DRM Bill will define a holistic and comprehensive DRM framework for the GoM and for the people of Malawi. The drafting of the Bill was led by DoDMA in collaboration with different Ministries and stakeholders through a participatory process. It builds on the National DPRA 1991 and the conceptual and institutional framework established in the NDRMP (2015), and further defines ways in which the country can spur ex-ante action for disaster risk reduction. It also strengthens the operating environment for the NDRMP (2015), which outlines guidance for mainstreaming and integrating DRM in development planning for all sectors. The Bill recognizes that DRM requires a comprehensive, inclusive, and gender-informed approach, based on a vision of shared responsibilities between all actors of the Government and society, aimed at addressing Malawi’s high level of risks, and that disasters are not natural, but rather a social construct associated with the dynamics set by development. The Bill proposes to undertake risk reduction measures to minimize the impact of hazards, reduce existing vulnerabilities, prevent conditions that create new vulnerabilities, and increase the resilience of human and natural ecosystems. Moreover, the new Bill confirms the importance of developing a Disaster Risk Financing strategy and defines mechanisms for monitoring, control, and accountability.

52. Results. The new Bill aims to: (i) focus efforts on preventing the creation of new risk, while ensuring adequate response, recovery, and resilience capacities; (ii) develop institutional arrangements for working in a systemic way, by coordinating action of public and private stakeholders across all government levels (vertically) and sectors (horizontally), and (iii) define a financial approach for ensuring viability of the numerous DRM processes. The number of technical subcommittees operationalizing a more comprehensive DRM approach will be tracked as the way to monitor coordination mechanisms established, and annual reports will monitor the progress on results, budget allocations, and expenditures on DRM and social protection from Government and development partners produced as an indication of progress in the implementation of the Bill and on NRS/ MGDS III. Prior Action A.2 The Recipient, through its Cabinet of Ministers, has approved and adopted the Malawi National Meteorology Policy which will guide the modernization of climate and meteorological services central to providing quality and timely information for resilient development.

53. Rationale. Meteorological services such as seasonal forecasts, weather forecasts, agrometeorological advisories and early warnings are fundamental to the country, given the record of Malawi’s recurrent disasters, such as floods and droughts. Seasonal forecasts provide information on the nature of rainfall in the subsequent months allowing the Government, communities and farmers to prepare in advance for imminent floods or long dry spells during the rainy/farming season. Weather forecasts and agrometeorological advisory are key, particularly, in a rain-fed agricultural environment, to support farmers as they make critical decisions in planting, sowing, fertilizing and fumigation dates. Unfortunately, meteorological services in Malawi face important challenges related with the need to modernize its infrastructure, increase the number of automated weather stations, strengthen human capacity for weather forecasting, as well as service delivery to end users like government, farmers, and those in vulnerable communities. In addition, user-oriented products can be improved in terms of content, language and even the communication channels, to make them more accessible or easier to understand by most users.


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54. Policy. The National Meteorology Policy will provide a clear mandate for the provision of effective and efficient meteorological services15. The Policy: (i) strengthens the concept of meteorological services as a public service that requires adequate resources; (ii) calls for the support of all agencies of the State; (3) opens the possibility of recovering the cost of services provided to the private sector; and (4) emphasizes the requirement that meteorological products and services must be user-oriented.

55. Results. The adoption and implementation of the Malawi National Meteorology Policy will result in the coordinated action of the State for the delivery of timely and accurate meteorological services as well as in the shift towards meteorological products and services that are user-oriented. Budget and support to Department of Climate Change and Meteorological Services (DCCMS) should increase, improving the quality of data, timeliness and accuracy of meteorological services, while stronger interaction with the end users will result in more effective and relevant meteorological products and services, tailored to user needs. Priority will be given to the users of the agricultural sector and to the national, regional and local institutional nodes of the new DRM structure established by the DRM Act. Forecasts, bulletins and early warnings will be issued specifically for these users. Additionally, content, terminology and dissemination channels will be designed and targeted to the end user and final products will be translated to Chichewa and other local languages to assure broad access. Agrometeorological information will be publicly available for small farmers while specific tailored products could be developed to generate revenue by selling data to medium and large companies. These important measures should result in increased resilience through informed decision making and reduce the impact of extreme weather events and hydro-meteorological disasters.

Prior Action A.3: The Recipient, through its Minister of Health and Population, has approved and adopted the Public Health Institute of Malawi’s Strategic Plan (2018-2022). 56. Rationale: Strengthening Malawi’s resilience to public health emergencies requires a robust policy and institutional framework for preventing, detecting and responding to threats. The Public Health Institute of Malawi (PHIM) was established in 2012 to provide comprehensive leadership and coordination in multidisciplinary and multi-sectoral surveillance, prevention and control of diseases, health conditions and threats as well as to generate information that informs policy and practice in public health. Since its establishment, the PHIM has faced significant challenges in fulfilling its mandate and vision. This is due to a combination of factors such as: (i) absence of national policy/legislative instruments to institutionalize the PHIM; (ii) limited financial and technical resources; (iii) inadequate capacity to respond to emerging health threats. These constraints have impeded the PHIM’s ability to perform the core public health functions, for which it was conceptualized. With the establishment of the Africa Centers for Disease Control in 2017, there is now renewed impetus for the establishing National Public Health Institutes across the 53 members states of the African Union. Operationalizing the PHIM, is therefore, a priority for the Government in order to develop national capacity for addressing public health emergencies of both national and regional concern.

57. Policy: The PHIM strategic plan (2018--2022) is a critical step in the process of institutionalizing the PHIM because it outlines: (i) key steps for formalizing the entity; and (ii) key priorities for strengthening national preparedness and response to public health emergencies. The finalization of the PHIM will guide both domestic and external resource mobilization, as well as bring coherence to multi-sectoral coordination in preparing for and responding to national disasters, including disease outbreak/pandemics.

15 Government of Malawi, Draft Meteorology Policy, 2015.


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The plan will also enable PHIM to better respond to expanding demand for better quality public health services as well as address social and financial risk protection, which are inevitable considerations in times of crisis.

58. Result: The achievement of the prior action is intended to set in motion several results—over the three-year period—which are essential for Malawi’s overall disaster planning and risk mitigation strategy. Specifically, the PHIM strategic plan will serve as a catalyst for strengthening policy debate and advocacy on public-health reforms which have been delayed. This includes the implementation of the National Public Health Emergencies Committee as established in the memorandum of understanding (MoU) that clarifies all ministries on IHR capacity implementation. This protocol is critical in establishing the coordination of multisector preparedness and response to any crisis or emergency that includes health impacts.

Prior Action B.1: The Recipient, through its Cabinet of Ministers, has approved and adopted the Malawi National Urban Policy which incorporates DRM and climate change as cross-cutting topics and facilitates the development of other policy instruments needed to improve urban resilience.

59. Rationale. Malawi´s national development policies, historically and until recently, have focused on rural development with the intention of reducing migration from rural to urban areas. The National Physical Development Plan (NPDP, 1987), for example, called for decongestion of cities to prevent challenges associated with eventual rapid urban growth. MGDS I, 2006-2010 stated that, “The long-term goal was to develop rural growth centers and reduce rural-urban migration”. Malawi Growth and Development Strategy II (MGDS II, 2011-2016) addresses urban development peripherally, while “Integrated Rural Development” is identified as a Key Priority Area (KPA). In contrast, MGDS III (2017-2022) includes “Human Settlements and Physical Planning” as an additional development area, which aims to improve land planning, and the development of a policy and legal framework to support urban development, planning and management.

60. The National Decentralization Policy (NDP, 1998) designates Local Authorities as planning authorities. In cities and urban centers, development is guided by the Urban Structural Plans (USP) which detail and designate specific land uses. However, implementation of the plans is affected by inadequate capacity in institutions, and ad-hoc administration of land by traditional leaders especially in peri-urban areas. National and local institutions involved in urban development lack coordination and some have conflicting regulatory frameworks. Further, adequate guidance for new settlements in some areas for both poor and wealthy is deficient due to lack of reliable hazard maps and appropriate building codes. The Physical Planning Act and the Customary Land Act, which was approved by Parliament in 2016, are aimed at facilitating land reform to address conflicts of traditional and urban authorities as well as inform national and local land use planning. Currently, only 16 of 28 planning areas have Land Use Plans. The new Acts, on the contrary, require that all areas develop land use plans and that DRM be considered integrally for land planning and land development.

61. Policy. With the enactment of the National Urban Policy, the Government will address key gaps and challenges, including conflicts and coordination of the urban development institutional framework

Pillar B: Increasing climate and disaster resilience in physical developments and infrastructure


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across different levels and establishing minimum requirements for promoting urban resilient initiatives that integrate DRM. This will help reduce existing urban risk as well as prevent creation of new risks, while considering impacts of climate change and natural hazards. The Ministry of Lands, Housing and Urban Development (MoLHUD) has spearheaded this effort.

62. Results. The Malawi National Urban Policy will help shift the country’s development priorities, which have been focused on improving rural areas, to one that is forward looking and addresses risks that will become more prominent as cities start to urbanize more rapidly. The Policy will facilitate the integration of climate change and DRM in urban strategies and plans in major cities of Malawi. It will also outline strategic aspects of how land use plans and building regulations can integrate risk reduction measures, for example, by developing and using hazard maps for physical planning, improving design and construction standards for buildings and therefore, protecting future populations from settling in hazard-prone areas by increasing the number of city and district public servers that have been trained on building standards, policy/regulations that incorporate multi-hazard resilience.

Prior Action B.2: The Recipient, through its Cabinet of Ministers, has approved and adopted the Malawi National Transport Policy which promotes mechanisms for resilient design, construction and operation of transport infrastructure.

63. Rationale. Transport infrastructure in Malawi is being built without standards that integrate the risks of climate change and disasters. Malawi’s location along a tectonically active boundary between two major African plates within the great East African Rift Valley System, makes it prone to earthquakes and landslides, that also threaten buildings and infrastructure. Damage from natural disasters to the transport infrastructure typically represent one of the largest costs from flood impacts. The damage generated by the Tropical Cyclone Idai in the transport sector represents at least 17 percent of the total damages. Apart from the direct impacts on the national patrimony, the effects on the road system produce indirect losses associated with the suspension or deterioration of services, such as creating challenges for bringing perishable agricultural products to markets on time, thus, negatively affecting economic growth and development. Lack of design and construction standards and enforcement result in weak infrastructure that sometimes even collapse for no apparent reason. The Malawi National Transport Master Plan, launched in 2018, prioritizes 165 projects and programs that will cost US$9.15 billion and are expected to be implemented before 2036. It is imperative that climate change and disaster risks are addressed adequately in the design, construction and maintenance of these projects for future transport infrastructure of the country, especially given the expected growth in cities and the need for improved connectivity for the economic advancement of Malawi. Further, given Malawi’s exposure to recurrent disasters, transport infrastructure is affected significantly since the rainy season consistently causes damage to roads and railways, resulting in closures and disruption. Therefore, rehabilitation and maintenance of existing infrastructure is central to reducing economic impacts to people’s livelihoods and the country’s economic development.

64. Policy. Until recently, MGDS II (2011-2016) provided strategic guidance to the transport sector management and development, within the framework of the 2014 National Transport Policy. However, with the adoption of MGDS III in 2017, which lists transport as a KPA, and the launch of the National Transport Master Plan in March 2018, there is an evolution toward building disaster- and climate-resilient transport infrastructure in Malawi. The Master Plan outlines the vision of the transport sector as, “The development of a coordinated and efficient transport infrastructure that fosters safe and competitive operation of viable, affordable, equitable and sustainable transport services”. Key strategies to achieve this goal are: (i) reducing the cost of transportation by developing multimodal transport systems across


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the country and (ii) lowering Malawi’s dependence on Mozambique for imports and exports by connecting all country borders. The Policy’s inclusion of climate and disaster resilience in transport infrastructure is fundamental to protecting future infrastructure from climate-related hazards that continue to regularly affect this sector. This Policy will provide strategic guidance to address many of these challenges.

65. Results. The adoption and implementation of the National Transport Policy will help integrate DRM and climate change adaptation as part of all planning, design, operation and maintenance of new transport networks. This will improve the resilience of the transport systems and competitiveness for the country. The adoption of the National Transport Policy will help the Road Authority of Malawi undertake activities that will lead towards the adoption of new and harmonized multi-hazard resilience standards on new transport networks projects.

Prior Action B.3: The Recipient, through its Minister of Education, Science and Technology, has approved and adopted the Safer School Construction Guidelines which will ensure multi-hazard resilient design and construction of public education infrastructure, and outline a way forward for safe location, selection of materials, and construction techniques for safer schools.

66. Rationale. Unsafe and low-quality school construction in Malawi is a result of inadequate hazard information, construction guidelines and construction technologies. Deficient budget resources for immediate and long-term investment plans and the absence of a legal mandate to enforce safer construction make it difficult to overcome challenges of building schools safely.

67. Currently, the existing data is not consolidated or clear in terms of the numbers of schools, classrooms, and how they have been delivered. While the supply is increasing nationally because of high demand, there is limited capability in planning for this infrastructure. There is little evidence that site selection and physical planning of the school site is undertaken, with many schools across the country located on exposed and vulnerable sites. Four main construction typologies exist, but it has not been possible to determine their share of the national school stock. Many schools display structural vulnerabilities which increase their susceptibility to damage from natural hazards arising from a lack of engineered school designs, poor quality materials, poor quality control and supervision during construction, and a lack of maintenance of school infrastructure.

68. The Ministry of Education, Science and Technology (MoEST), through the Education Infrastructure Management Unit, is responsible for rehabilitation and construction of school building infrastructure. However, schools are often non-governmental organizations (NGO)-financed and constructed, with limited consultation with the Government and with the communities on determining where the schools are built. In rural communities, school buildings are often constructed by people within the communities. These are often simple constructions that can easily be destroyed by earthquakes, stormy rains, strong winds and floods, as evidenced during La Niña flooding in 2015, Tropical Cyclone Idai where more than 1,500 schools were affected. Further, the Koronga earthquake of 2009, damaged more than 100 school buildings.

69. Policy. The Safer Schools Programme, which includes Safer School Construction Guidelines and Roadmap, developed in collaboration with MoEST, aims to put in place normative standards for safer national school infrastructure in the country that meet (multi-hazard) resilient design and construction standards, including criteria for on-site location, physical planning and quality of buildings.

70. The MoEST, in coordination with the Department of Housing, Department of Buildings, and DoDMA, convened an expert group for the formulation of the Safer School Construction Guidelines. These


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guidelines will provide comprehensive and practical tools to promote resilient school buildings. The guidelines provide a step-by-step process in the construction or rehabilitation of school buildings to increase the resilience of school infrastructure to multiple hazards. These include adaptive and sustainable solutions, innovative designs, procedures necessary for selection of building sites, infrastructure orientation for different hazards, and other necessary technical specifications for safe construction and rehabilitation of schools. The expert group included academic experts on building structures, building planners, as well as architects and representatives of local governments.

71. Results. The Safer School Construction Guidelines and Roadmap aims to increase the resilience of school infrastructure to disasters and climate risks by assessing the risks to existing and future infrastructure and monitoring the application of construction norms on rehabilitation or construction of school works. The guidelines establish the standards and requirements for materials, techniques and procedures for the construction of safer schools. Further, these guidelines will strengthen the capacity of the country by training engineers, contractors, government officials, and others on the technical norms outlined through the guidelines to assure compliance with safety standards.

Prior Action C.1. The Recipient’s National Social Support Steering Committee has approved and adopted the Malawi National Social Support Programme II (2018-2023) and Implementation Plan which prioritizes development of a shock-sensitive social protection system.

72. Rationale. Recent poverty trends highlight the need for a safety net that promotes equity, by reducing poverty and increasing food security, and resilience in the face of shocks. Transitory shocks have the potential to exacerbate rural poverty, pushing an additional two out of every five households below the poverty line. This suggests that Malawi will be able to sustain growth and poverty reduction in the medium term only by becoming more resilient to internal and external shocks. It is therefore essential to develop the systems and mechanisms needed to effectively manage shocks.

73. Policy. The recently approved second MNSSP II, 2018-2023 has created an opportunity to improve Malawi’s social protection between now and 2023. The Government has approved the MNSSP II, following the expiry of the first MNSSP in 2016. Building on lessons learned during MNSSP’s implementation, MNSSP II, which is coordinated by Ministry of Finance, Economic Planning and Development (MoFEPD), was developed to “reduce poverty and enable the poor to move out of poverty and vulnerability”. The program has three thematic pillars: (i) Consumption Support; (ii) Resilient Livelihoods; and (iii) Shock-Sensitive Social Protection.

74. Based on experiences from the first phase of this program, MNSSP II shifts focus from individual social protection programs to ensuring coherence, integration, and harmonization between systems of interrelated interventions. The MNSSP II envisions the creation of a dynamic safety net system with a strong focus on shock sensitivity. The new program confirms the government’s commitment to delivering social support by providing income and consumption transfers to the poor and food insecure, protecting the vulnerable against livelihood risks, and enhancing the social status and rights of the marginalized, with the overall objective of reducing ultra (extreme) poverty as well as the economic and social vulnerability of poor and marginalized groups.

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75. A shock-sensitive safety net is devised to meet needs that vary by season, to prepare for and respond to unpredictable shocks together with the humanitarian sector, and to support recovery efforts that facilitate quicker return to regular programming. For Malawi’s safety net to be shock-sensitive, it will require that it meet the needs of what is often an unpredictable caseload of vulnerable beneficiaries. This will require fundamental reform of institutional arrangements, information systems, and transfer modalities. To do so, MNSSP II will also need to address underlying political economy factors such as incentives within both international agencies and across the Government to undertake reforms. Strengthening the shock sensitivity of safety nets is likely to yield cost efficiencies. Close to 35 percent of Malawi’s 2016 humanitarian aid expenditure (for food security and nutrition) was spent on administrative costs, the equivalent of 2 percent of GDP. This compares to administrative costs of 18 percent and 10 percent for the Government-led (SCT) Program and Malawi Social Action Fund Public Works Program (MASAF PWP), respectively. There was even wider variation in the administrative costs of World Food Program-led safety net interventions, with the highest being Food for Assets with 35 percent in 2016.

76. MNSSP II aims to further strengthen the provision of social support in Malawi through closer linkages between agriculture, livelihoods and resilience interventions on the ground. MNSSP allows the expansion of social safety nets by increasing both coverage of beneficiaries as well as the amount of resources, following large-scale shocks, by establishing scalable mechanisms as well as through closer alignment and coordination with the humanitarian sector. The continuing challenge of targeting beneficiaries under the program will be addressed through the UBR, which aims to harmonize the targeting approach of different social protection schemes that are covered under the MNSSP, and the establishment of District Social Support Committees in selected districts to coordinate and harmonize implementation of MNSSP. Under Pillar A and C of this DRM DPF and the DRM DPF with Cat DDO, efforts will be undertaken to strengthen targeting of poor and vulnerable households and improve coordination with the humanitarian sector by using UBR as a common platform.

77. Results. Implementation of MNSSP II, especially its third pillar, which prioritizes development of a shock-responsive social protection system, is expected to increase the resilience of Malawi’s most vulnerable by facilitating the expansion of the social protection system in times of crisis, including after natural disaster shocks. A key aspect of the development of an effective shock-sensitive social protection system in the Malawian context is adequate coordination with the humanitarian system, which will be important to improve triggering timely shock-responsive safety nets. Using the UBR as a common platform for both Malawi’s National Support System and the humanitarian system will ensure greater and more effective coordination in the future. Likewise, the UBR database will be useful to include people affected by disasters as beneficiaries of the social protection system.

Prior Action C.2: The Recipient’s Minister of Finance, Economic Planning and Development has approved and adopted a Disaster Risk Financing Strategy (DRFS) and Implementation Plan, outlining the Government’s strategic objectives to strengthen financial preparedness for effective and timely disaster response.

78. Rationale. Given high levels of exposure to multiple hazards and the vulnerability of the population and economy to disasters, such events have the potential to cause significant human, economic, and fiscal losses. Since 1990, Malawi has faced five droughts that affected more than 20 percent of the population. The 2015/16 drought illustrates the potential severity of weather-induced


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shocks and resulting economic impacts for Malawi with damages and losses of US$366m,16 and a reduction in GDP growth of 2.2 percentage points compared to baseline projections.17

79. Natural disaster shocks add to Malawi’s already high volatility of GDP growth. Related to this, natural disasters undermine fiscal planning, and often overwhelm GoM’s fiscal capacity to respond as evidenced by sizable humanitarian appeals in the aftermath of shocks. While decreasing the economic and fiscal impacts of disaster-related shocks requires significant investments in risk reduction and climate change adaptation, international experience suggests that the cost of immediate emergency response as well as recovery can be reduced by pre-arranging financing. Without pre-arranged financing, resources from ongoing development programs are often diverted to respond to disasters, and both emergency relief and rehabilitation and reconstruction are at risk of being delayed.

80. In the past decade, Malawi has used ex-ante risk financing instruments, for example weather derivatives as well as insurance coverage purchased from the African Risk Capacity (ARC) for protection at the sovereign level. At the household level, insurance schemes have been piloted, but have not seen wide coverage.18 However, the sovereign level schemes were not sustained, and the insurance programs targeted at the household level were not scaled up. Sovereign insurance coverage through ARC was not renewed after a “basis risk” event (i.e. an event which caused significant losses but did not trigger a payout since the model underlying the insurance policy did not indicate that sufficiently high losses had occurred because of the 2016 drought). An important lesson from this, as well as from disaster risk finance experience globally, is that comprehensive financial packages that combine different instruments are necessary to provide adequate coverage to countries for distinct types of risk. Furthermore, international experience suggests that such financial packages should be adopted to meet clearly defined policy goals set by Government. Finally, systems must be in place to channel funds to intended beneficiaries in a cost-effective and time-sensitive manner following disasters.

81. Policy. The national disaster risk financing strategy of the GoM will increase transparency of and strengthen decision-making on different potential instruments and programs that will help finance disaster response and reconstruction, while taking due account of costs and benefits. This strategy, led by MoFEPD and developed through the Disaster Recovery Framework (DRF) Working Group, will articulate the GoM’s key overarching policy objectives with respect to increased financial preparedness for disasters, and key steps to achieve them. Learning from experience, this strategy will support the GoM to develop a more comprehensive approach to financing post-disaster response. The strategy presents different and complementary disaster financing instruments, that could be used for the different types/scales/frequency of adverse natural events that Malawi is exposed to.

82. Results. The disaster risk financing strategy will help strengthen financial preparedness of Malawi. Its implementation will lead to a diversified array of risk financing instruments, as well as systematized annual data collection of national expenditures for disaster response. It will also build capacity of government officials to evaluate and adopt adequate risk financing instruments to cover response costs of different types of disasters. Examples of such instruments that feature in the DRFS include the National DRM Fund; financial instruments for scalable social cash transfer (currently, no specific ex-ante financial instrument to finance scale-ups of the social cash transfer program are in place); public asset insurance; or agricultural insurance among others.

16 Government of Malawi. 2015c. “Malawi 2015 Flood Post Disaster Needs Assessment Report.” World Bank, Washington, DC. 17 World Bank, 2016 18 Republic of Malawi - Hard Hit by El Niño: Experiences, Responses, and Options for Malawi, p. 32.


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Analytical Underpinnings

83. The design of the proposed operation is supported by extensive analytical work conducted by the Global Facility for Disaster Reduction and Recovery (GFDRR), the World Bank, and specialized agencies of the UN System, as described in Table 5.

Table 5: DRM DPF and the DRM DPF with Cat DDO Prior Actions and Analytical Underpinnings

Prior Actions Analytical Underpinnings

Pillar A: Strengthening the institutional framework and coordination mechanisms for the implementation of the national disaster and climate resilience agenda

Prior Action A.1: The Recipient’s Cabinet of Ministers has approved the Malawi Disaster Risk Management Bill that will define a shift in the institutional framework from emergency response to a more holistic and comprehensive DRM approach.

-UNISDR (2015). The Sendai Framework for Disaster Risk Reduction 2015-2030. https://www.unisdr.org/we/coordinate/sendai-framework -UN (2015). Sustainable Development Goals 2030. http://una-gp.org/the-sustainable-development-goals-2015-2030/ -UN (2015). United Nation Framework on Climate Change. Paris Climate Agreement (2015) Malawi is a signatory to the Agreement. https://unfccc.int/sites/default/files/english_paris_agreement.pdf - World Bank (2017). Malawi Multi-Sector Investment Framework for Climate and DRM. Diagnostic Report. This report provides insights for the GoM to mainstream climate change and resilience into national development planning and will also serve as an input to the next Country Partnership Framework. -GoM (2017). Malawi Growth and Development Strategy III - 2017 to 2022 (MGDS III). MGDS III, the country’s fourth medium-term development plan, is aimed at “building a productive, competitive and resilient nation.” It focuses on “sustainable and inclusive growth” and helping the nation develop resilience to shocks and hazards. https://cepa.rmportal.net/Library/government-publications/the-malawi-growth-and-development-strategy-mgds-iii/view

Prior Action A.2: The Recipient through its Cabinet of Ministers, has approved and adopted the Malawi National Meteorology Policy which will guide the modernization of climate and meteorological services central to providing quality and timely information for resilient development.

-GoM (2017). Malawi Department of Climate Change and Meteorological Services Strategic Plan. This document provides strategic guidance for implementation of Climate Change and Meteorological services from 2017-2022 in Malawi, which paves the way for the Met Policy and the Met Act. -World Bank, GFDRR, United States Agency for International Development (USAID) (2015). Valuing Weather and Climate: Economic Assessment of Meteorological and Hydrological Services. http://www.wmo.int/pages/prog/amp/pwsp/documents/wmo_1153_en.pdf -World Meteorological Organization (WMO) Climate Services for Supporting Climate Change Adaptation. This report makes the case for using adaptation as a necessary strategy to respond to a rapidly changing climate, with a focus on hydromet services, which supports the importance of this prior action. https://library.wmo.int/pmb_ged/wmo_1170_en.pdf -WMO (2015). Guidelines on Multi-Hazard, Impact-based Forecast and Warning Services. These guidelines describe the steps of forecasting actual impacts. https://www.wmo.int/pages/prog/www/DPFS/Meetings/ET-OWFPS_Montreal2016/documents/WMOGuidelinesonMulti-hazardImpact-basedForecastandWarningServices.pdf

Prior Action A.3. The Recipient, through its Minister of Health and Population, has approved and adopted the Public Health Institute of Malawi’s Strategic Plan (2018-2022).

-WHO. International Health Regulations (2005) https://www.who.int/topics/international_health_regulations/en/

https://www.unisdr.org/we/coordinate/sendai-framework

http://una-gp.org/the-sustainable-development-goals-2015-2030/

https://unfccc.int/sites/default/files/english_paris_agreement.pdf

https://cepa.rmportal.net/Library/government-publications/the-malawi-growth-and-development-strategy-mgds-iii/view

https://cepa.rmportal.net/Library/government-publications/the-malawi-growth-and-development-strategy-mgds-iii/view

https://library.wmo.int/pmb_ged/wmo_1170_en.pdf

https://www.wmo.int/pages/prog/www/DPFS/Meetings/ET-OWFPS_Montreal2016/documents/WMOGuidelinesonMulti-hazardImpact-basedForecastandWarningServices.pdf




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-World Bank, Republic of Malawi (2016). Malawi Urbanization Review: Leveraging Urbanization for National Growth and Development. https://openknowledge.worldbank.org/bitstream/handle/10986/24391/Malawi0Urbanization0Review.pdf?sequence=1&isAllowed=y -UN-Habitat (2012). Malawi National Urban Profile. This report provides a general profile on Malawi’s urban landscape through a synthesis of the seven themes – Urban Governance and Financial Management; Local Economic Development; Land; Gender and HIV/ AIDS; Environment, Urban Disaster Risk and Climate Change; Slums and Shelter; and Basic Urban Services – and offers priority project proposals. https://unhabitat.org/books/malawi-national-urban-profile-2/ -UN-Habitat (2010). Malawi Urban Housing Sector Profile. The Malawi Urban Housing Sector Profile provides a comprehensive assessment of housing delivery systems in different countries tackling topics such as access to land, housing finance, basic infrastructure/services, building materials and technology amongst other issues hindering the housing sector. https://unhabitat.org/books/malawi-urban-housing-sector-profile/

Prior Action B.2: The Recipient, through its Cabinet of Ministers, has approved and adopted the Malawi National Transport Policy which promotes mechanisms for resilient design, construction and operation of transport infrastructure.

-GoM (2011). Malawi Growth and Development Strategy II - 2011 to 2016. It also outlines the strategic approach for implementing the National Transport Policy 2012. http://www.mw.one.un.org/wp-content/uploads/2014/04/Malawi-Growth-and-Dedvelopment-Strategy-MGDS-II.pdf -World Bank (2015). Moving Toward Climate-Resilient Transport: The World Bank’s Experience from Building Adaptation into Programs. 2015. This report makes the case for integrating climate resilience into transport networks across the globe. http://documents.worldbank.org/curated/en/177051467994683721/pdf/102406-WP-PUBLIC-ADD-SERIES-Box394832B-Moving-toward-climage-resilient-transport.pdf -GoM (2018). National Transport Master Plan. This master plan provides a clear framework for delivering sustainable interventions to enhance the transport sector across Malawi for the period between 2017 and 2037 and includes the country’s aspirations for building climate and disaster-resilient transport infrastructure. http://www.malawi.gov.mw/images/Publications/NTMP_Final_Documents/Final_Report/NTMP_Final_Report.pdf

Prior Action B.3: The Recipient, through its Minister of Education, Science and Technology, has approved and adopted the Safer School Construction Guidelines which will ensure multi-hazard resilient design and construction of public education infrastructure, and outline a way forward for safe location, selection of materials, and construction techniques for safer schools.

-World Bank, GFDRR, ARUP (2018). Roadmap for Safer Schools – guidance note. This document provides a roadmap focused specifically on school infrastructure (which includes the school site and buildings). https://www.gfdrr.org/sites/default/files/publication/gfdrr-roadmap-05.pdf -UNISDR (2013). Worldwide initiative on safer schools. This initiative promotes good practices and achievements in safer school implementation for replication globally. https://www.unisdr.org/we/campaign/wiss -UNISDR (2013). Guidance on safer schools and hospitals. https://www.unisdr.org/we/campaign/schools-hospitals


Prior Action C.1: The Recipient’s National Social Support Steering Committee has approved and adopted the Malawi National Social Support Programme II (2018-2023) and Implementation Plan which prioritizes development of a shock-sensitive social protection system.

-World Bank (2017). Unbreakable: Building the Resilience of the Poor in the Face of Natural Disasters. Climate Change and Development. This report moves beyond asset and production losses and shifts its attention to how natural disasters affect people’s well-being. https://openknowledge.worldbank.org/handle/10986/25335 -World Bank (2017). “With a Little Help: Shocks, Agricultural Income, and Welfare in Uganda.” Policy Research Working Paper 7935. 2017. The study describes the type of income growth households experienced and assesses the importance of these external events in determining progress. http://documents.worldbank.org/curated/en/209501483980067882/pdf/WPS7935.pdf -World Bank (2015). Reducing Poverty and Investing in People: The New Role of Safety Nets in Africa. Directions in Development. 2015. This report assesses the status and analyzes the objectives, features, systems, performance, and financing of safety nets in 22 African countries. This aligns well with Malawi’s approach to social safety nets, as also evident from this prior action. https://openknowledge.worldbank.org/handle/10986/16256

https://openknowledge.worldbank.org/bitstream/handle/10986/24391/Malawi0Urbanization0Review.pdf?sequence=1&isAllowed=y

https://openknowledge.worldbank.org/bitstream/handle/10986/24391/Malawi0Urbanization0Review.pdf?sequence=1&isAllowed=y

https://unhabitat.org/books/malawi-national-urban-profile-2/

https://unhabitat.org/books/malawi-urban-housing-sector-profile/

http://www.mw.one.un.org/wp-content/uploads/2014/04/Malawi-Growth-and-Dedvelopment-Strategy-MGDS-II.pdf

http://www.mw.one.un.org/wp-content/uploads/2014/04/Malawi-Growth-and-Dedvelopment-Strategy-MGDS-II.pdf

http://documents.worldbank.org/curated/en/177051467994683721/pdf/102406-WP-PUBLIC-ADD-SERIES-Box394832B-Moving-toward-climage-resilient-transport.pdf

http://documents.worldbank.org/curated/en/177051467994683721/pdf/102406-WP-PUBLIC-ADD-SERIES-Box394832B-Moving-toward-climage-resilient-transport.pdf

http://www.malawi.gov.mw/images/Publications/NTMP_Final_Documents/Final_Report/NTMP_Final_Report.pdf

http://www.malawi.gov.mw/images/Publications/NTMP_Final_Documents/Final_Report/NTMP_Final_Report.pdf

https://www.gfdrr.org/sites/default/files/publication/gfdrr-roadmap-05.pdf

https://www.unisdr.org/we/campaign/wiss

https://www.unisdr.org/we/campaign/schools-hospitals

https://openknowledge.worldbank.org/handle/10986/25335

http://documents.worldbank.org/curated/en/209501483980067882/pdf/WPS7935.pdf



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Prior Action C.2: The Recipient, through its Minister of Finance, Economic Planning and Development, has approved and adopted a Disaster Risk Financing Strategy and Implementation Plan, outlining the Government’s strategic objectives to strengthen financial preparedness for effective and timely disaster response.

-World Bank (2016). “Dull Disasters? How planning ahead will make a difference.” This report makes the case that financial and budgetary planning, ahead of disasters, can lower losses from extreme events. It also emphasizes the importance of quick liquidity post-disaster, which is the purpose of this Cat DDO, and the need for having multiple sources of post-disaster financial resources, which this prior action aims to achieve. http://documents.worldbank.org/curated/en/962821468836117709/pdf/106944-PUB-add-isbn-PUBLIC-9780191088414.pdf -World Bank (2018). From Falling Behind to Catching Up: A Country Economic Memorandum (CEM) for Malawi. Directions in Development. https://openknowledge.worldbank.org/handle/10986/28683 -World Bank (2016). Disaster Risk Finance as a Tool for Development: A Summary of Findings from the Disaster Risk Finance Impact Analytics Project. https://openknowledge.worldbank.org/handle/10986/24374 -World Bank (2018). Hard Hit by El Niño: Experiences, Responses, and Options for Malawi. This report was prepared to assist the GoM to strengthen its efforts toward effectively responding to extreme weather-related events, especially El Niño and La Niña phenomena. http://wbdocs.worldbank.org/wbdocs/viewer/docViewer/indexEx.jsp?objectId=090224b0857f89af&respositoryId=WBDocs&standalone=false -World Bank. 2016. Malawi Drought 2015-2016: Post-Disaster Needs Assessment (PDNA). http://documents.worldbank.org/curated/en/640011479881661626/pdf/110423-WP-PDNAMalawispreadsFINAL-PUBLIC.pdf.

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

84. The proposed program aligns with Malawi’s recently approved Systematic Country Diagnostic (SCD)19, “Breaking the Cycle of Low Growth and Slow Poverty Reduction”. The SCD, 2018 “Breaking the Cycle of Low Growth and Slow Poverty Reduction”, which indicates climate risks as a key challenge affecting poor households and macroeconomic stability, and recommends implementing resilience strategies. Resilience is expected to be a prominent theme of the new Country Partnership Framework (CPF, FY20-FY24), under preparation and is to be delivered in FY20. Improving resilience for poor communities through adequate social safety nets, improved climate resilience, and enhanced capacity to respond to disaster risks, is directly aligned with the World Bank Group (WBG) twin goals of ending extreme poverty and boosting shared prosperity. Finally, this project also contributes to the World Bank’s efforts on accelerating more and better investments in people for greater equity and economic growth through the Human Capital Project.

85. This operation complements many ongoing World Bank projects and TA activities that support Malawi’s efforts to manage climate and disaster shocks. In the context of the recent La Niña-El Niño-induced drought and flood conditions, respectively, as well as food security impacts, the World Bank provided financing to address short-term needs via the Drought Recovery and Resilience Emergency Response (P161392), the Flood Emergency Recovery (P154803) and additional financing to the Strengthening Social Safety Nets System Project MASAV IV (P148617). Under the Shire River Basin Management (P117617) , IDA has supported the enhancement of the Early Warning System and Operation Decision Support System. Through these interventions, the DCCMS issued a warning in advance on the possible floods due to the forecasted rain of Tropical Cyclone Idai. The recently approved Agricultural Commercialization and Shire Valley Transformation Projects are targeted to support medium-term investments in diversified and more drought-resistant agriculture and flood-resistant infrastructure.

19 Report No. 132785, approved in December 2018.

http://documents.worldbank.org/curated/en/962821468836117709/pdf/106944-PUB-add-isbn-PUBLIC-9780191088414.pdf

http://documents.worldbank.org/curated/en/962821468836117709/pdf/106944-PUB-add-isbn-PUBLIC-9780191088414.pdf



http://wbdocs.worldbank.org/wbdocs/viewer/docViewer/indexEx.jsp?objectId=090224b0857f89af&respositoryId=WBDocs&standalone=false

http://wbdocs.worldbank.org/wbdocs/viewer/docViewer/indexEx.jsp?objectId=090224b0857f89af&respositoryId=WBDocs&standalone=false

http://documents.worldbank.org/curated/en/640011479881661626/pdf/110423-WP-PDNAMalawispreadsFINAL-PUBLIC.pdf

http://documents.worldbank.org/curated/en/640011479881661626/pdf/110423-WP-PDNAMalawispreadsFINAL-PUBLIC.pdf


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Given other ongoing operations to address challenges of agricultural production and resilience in Malawi, this operation has been designed without any direct interventions targeting the agriculture sector to avoid duplication of efforts. Instead, the policies supported by the DRM DPF and the DRMDPF with Cat DDO aim to provide complementary solutions that create a strong enabling environment for sustained agriculture by improving DRM institutional arrangements, climate and meteorological services, and resilience in transport infrastructure (see Table 6 for list of closely-linked projects).

86. This operation will be also part of the World Bank support to the GoM, in response to the Tropical Cyclone Idai, proposed to the Board to be financed by the CRW: (1) additional financing of US$30 million will be disbursed through CERCs Components under the Malawi Drought Recovery and Resilience Project (P161392) and the Agricultural Commercialization Project (P158434); (2) US$50 million in additional financing to the Malawi Drought Emergency and Recovery Project (P161392) to broaden resilience aspects of the Project; and (3) US$40 million that will be disbursed as part of this DRM DPF (P165056) CRW does not fund the CAT DDO portion.

Table 6: Summary of projects closely linked. Lending Operations Technical Assistance

i. Malawi Floods Emergency Recovery Project (P154803)

ii. Malawi Drought Recovery and Resilience Project (P161392)

iii. Shire River Basin Management Program (GEF) (P127866)

iv. Malawi: Shire River Basin Management Program (Phase-I) Project (P117617)

v. Malawi - Agricultural Sector Wide Approach - Support Project (P131702)

vi. Additional Financing Strengthening Safety Nets Systems Project (MASAFIV) (P148617)

vii. Second AF for Strengthening Safety Nets Systems Project MASAF IV (P160519)

viii. Malawi Agricultural Commercialization Project (P158434)

ix. Second Additional Financing to the Malawi Agricultural Sector Wide Approach - Support Project (P148964)

x. Malawi Nutrition and HIV/AIDS Project (P125237)

xi. Additional Financing to Nutrition and HIV/AIDS Project (P156129)

i. Developing Safer School Programs in Malawi (P154381)

ii. Malawi Country Environmental Analysis (P162772)

iii. Malawi: Building a Shock Responsive Safety Net and Preparing for Future Crises (P162379)

iv. Strengthening El Niño Preparedness and Response – Malawi (P162028) (P162007) (P162038)

v. Measuring Distortions to Agricultural Incentives in Malawi (P165429)

vi. AFR Risk Financing and Knowledge (AFR DRM) – (P154344)20

20 The AFR Risk Financing and Knowledge Initiative as well as the Global Safer Schools Program is supporting the preparation of this operation.


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4.4. CONSULTATIONS AND COLLABORATION WITH DEVELOPMENT PARTNERS

87. This DRM DPF and the DRMDPF with Cat DDO operation is fully aligned with the Malawi Growth and Development Strategy III (2017-2022) which was developed in a highly consultative and participatory process. The design of this Program is completely consistent with MGDS III, which has an overall objective, “to move Malawi to a productive, competitive and resilient nation through sustainable economic growth, energy, industrial and infrastructure development while addressing water, climate change and environmental management and population challenges." In the formulation of the MGDS III, the GoM engaged in an extensive consultation process to ensure the participation of all stakeholders including civil society, the private sector and the public, in addition to the three arms of Government—the President and Administration, the Parliament and the Judiciary. During MDGS III implementation, the GoM expects that all stakeholders including donors and cooperating partners, will continue to align their activities and support to MGDS III through their participation in the established Sector Working Groups (SWGs).

88. During the preparation of the DRM DPF and the DRM DPF with Cat DDO, consultations were held with development partners (DPs) to ensure the program complements as well as supports operationalization of ongoing engagements. Particular focus has been placed on maintaining coordination among development partners, as well as giving frequent updates on progress of the different areas of intervention, all of which fosters complementarity and helps actors to avoid duplication of efforts. DPs play a key role in managing disaster risk in Malawi, especially through provision of financial resources post-disasters, as well as technical support for DRM interventions. Presently, the United Kingdom Department for International Development (DFID) is finalizing a climate resilience program in Malawi and is also working on strengthening social safety nets in the country, specifically through a cash-transfer mechanism. The United Nations Development Programme (UNDP) has an ongoing and pipeline program in climate change and DRM, including its collaboration with “Saving Lives and Protecting Agriculture Based Livelihoods in Malawi: Scaling Up the Use of Modernized Climate Information and Early Warning Systems”, a project funded by the Green Climate Fund (GCF). The EU is engaged as well in financing activities to strengthen Early Warning Systems. Further, the Global Facility for Disaster Reduction and Recovery (GFDRR) is providing TA in support of the policy dialogue on DRM, including on disaster risk financing, and an assessment of regulatory capacity within the built environment. Many of the results indicators under the DRM DPF and the DRM DPF with Cat DDO will help push the priorities of the different partner engagements. Consultations have also been undertaken with the IMF and several World Bank teams who are currently either implementing or planning future projects in Malawi.

5. OTHER DESIGN AND APPRAISAL ISSUES

5.1. POVERTY AND SOCIAL IMPACT

89. Poverty levels in Malawi remain high. The World Bank’s most recent Poverty Assessment for Malawi, published in 2016, shows that Malawi’s monetary poverty remains high and did not decrease meaningfully between 2004 and 2016. As measured by successive rounds of integrated household surveys, the poverty rate persisted unchanged from 50.7 percent in 2010 to 51.5 percent in 2016 (Household Integrated Survey (HIS)-IV). According to data from the IHS-IV in 2016, 93 percent of Malawians in poverty (7.9 million) live in rural areas, with just 7 percent (0.6 million) in urban poverty.


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Figure 5 maps poverty incidence at the district level, as measured by the IHS-IV. The Malawi Poverty Assessment suggests that natural hazards are a key contributor to high rural poverty. The analysis also shows that a majority of the rural population, especially the bottom 40 percent, has remained deprived of access to key durable assets and key public services including electricity and running water. In contrast, wealthier households and those located in urban areas tended to enjoy higher access to key assets, services, and opportunities.

90. Poor people are particularly exposed to natural hazards, especially floods and droughts. Analysis of flood exposure in Malawi indicates that flood exposure is concentrated in the southern region on Malawi. Further, the districts most affected by flooding tend to have higher poverty incidence than districts that are not exposed to flooding.21 For example, major flooding with widespread impacts occurred in Malawi in March 2019 and in 2015. The districts that experienced the largest impacts include Nsanje, Chikwawa, Phalombe, and Zomba. Overlaying the poverty map of Malawi with satellite and spatial data on the flood inundation zones reveals that the regions most affected by the floods have poverty rates of 75 percent or more (i.e. well above the national average)22(Figure 7). These trends suggest that populations in flood-prone areas tend to be poorer, and the causality goes both ways: first, impoverished households are in many places more likely to live in flood prone areas, and to lose a greater fraction of their assets when disasters occur. Second, when floods and other disasters occur, they exacerbate transient and chronic poverty in affected areas. Urban and non-farm households are also affected, as food shortages can lead to sharp price increases that reduce urban households' disposable incomes.

21 Also see: https://blogs.worldbank.org/voices/recent-floods-malawi-hit-poorest-areas-what-implies 22 This analysis was conducted using a poverty line of US$1.25 per day using the 2005 purchasing power parity (PPP) exchange rates. Using a different poverty line definition would not alter the conclusion that high-risk regions tend to have higher poverty rates.

Source: World Development Indicators (1990-2016).

Figure 5: District-level poverty incidence measured by the IHS-IV

Figure 6: GDP per capita (intl. US$, PPP, 2011 real)

https://blogs.worldbank.org/voices/recent-floods-malawi-hit-poorest-areas-what-implies


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91. As poverty and high risks of floods and droughts coincide, several factors further contribute to making natural hazards a key driver of poverty traps. These include higher vulnerabilities (e.g. due to traditional mud-brick housing), less asset diversification (only 22 percent of affected households have access to bank accounts), and high reliance on agricultural income all mean that poor households are affected disproportionately by natural hazards. This suggests that the success of future poverty reduction efforts will depend on the effectiveness of disaster prevention and preparedness.

92. The Prior Actions included in this DRM DPF and the DRM DPF with Cat DDO focus on the key drivers of resilience of Malawi’s poor population. The 2016 Malawi Poverty Assessment highlights that natural hazards (both floods and droughts) play a key role in reinforcing high poverty rates, and recent shocks have reversed past development progress. Given this context, the Prior Actions of this operation align well with the priorities identified in the resilience analysis using the Unbreakable Model summarized in Figures 8 and 9. More specifically, the directed measures identified in this DRM DPF and the DRM DPF with Cat DDO operation, will help improve resilience among Malawi’s poor households, as described in the following paragraphs.

93. By strengthening legal and policy frameworks, as well as institutions’ capacities for DRM, poor and vulnerable people can be better supported in the case of disasters. Prior Actions under Pillar A focus on a clear definition and organization of DRM roles and priorities of the Government. Developing strong and well-coordinated policy frameworks and institutions is critical to enable a rapid and effective response to disasters and to implement well-targeted and inclusive social protection schemes – and the poor, who are the most vulnerable to natural hazards, are likely to benefit most from improved DRM capacity. Strengthening these policy frameworks and institutions will also create a basis for further risk management reforms in the future.

Source: GAR and MASDAP

Figure 7: Expected annual losses to fluvial floods and earthquakes in US$.


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Figure 8: Poverty incidence and flood extent for the 2015 flood in Malawi

Source: Unbreakable Report, 2016

Figure 9: The avoided well-being losses associated with different resilience measures

Source: Estimated using Unbreakable Model

94. Early warning systems are critical for reducing the impacts of disasters on highly exposed and vulnerable households. Pillar A also focuses on strengthening meteorological services and EWSs, which have been found to be one of the most cost-effective DRM measures for increasing resilience (see Figure 9). Poor households are particularly likely to have stored wealth in-kind (e.g. in the form of livestock) or live-in high-risk areas. This also implies that their wealth is more prone to be destroyed by natural shocks – and EWSs can help to protect assets (e.g. through temporary relocation of livestock before a disaster occurs). Early warning systems can therefore be particularly beneficial for poor households that are more likely to be affected by disasters, and, once affected, are likely to lose a higher share of their wealth and income.

95. In both rural and urban areas, resilient infrastructure can be key to helping poor households ensure continuity of income generating activities, access to markets, and food security. Prior Actions


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under Pillar B will support more resilient infrastructure, which will benefit people at all levels of income, particularly poor populations, in urban as well as rural settings. In rural Malawi, resilient transport infrastructure can be critical to enabling people’s continued access to markets (e.g. to sell agricultural produce or purchase food), or to delivering post-disaster support measures. In Malawi’s urban areas, poverty has become synonymous with slum growth according to Cities Alliance.23 These informal settlements are prone to substandard drainage and transport infrastructure, experience frequent disruptions, and have a heightened risk of diseases. By adopting guidelines and legal frameworks for promoting resilient infrastructure and urban planning, the Government can contribute to reducing the vulnerability of poor people.

96. Strengthening the government’s social protection system and its fiscal resilience is an important prerequisite to enabling a rapid and effective response to disasters and supporting those most in need. Social protection systems are among the most effective tools for providing rapid and well-targeted support to people affected by natural disasters, including floods and droughts – recent experiences in Uganda and Ethiopia highlight this. In Uganda, the scalable social protection system has recently responded to drought emergencies, channeling US$6 million to over 50,000 people.24 By making social support systems flexible and sensitive to shocks, the Government is well placed to support poor population groups routinely, while being able to rapidly expand coverage and increase support to those affected in the case of a contingency. Furthermore, Pillar C’s focus on the government’s fiscal resilience is crucial for enabling the financing of post-disaster support. By putting in place dedicated systems for accessing and channeling contingency funds, the GoM can ensure that funds are available to finance the pro-poor risk management measures contained in the other pillars. For instance, by creating a contingency fund, the Government can ensure that contingency financing (e.g. as provided through the Cat-DDO) can be applied rapidly in line with pre-defined budgetary structures. Such budgetary measures can be critical, for instance to ensure timely expansion of shock sensitive social protection systems.

5.2. ENVIRONMENTAL ASPECTS 97. Although not directly, the Prior Actions for this operation will improve Malawi’s ability to manage its environment and natural resources and are thus likely to result in positive impacts on the environment. Specifically, the Prior Actions are designed to strengthen the engagement and coordination of several key ministries and authorities for effective DRM. Through this process, departments of economic planning, disaster management, land, education, urban development, and transport will be able to better reflect environmental considerations and risks in their respective decision-making processes. For instance, improved DRM capacity can be expected to help with the mainstreaming of risk management in a range of sectors, such as better environmental management in urban and infrastructure planning. Overall, by supporting the GoM’s effort to mainstream DRM into several key sectors (including transport infrastructure, education, and public administration), this operation can help to better integrate sustainable environmental management into more general planning processes.

98. By mainstreaming DRM, the Government is strengthening its efforts on climate change adaptation and empowering relevant national institutions – in line with its commitments under the Paris Agreement. In accordance with Malawi’s Nationally Determined Contribution (NDC) under the Paris Agreement on climate change, this DRM DPF and the DRM DPF with Cat DDO supports the government’s

23 World Bank, Cities Alliance, Malawi City Development Strategy and Slum Upgrade Programme, (P126367). 24 Uganda, Disaster Risk Financing-Uganda. Financing safety-net scalability, Feb 19-22, 2018.


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strategy on climate change adaptation and DRM – for instance, through supporting sustainable and resilient approaches. For example, Prior Actions under Pillar A ensure a legal framework to establish DRM and climate change as cross-cutting topics in development planning; and Prior Actions under Pillar C help to assign a visible and formal role to climate change adaptation and DRM expenses in the national budget. The measures supported by this operation will help to implement Malawi’s National Adaptation Plan (NAP), which is currently being developed to address medium- to long-term adaptation needs and will be submitted to the UNFCCC in contribution to reporting under the Paris Agreement.

99. The actions to introduce revised building codes and standards, improved maintenance of road assets is likely to have positive impact on the environment as well on people. Lengthening the life of road assets reduces quarrying for building material and reduced fuel through improved flow of traffic. There could be health and safety risks associated with construction and operation of infrastructures in the implementation of the Malawi National Urban Policy, the National Transport Policy and the Malawi Safer School Construction Guidelines, in particular with regard to Occupational Health and Safety and Community Health and Safety. However, Malawi does have Environmental regulation 2017, which while not explicit on health and safety aspects does imply it in the enforcement of the provisions of the Act. The adoption and full implementation of the National Transport Policy will be supported through the development of specific guidance material and delivery of capacity building efforts on the incorporation of climate-related issues and DRM into the national environmental and social impact assessment process. This will ensure that climate resilience and disaster management is addressed within the risk screening stage and the consideration of mitigation measures.

100. The GoM has in place the Environmental Management Act (2017) that provides for lead agencies, the private sector, and NGOs to provide environmental information in a timely manner. This is a major step forward and, if implemented, will place Malawi at the forefront of transparency and governance about environmental management. Importantly, the EMA (2017) demands the mandatory establishment of the Environmental Protection Agency with broad responsibilities and substantial powers. These include the investigation of any violation or potential violation of the EMA or any other written law relating to environment and natural resources management (ENRM). However, more effective environmental management requires progress with: (i) strengthening the capacity constraints of the County environment institutions to mainstream the national legislation framework in the development process; (ii) improving compliance with environmental provisions and enforcement, especially since the devolution process gives certain powers to the Districts; and (iii) promoting increased use of strategic environmental assessments to mitigate unanticipated environmental consequences.

5.3. PFM, DISBURSEMENT AND AUDITING ASPECTS 101. Malawi’s fiduciary risk is high, but policy actions taken by the Government to restore PFM and expenditure controls after “cashgate” help to mitigate these risks. Since 2015, the GoM has been implementing a PFM Reform Program aimed at restoring financial controls and accountability. GoM is receiving a large amount of TA in this area, including via a World Bank-administered Multi-Donor Trust Fund (the FROIP), as well as from the IMF and a number of bilateral development partners. Through FROIP and to be able to potentially mitigate recurrence of the ‘cashgate’, the control and the end-user environments were strengthen including the elimination of ‘super users’ and the sharing of passwords for the IFMIS. The system is now able to detect anomalies in timely manner using the improved control


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features. On ongoing reforms/activities on IFMIS, in March 2019 the GoM signed the agreement for the procurement of a new IFMIS which would replace the current one which is at the end of its life. In addition, the World Bank and other development partners including the IMF are supporting the GoM on the implementation of the new system. The World Bank is in the process of engaging a firm that would provide TA on capacity building for the Government to be able to implement the new system. Also, the IMF conducted recently a preliminary assessment of the new IFMIS readiness by the Government and the GIZ recently completed a full new IFMIS readiness assessment for the Government. It is expected that ongoing and planned support towards the new system would strengthen the controls for public finance management for the GoM. Safeguard assessment of the RBM was done in April 2018 by the IMF. It is observed that the RBM was slightly over allotting debts (e.g., treasury bills) with the intention of taming Ways and Means. RBM was trying to offload the securities they are holding but the market response was uneven. RBM continues to monitor its safeguard and the related risks.

102. Malawi generally adheres to basic standards of budget transparency but scores low on open budget indices.25 The Government’s budget for the 2017/18 fiscal year was presented to the Parliament on May 19, 2017 and approved on June 23, 2017.26 Malawi scored high in the 2015 but deteriorated in the 2017 open budget indices. The draft Financial Statement for the 2017/18 fiscal year, as well as the Minister’s budget statement were immediately made available on the MoFEPD website. The Minister also undertakes pre-budget public consultations across the country. The draft detailed Estimate of Expenditure books as well as the Financial Statements are also made available to the public in hard copies27. Similarly, the RBM publishes financial statements that are prepared on a timely basis and audited in accordance with international standards. Malawi also scored low in the 2018 Public Expenditure and Financial Accountability (PEFA) on public access to fiscal information. However, as part of the efforts towards addressing the identified weaknesses, the GoM is in the process of undertaking post PEFA activities including to review its PFM rolling plan 2018-2021 to incorporate the strategy on how to address the weakness highlighted by the PEFA.

103. The 2018 PEFA assessment identified important improvements in Malawi’s control framework since 2011. Since the previous PEFA – conducted in 2011 – Malawi showed overall substantial progress in the performance of many PFM sub-systems, particularly in the revenue management area where strong improvement in tax collection outturn was registered. Improvements were also noted in annual budget preparation and multi-year budgeting; parliamentary oversight of budget proposals and scrutiny of audited annual financial reports; and in reporting on extra-budgetary operations; procurement (legislation); bank and advance account reconciliation; and internal audit. Remaining weaknesses mostly relate to outturn on composition of expenditure; budget documentation; inter-governmental fiscal relations; oversight of fiscal risks from extra-budgetary units and public corporations; predictability in the availability of funds for commitment of expenditure; public debt reporting; and effectiveness of internal controls for non-salary expenditure. As mitigating measures, the GoM is undertaking a number of steps in order to be able to address some of these weaknesses to include: i) establishing an Aid Management Platform (AMP) which is used to collect and track data on development cooperation in Malawi; and ii) the MoFEPD is in the process of finalizing and issuing regulations on ownership of Statutory Bodies and for the purposes of the statutory corporations compliance to the provisions of the PFM law including on financial reporting and oversight. The World Bank and other development partners are also supporting

25 International Budget Survey, Malawi, Open Budget Survey 2017. 26 A mid-year budget update was presented on February 17, 2017. 27 Financial statements are available on www.finance.gov.mw

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the GoM to be able to address these weaknesses. The World Bank, through the GESD, has a major component which aims to capacitate MoFEPD and other central Ministry, Department or Agencies (MDA), and to strengthen inter-governmental fiscal transfers by incentivizing the agencies using performance-based grants (PBGs).

104. A recently completed Methodology for Assessing Procurement Systems (MAPS) report has identified good progress in the areas pertaining to public procurement, in the legal, regulatory and institutional framework. However, there are weak areas as well. The MAPs recommendations amongst others include for the 2017 procurement law to be amended in the following way: i) to remove ex-ante vetting role by the Anti-Corruption Bureau on single source and high value procurement; ii) to recognize existence of central procurement bodies (CGS, CMST) and include role of such agencies in the Act; and iii) to ensure independence of complaints review mechanism, which is under PPDA, with proper and clear segregation of functions to minimize the conflict of interest with other functions of the Authority including for instance the Anti-corruption Bureau. The key progress highlighted in the report is the continued development of the legal and regulatory framework for public procurement. In particular, the latest procurement law (the Public Procurement and Disposal of Public Assets (PPDA) Act from 2017) brought improvements by: i) conferring an autonomous status to the PPDA and ii) introducing a mandatory requirement to publish intention to award contracts above a specified financial threshold to achieve greater transparency and accountability. According to the report, the legal framework is generally consistent with internationally accepted practice promoting open competition as the default procurement method, promoting transparency by advertising procurement opportunities, allowing free access to public procurement market and enabling bidders to appeal through a complaint mechanism. However, the report also notes that challenges remain, including those related to opportunities for conflict of interest in the responsibilities of the PPDA and the Anti-Corruption Bureau who cumulate two functions that are normally segregated: oversight and transaction clearance functions. Other gaps include: a multi-layered, lengthy clearance process, omission in the law about two important existing central procurement bodies (Central Medical Stores Trust and Central Government Stores), the lack of proportionality and due process in the bidders’ debarment, and the absence of exclusion from the law for donors’ funding. There are already ongoing reforms by the GoM to strengthen procurement in Malawi. These include: i) the appointed independent board of the PPDA, ii) the ongoing competitive selection of the director general and the deputy director general of the PPDA; and iii) the finalization of the procurement regulations. On the other hand, the World Bank is supporting the GoM to implement the recommendations of the MAPS assessment through an ongoing MAPS Follow-up advisory activity (ASA- P170535). The main activities under this ASA includes: civil society organizations (CSO) engagement for contract monitoring; preparing regulations/guidelines to enhance SME participation in public procurement; training of government staff in contract management; conducting business outreach workshops; conducting procurement audit, etc.

105. The 2013 Public Expenditure Review (PER) identified a number of policy measures to improve the efficiency of public expenditure, defined in the context of Malawi as delivering a similar or improved level and quality of Government services within a severely constrained overall resource envelope. The World Bank is undertaking another PER (the exercise commenced in early 2019) and is expected to identify policy measures that will further strengthen the efficiency of public expenditure in Malawi, especially for local service delivery. The PER is expected to contribute to the design of the GESD project under preparation.


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Assurance requirements

106. Based on the high fiduciary risk associated with the operation, there will be special fiduciary arrangements established for the IDA grant. The GoM will deposit the amount of the Financing into a Dedicated Account in the RBM, an equivalent amount in MWK will be transferred into the Consolidate Fund, and such amount will be accounted for in the Recipient’s budget management system, in a manner acceptable to the Association. Within seven days of the disbursement of the grant by IDA, the Ministry of Finance, Economic Planning and Development shall provide: (i) a written confirmation to IDA, certifying the receipt of the MWK equivalent of the grant into the Consolidated Fund Account of the Government, (ii) the date of the receipt, (iii) the exchange rate applied to translate the grant currency into MWK, and (iv) confirmation that the said amount has been appropriately accounted for in the Recipient’s financial management system. The National Audit Office (NAO) would engage an independent audit firm and the auditors would audit the movement of the financing by IDA grant from the designated account to the consolidated fund including exchange rate that was used, and compliance to the IDA grant financing agreement and the PFM system in cash movements for the IDA grant. The audit report by the independent firm will be submitted to the World Bank four months after the IDA grant amount was deposited into the designated account in RBM. In addition, as the NAO is required by law to submit its annual report and the audited accounts on the public consolidated fund to Parliament within six months of the end of the fiscal year. A copy of the said reports and accounts shall be provided to IDA within one month after the lapse of this six-month period. The audit report by the NAO would incorporate the audit report for the IDA grant by the independent audit firm.

107. IDA reserves the right to request, at any time, an audit of the receipt and accounting of the disbursement in the budget management system of the Recipient. Upon the Association’s request, the Recipient shall: (i) have the account and the recording of amounts of the grant into the Recipient’s budget management system audited by independent auditors acceptable to the Association, in accordance with consistently applied auditing standards acceptable to the Association; (ii) furnish to the Association as soon as available, but in any case no later than four months after the date of the Association’s request for such audit, a certified copy of the audit report by said auditors, of such scope and in such detail as the Association shall have reasonably requested; and (iii) furnish to the Association such other information concerning the said account and recording of grant amounts into the budget management system, and the audit thereof, as the Association shall have reasonably requested.

Disbursement and auditing

108. Grant disbursement will follow the World Bank’s procedures for development policy lending. The proposed operation will follow the World Bank’s disbursement procedures for development policy grants. The upfront SDR 28.9 million (US$40.0 million equivalent) of this IDA grant will be disbursed according to IDA disbursement procedures for DPFs against satisfactory implementation of the development policy program and adequacy of the macroeconomic policy framework and will not be tied to any specific purchases. Once the IDA grant is approved by the WBG Board and becomes effective, and the World Bank is satisfied with the progress achieved by the Recipient in carrying out the Program and with the adequacy of the Recipient’s macroeconomic policy framework, the proceeds will be deposited by IDA in one tranche, at the request of the Recipient, into an account in US$ designated by Government at the RBM and forming part of the official foreign exchange reserves of Malawi.

109. The funds for the partial or full disbursement of the Cat DDO will be made available after the drawdown condition is triggered. The GoM has elected the deferred drawdown option as the


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disbursement mode for Cat DDO component of this operation amounting up to SDR 21.7 million (US$30.0 million equivalent). The proposed grant will follow IDA’s standard disbursement procedures for DPF operations. The GoM will be able to access funds from the facility upon the national declaration of a “state of disaster”. Following a request for withdrawal, the proceeds of the grant will be deposited by IDA in a US$ account designated by Government at the RBM and forming part of the official foreign exchange reserves of Malawi. Within two working days, the RBM will credit the MWK equivalent of the grant proceeds to the consolidated account maintained on behalf of the Government for budget execution. The conversion from the foreign currency to local currency will be based on the prevailing exchange rate on the date that the funds are credited to the budget management system.

110. The RBM will not impose any charges or commissions on the Recipient. The Recipient will: (a) provide confirmation to IDA within seven days that an amount equivalent to the grant proceeds from the World Bank has been credited in the Recipient’s budget management system, with an indication of the exchange rate applied; (b) provide evidence that the MWK equivalent of the grant proceeds was recorded as financing the Government’s budget; and (c) ensure that the MWK equivalent of the grant proceeds are subject to effective controls sufficient to ensure its use for eligible budgeted public expenditures only as per the Financing Agreement.

111. Disbursements by the Government shall not be tied to any specific purchases and no special procurement requirement shall be needed. The proceeds of the grant shall, however, not be applied to finance expenditures in the negative list as defined in the Schedule 1 of the Financing Agreement. If any portion of the grant is used to finance ineligible expenditures as so defined in the Schedule 1 of the Financing Agreement, IDA shall require the Recipient to promptly, upon notice from IDA, refund an amount equal to the amount of the said payment to IDA. Amounts refunded to IDA upon such request shall be cancelled from the grant.

112. The administration of the grant will be the responsibility of the MoFEPD. The use of the MWK equivalent of grant proceeds to support budgetary expenditures will be subject to audit by an independent audit firm employed by the NAO and consistent with the Malawi Constitution and the Public Audit law. IDA will have access to these audit reports.

5.4. MONITORING, EVALUATION AND ACCOUNTABILITY

113. Implementation of this operation is being coordinated by the MoFEPD. Nevertheless, the implementation of the program is a shared responsibility across a number of other MDAs that are also closely involved in the reform program, including DODMA, DoCCMS, MHP, MoLHUD, Ministry of Transport and Public Works (MoTPW), and MoEST. Each of these institutions will be co-responsible for the execution of the Policy Matrix and will inform MoFEPD about its results. The GoM, through the Debt and Aid Management Division of MoFEPD, will be responsible for providing written progress reports to the World Bank on the implementation of the program, consolidating progress achieved.

114. Monitoring and evaluation (M&E) of the reform program will be undertaken jointly by the Government and World Bank teams. These two teams will meet regularly to monitor progress in implementing the agreed policy and institutional reforms supported by the operation, and to assess progress made towards achieving the expected results. Result indicators have been specifically selected to reflect available data sources in Malawi and build on lessons learned from earlier policy-based lending operations that recommend the use of simple and manageable results frameworks using available


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secondary sources of data. The results framework presented in Annex 1 will be used as a monitoring tool by both the Government and the World Bank.

115. Grievance Redress. Communities and individuals who believe that they are adversely affected by specific country policies supported as prior actions or tranche release conditions under a World Bank DPF may submit complaints to the responsible country authorities, appropriate local/national grievance redress mechanisms, or the WB’s Grievance Redress Service (GRS). The GRS ensures that complaints received are promptly reviewed to address pertinent concerns. Affected communities and individuals may submit their complaint to the WB’s independent Inspection Panel which determines whether harm occurred, or could occur, as a result of WB non-compliance with its policies and procedures. Complaints may be submitted at any time after concerns have been brought directly to the World Bank's attention, and Bank Management has been given an opportunity to respond. For information on how to submit complaints to the World Bank’s corporate Grievance Redress Service (GRS), please visit http://www.worldbank.org/GRS. For information on how to submit complaints to the World Bank Inspection Panel, please visit www.inspectionpanel.org.

6. SUMMARY OF RISKS AND MITIGATION

116. The overall program risk rating is high, as are the expected returns to successful implementation. The Government has shown remarkable leadership in championing DRM within its development agenda. The residual risk of a limited institutional capacity within sector ministries is moderate, while political and social resistance to change is low. The risk of natural hazards affecting the implementation of this program is also moderate. The program is subject to four main risk areas: (i) political and governance; (ii) macroeconomic; (iii) institutional capacity; and (iv) fiduciary risks.

117. Political and governance risks for this operation are considered high. There is strong political ownership and commitment of the Government on the DRM agenda. The current MGDS III (2017-2022) as well as the DRM Bill highlight that DRM is a national priority and central to the country’s development agenda. There is however, risk of a possible change in national priorities as a result of a new Government that could potentially be in place after the elections scheduled for May 21, 2019. The team will promote the shared vision for DRM with the new Government and will provide continuous TA to support the implementation of this operation’s prior actions and to ensure results are duly met. The operation will go to the Board in early June and the Malawi World Bank office country management unit (CMU) and the operation’s task team will confirm the program with the new government before disbursement of the DRM DPF component. It is therefore important to note that Board approval and the subsequent disbursement of the DRM DPF will occur after the elections.

118. Maintaining macroeconomic stability is a major source of risk exacerbated by policy-induced shocks and climate-related natural disasters. The key risks relate primarily to (i) Malawi’s continued vulnerability to weather shocks; (ii) the risks of fiscal slippages; and (iii) deterioration in the BOP due to increased import demand arising from recovery and reconstruction as well as a potential fall in tobacco prices. The country, and its growth performance, is expected to remain vulnerable to climate variability over the medium term. To mitigate this risk, the country will need to boost agricultural commercialization, improve the functioning of agricultural markets, target resources toward increasing productivity and diversifying away from maize as well as strengthening disaster response mechanisms and social protection programs. The World Bank is supporting the country in many of these areas, including through this DRM DPF with CAT DDO which will strengthen DRM. Similarly, despite recent efforts towards fiscal

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consolidation, experience shows that Malawi will continue to face the risks of fiscal slippage in the face of weather and climatic shocks. The fiscal risks are to a large extent mitigated by the authorities’ commitment to appropriate policy responses, but also by the IMF and World Bank programs currently in place to support the authorities in fiscal consolidation. The DPF element of this operation could also provide fiscal relief to manage the cost of the shock while the Cat DDO element of the operation is crucial to help build the resilience that will allow Malawi to better manage such shocks in the future, and to do so without jeopardizing their fiscal framework. The key risk to the balance of payments is in light of the recent Cyclone Idai, import demand is expected to pick up due to recovery and reconstruction, which could also result in a deterioration in the BOP. Increased external financing in response to Cyclone Idai, which is currently being mobilized by the World Bank and other development partners, should lead to aid inflows which can offset the anticipated draw down of reserves for imports. Additional BOP risk is posed by a potential decline in tobacco prices, Malawi’s primary export commodity.

119. The risk related to institutional capacity for implementation is considered high. Implementing the proposed DRM DPF and the DRM DPF with Cat DDO will require the integrated work of several actors at the national level to move proposed policy actions forward. Risks associated with limited capacity, especially in sector ministries, are being overcome by planned and ongoing TA and ongoing investment financing from the World Bank and other development partners. The risks are somewhat mitigated by selecting priority policy and institutional challenges related to consolidating and deepening the implementation of risk reduction measures and enabling post-disaster financing. The results framework provides further mitigation in the form of a clear basis for assessing the adequacy of progress with implementation if a proposal to disburse the Cat DDO arises. The objectives of the DRM DPF and the DRM DPF with Cat DDO are shared by Malawi’s major development partners and form part of a collective policy dialogue.

120. Weak fiduciary control systems that undermined public policy effectiveness and slow progress in addressing gaps are a further source of risk both to the DPF and the WBG’s broader program in Malawi. The World Bank’s assessments point to a climate of high fiduciary risk, even if the specific loopholes associated with ‘cashgate’ have been closed. Continued close collaboration with Government and development partners on the PFM agenda will strengthen collective efforts, while the Government’s own commitment and need for a resumption of budget support should help maintain internal pressure for reform. Further mitigation is provided, to an extent, by the strengthened role of Malawi’s external accountability organizations. Increased scrutiny by the NAO and by the Public Accounts Committee (PAC) of the Parliament together with improved disclosure standards and greater public debate, have served to highlight to the public the extent of past fiduciary slippages.


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Table 7: Summary Risk Ratings

Risk Categories Rating

1. Political and Governance High

2. Macroeconomic High

3. Sector Strategies and Policies Moderate

4. Technical Design of Project or Program Moderate

5. Institutional Capacity for Implementation and Sustainability High

6. Fiduciary High

7. Environment and Social Moderate

8. Stakeholders Low

9. Other

Overall High

The World Bank MALAWI-Disaster Risk Management Development Policy Financin with Cat DDO (P165056)

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ANNEX 1: POLICY MATRIX Project Development Objective (PDO): The overall objective is to strengthen the institutional and financial capacity of the GoM for multi-sectoral disaster and climate risk management.

Prior Actions under DRM DPF and the DRM DPF with Cat DDO Indicator Name Baseline (2019)

Target (2022)28

Pillar A – Strengthening the institutional framework and coordination mechanisms for the implementation of the national disaster and climate resilience agenda

Prior Action A.1. The Recipient’s Cabinet of Ministers has approved the Malawi Disaster Risk Management Bill that will define a shift in the institutional framework from emergency response to a more holistic and comprehensive DRM approach.

Evidence: Disaster Risk Management Bill no. 13 of 2019 approved by the Cabinet and published in the Malawi Gazette dated May 10, 2019. Responsible: DoDMA

Results Indicator 1: Number of Technical Sub-committees* operationalizing a more comprehensive DRM approach as established in the Malawi Disaster Risk Management Bill (evidenced by an independent assessment report). *Note: Technical Sub-Committees such as: Spatial Planning, Shelter and Camp Management; Early Warning Systems; and Transport and Logistics. Responsible: DoDMA

0

3

Results Indicator 2: Annual reports on NRS and/or MGDS III monitoring progress on results, budget allocations, and expenditures on disaster risk management and social protection from Government and development partners produced. Responsible: DoDMA / MoFEPD

0 3

28 The target date will be three years after grant signature.


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Target (2022)28

Prior Action A.2. The Recipient, through its Cabinet of Ministers, has approved and adopted the Malawi National Meteorology Policy which will guide the modernization of climate and meteorological services central to providing quality and timely information for resilient development.

Evidence: Letter signed by Secretary for Natural Resources, Energy and Mining confirming Cabinet approval of the Met Policy and Met Policy signed by the Minister. Publication on Ministry of Finance, Economic Planning and Development official website at http://www.finance.gov.mw/index.php/blog/documents/debt-aid). Responsible: DCCMS

Results Indicator 3: Number of user sectors (i.e. agricultural sector, DRM institutional system, etc.) receiving tailor-made forecasts and early warning bulletins with the appropriate content, frequency, communication channels and in local languages (Chichewa, Tumbuka and Yao). Responsible: DCCMS

0

2

Prior Action A.3. The Recipient, through its Ministry of Health and Population, has approved and adopted the Public Health Institute of Malawi’s Strategic Plan (2018-2022). Evidence: Letter signed by Secretary for Health and Population confirming due approval and adoption of the Plan and attaching the approved Plan signed by the Minister. The Letter shall also indicate that the MoHP will have oversight over the implementation of the Plan. Publication on Ministry of Finance, Economic Planning and Development’s official website at http://www.finance.gov.mw/index.php/blog/documents/debt-aid). Responsible: MoHP

Results Indicator 4: National Public Health Emergencies Committee established and operating in accordance with the MoU that clarifies all ministry roles and responsibilities relevant to International Health Regulations - IHR capacity implementation. Responsible: MoHP

No Yes

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Target (2022)28

Pillar B – Increasing climate and disaster resilience in physical developments and infrastructure

Prior Action B.1. The Recipient, through its Cabinet of Ministers, has approved and adopted the Malawi National Urban Policy which incorporates DRM and climate change as cross-cutting topics and facilitates the development of other policy instruments needed to improve urban resilience. Evidence: Letter signed by Secretary for Lands, Housing and Urban Development confirming Cabinet approval of the Urban Policy and attaching the approved Urban Policy signed by the Minister. Publication on Ministry of Finance, Economic Planning and Development’s official website at http://www.finance.gov.mw/index.php/blog/documents/debt-aid). Responsible: MoLHUD

Results Indicator 5: Number of cities with appropriate hazard maps that inform the location of public infrastructure and physical development. Responsible: MoLHUD

0

2

Results Indicator 6: Number of cities and districts where stakeholders have been trained on existing standards and building policy/regulations that incorporate multi-hazard resilience. Responsible: MoLHUD / MoTPW

0 15

Prior Action B.2. The Recipient, through its Cabinet of Ministers, has approved and adopted the Malawi National Transport Policy which promotes mechanisms for resilient design, construction and operation of transport infrastructure. Evidence: Letter signed by Secretary for Transport and Public Works confirming Cabinet approval of the Transport Policy and attaching the approved Transport Policy signed by the Minister. Publication on the Ministry Transport and Public Works’ official website or the Ministry of Finance, Economic Planning and Development’s official website. Responsible: MoTPW

Results Indicator 7: Number of new national transport projects implemented by the Roads Authority that apply the new harmonized multi-hazard resilience standards. Responsible: MoTPW / Roads Authority

0 3


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Target (2022)28

Prior Action B.3. The Recipient, through its Minister of Education, Science and Technology, has approved and adopted the Safer School Construction Guidelines which will ensure multi-hazard resilient design and construction of public education infrastructure, and outline a way forward for safe location, selection of materials, and construction techniques for safer schools.

Evidence: Letter from the Secretary for Education, Science and Technology confirming due approval and adoption of the Safer School Construction Guidelines and attaching: (i) a circular to Government departments and stakeholders informing them of the adoption and effectiveness of the Safe School Construction Guidelines, and (ii) the approved Guidelines signed by the Minister. The Letter shall also indicate that the MoEST will have oversight over the implementation of the Safer Schools Programme. Publication on Ministry of Education, Science and Technology’s official website or the Ministry of Finance, Economic Planning and Development’s official website. Responsible: MoEST

Results Indicator 8: Percentage* of new educational facilities constructed or rehabilitated in compliance with the technical hazard-resilient criteria adopted by MoEST. *Note: Percentage is based on an estimate of at least 100 new or rehabilitated educational facilities.

Responsible: MoEST

0

100

Pillar C – Strengthening the Government’s social and financial protection mechanisms to respond to disasters

Prior Action C.1. The Recipient’s National Social Support Steering Committee has approved and adopted the Malawi National Social Support Programme II (2018-2023) and Implementation Plan which prioritizes development of a shock-sensitive social protection system.

Results Indicator 9: UBR data sharing protocols implemented, as evidenced by percentage of shock-affected households identified through the UBR that are targeted for post-disaster support.

0

90


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Target (2022)28

Evidence: Letter from the Secretary to the Treasury to the Association’s Country Manager Malawi confirming the approval of the Second Malawi National Social Support Programme and the Implementation Plan and attaching: (i) minutes of the Steering Committee; (ii) the approved Programme; and (iii) the approved Implementation Plan. Responsible: Ministry of Finance, Economic Planning and Development’s Poverty Reduction and Social Protection Division and DoDMA

Responsible: Ministry of Finance, Economic Planning and Development’s Poverty Reduction and Social Protection Division and DoDMA

Prior Action C.2. The Recipient, through its Minister of Finance, Economic Planning and Development, has approved and adopted a Disaster Risk Financing Strategy and Implementation Plan, outlining the Government’s strategic objectives to strengthen financial preparedness for effective and timely disaster response. Evidence: Letter from the Secretary to the Treasury confirming due approval and adoption of the DRFS and Implementation Plan and attaching the approved DRFS and Implementation Plan signed by the Minister. Publication on Ministry of Finance, Economic Planning and Development’s official website at http://www.finance.gov.mw/index.php/blog/documents/debt-aid). Responsible: MoFEPD

Results Indicator 10: Number of new ex-ante risk financing instruments* established in alignment with the National Disaster Risk Financing Strategy. *Note: Examples of such instruments that feature in the DRFS include the National DRM Fund; financial instruments for scalable social cash transfer (currently, no specific ex-ante financial instrument to finance scale-ups of the social cash transfer program are in place); public asset insurance; or agricultural insurance.

0

2

.




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ANNEX 2: IMF RELATIONS ANNEX

Malawi—Assessment Letter for the World Bank May 3, 2019

This letter updates the assessment of Malawi’s macroeconomic conditions since the First Review under the Extended Credit Facility (ECF), which was completed by the Executive Board of the IMF on November 21, 2018. Since then an IMF team conducted a staff visit in March 2019. Flooding from Cyclone Idai caused significant humanitarian costs requiring reconstruction in affected areas that will increase fiscal and balance of payments pressures. The economy has been performing well, with economic activity strengthening, structural reforms progressing, inflation in single digits, and reserves increasing. The fiscal position has improved relative to last year, though the primary balance is falling short of the agreed target under the ECF-supported program—due to spending pressures. 1. Economic activity is strengthening, despite severe flooding from Cyclone Idai. The floods have destroyed crops in several Southern districts. However, these losses have been compensated by bumper harvests in the rest of the country. The net agricultural rebound—following last year’s widespread drought and insect infestations—combined with improved electricity generation capacity are expected to raise growth from 3.2 percent in 2018 to about 4.5 percent in 2019. 2. Inflation remains in single digits. In 2018, inflation averaged 9.2 percent, notwithstanding inflationary pressures from higher food prices and substantial increases in electricity and fuel prices. This year, higher import costs reflecting expensive alternative trade routes after flood damage cut access to Mozambique’s Beira Port has placed upward pressure on prices, but these have been more than offset by lower international fuel prices. As a result, inflation is projected to average 8.8 percent in 2019. 3. The floods have increased balance of payments pressures. Strong exports of drought-resistant commodities reduced the current account deficit to 13 percent of GDP in 201829 and kept international reserves coverage at around 3.3 months of imports. The floods have disrupted this momentum by reducing agricultural exports (concentrated in the Southern districts) and increasing trade transportation costs as well as imports for reconstruction. Absent increased donor assistance for reconstruction efforts, reserves coverage is likely to decline in 2019. 4. The FY 2018/19 primary balance is expected to improve relative to FY 2017/18 but fall short of the target agreed under the ECF-supported program. During FY 2018/19, tax and non-tax revenues have been broadly in line with expectations. However, spending has been higher than anticipated during the first half of the year, particularly on capital and goods and services (prior to the cyclone). A primary deficit of

29 The IMF has been providing regular technical assistance (TA) to support improvements in Malawi’s balance of payments statistics. Based on the findings of recent TA missions, confirming the reliability of the trade data produced by the Malawi National Statistics Office’s (NSO), the IMF has now adopted the NSO’s trade data. Previously, the series reported by the IMF was based on staff estimates. As a result, the current account deficit reported by the IMF widened for 2017 from 11.1 to 22.2 percent of GDP; and for 2018 from a projection of 9.3 percent of GDP to an estimate of 13 percent of GDP. Errors and omissions have been adjusted by offsetting amounts, leaving the overall balance unchanged. Upcoming TA missions, supporting improvements in the capital and financial accounts’ statistics, may result in re-classification of this offsetting adjustment.


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around 2 percent of GDP is anticipated—an improvement of 2.3 percent of GDP since FY 2017/18 but exceeding the program target by about 1.5 percent of GDP. 5. Malawi is assessed to be at moderate risk of external debt distress and high overall risk of debt distress—driven by its high public domestic debt.30 Under the ECF supported program, the authorities have suspended the contracting of new non-concessional external debt. Exceptions can be considered in the context of later reviews on a case-by-case basis for new external loans backing priority growth-enhancing projects, accompanied by independent third-party feasibility studies and fiscal measures that would be consistent with maintaining a moderate risk of external debt distress. 6. The RBM has loosened monetary policy. In January, the RBM reduced its policy, Lombard, and reserve requirement rates after observing declines in Treasury bill yields and anticipating lower international fuel prices would reduce inflation. As a result, the interbank market rate declined sharply. While the easing in January appears appropriate, IMF staff has advised against further rate reductions until there are clear signs that inflation is on a downward path and IMF technical assistance is scheduled to assess options for further improving monetary policy implementation. Credit to the private sector has picked up but the market is still flush with excess liquidity. 7. The banking system remains well-capitalized and profitable. Provisioning has increased and non-performing loans declined from 15.7 percent at end-2017 to 6.1 percent at end-2018. All banks are fully compliant with IFRS9 standards (effective since January 2018). 8. The medium-term outlook remains positive. Growth is expected to average 5 to 6 percent with greater access to finance and the fruition of several infrastructure projects— including enhanced electricity generation and irrigation (e.g., the Shire Valley project), crop diversification, and better road networks. Inflation is anticipated to continue moderating, benefitting from strengthened fiscal and monetary policy implementation. 9. Risks are tilted to the downside. Legislation introducing interest rate caps was recently rejected by the current Parliament but remains a much-discussed populist measure. Excess liquidity in the banking system could raise inflation. Adverse weather conditions and infestations could hurt growth, raise inflation, and increase balance of payments pressures. On the upside, accelerated reform implementation could boost investor and donor confidence. 10. Implementation of structural reforms is advancing. In December 2018, Parliament approved the new RBM Act—significantly enhancing the RBM’s autonomy and eliminating avenues for monetization of fiscal deficits. A long-term resident PFM advisor is supporting reforms in commitment control, cash management, fiscal transparency, debt, and bank account reconciliation. Reforms on better monitoring of state-owned enterprises and better public investment management are underway. IMF Relations 11. The ECF arrangement was approved in April 2018 for SDR 78.075 million (about US$112.3 million), equivalent of 56.25 percent of Malawi’s quota in the IMF, to support the authorities’ efforts to entrench 30 IMF Country Report No. 18/336, Annex II, Joint Bank-IMF Debt Sustainability Analysis.


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macroeconomic stability, improve governance, and attain higher, more inclusive, and resilient growth. The first review of the arrangement was completed by the Executive Board of the IMF on November 21. 12. Solid progress is being made in discussing policies that could underlie the second and third reviews under the ECF. These discussions, initiated during the March 2019 staff visit and continued during the Spring Meetings, are expected to resume in early September. All quantitative performance criteria for end-December 2018 were observed, except for the one on the primary fiscal balance. The structural reform agenda is broadly on track. The IMF Executive Board discussion of the second review of the ECF arrangement, originally scheduled for May 2019, has been delayed because measures to bring the FY 2019/20 fiscal position back on-track while accounting for flood-related reconstruction and social spending will need to be discussed with the new government. If agreement is reached on these fiscal measures, the second and third reviews of the ECF arrangement could be jointly completed later this year.


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ANNEX 3: LETTER OF DEVELOPMENT POLICY


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ANNEX 4: ENVIRONMENT AND POVERTY/SOCIAL ANALYSIS TABLE

Prior Actions Significant positive or negative

environment effects

Significant poverty, social or distributional effects positive or

negative

Pillar A: Strengthening the institutional framework and coordination mechanisms for the implementation of the national disaster and climate resilience agenda Prior action A.1: The Recipient’s Cabinet of Ministers has approved the Malawi Disaster Risk Management Bill that will define a shift in the institutional framework from emergency response to a more holistic and comprehensive DRM approach.

Positive effect (medium term) Positive effect (medium term)

Prior action A.2: The Recipient, through its Cabinet of Ministers, has approved and adopted the Malawi National Meteorology Policy which will guide the modernization of climate and meteorological services central to providing quality and timely information for resilient development.


Prior Action A.3: The Recipient, through its Minister of Health and Population, has approved and adopted the Public Health Institute of Malawi’s Strategic Plan (2018-2022).





Prior action B.2: The Recipient, through its Cabinet of Ministers, has approved and adopted the Malawi National Transport Policy which promotes mechanisms for resilient design, construction and operation of transport infrastructure.



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Prior Actions Significant positive or negative

environment effects

Significant poverty, social or distributional effects positive or

negative

Prior action B.3: The Recipient, through its Minister of Education, Science and Technology, has approved and adopted the Safer School Construction Guidelines which will ensure multi-hazard resilient design and construction of public education infrastructure, and outline a way forward for safe location, selection of materials, and construction techniques for safer schools.



Prior action C.1: The Recipient’s National Social Support Steering Committee has approved and adopted the Malawi National Social Support Programme II (2018-2023) and Implementation Plan which prioritizes development of a shock-sensitive social protection system.


Prior action C.2: The Recipient, through its Minister of Finance, Economic Planning and Development, has approved and adopted a Disaster Risk Financing Strategy and Implementation Plan, outlining the Government’s strategic objectives to strengthen financial preparedness for effective and timely disaster response.



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ANNEX 5: STATE OF DISASTER DECLARATION PROCESS 1. Malawi’s national disaster profile dates to 1946 and records more than 600 disaster events (see Table 5.1) which have affected all of the country’s 28 districts. The DoDMA is mandated by an Act of Parliament to manage and coordinate disaster affairs in the country. DoDMA receives disaster assessment reports from the decentralized structures of the Ministry of Local Government and Rural Development. The assessments include the following thematic clusters: i) Agriculture and Food Security; ii) Health and Nutrition; iii) Water and Sanitation; iv) Information and Communication; v) Transport and Logistics; vi) Search and Response; vii) Special Planning, Shelter and Camp Management; viii) Early Warning; and ix) Education and Protection. DODMA is responsible for channelling these assessments to the NDPRC, chaired by the Chief Secretary, that recommends the status and any necessary declaration of the disaster to the Cabinet Committee on DRM. The Cabinet Committee further assesses and makes appropriate a recommendation to the Office of the President and Cabinet (see Figure 5.1).

2. According to section 32(1) of the 1991 DPR Act, the President is empowered to declare the State of Disaster in any area within the country. This provision allows the President to declare a state of disaster if the President believes that the disaster is of such magnitude that it requires extraordinary measures to be addressed. “Disaster” is defined in the DPR Act as “an occurrence (whether natural, accidental or otherwise) on a large scale which has caused or is causing or is threatening to cause—(a) death or destruction of persons, animals or plants; (b) disruption, pollution or scarcity of essential supplies; (c) disruption of essential services; (d) influx of refugees into or out of Malawi; (e) plague or epidemic of disease that threatens the life or well-being of the community, and includes the likelihood of such occurrence”.

3. The State of Disaster Declaration shall establish the specific geographic area affected and the period in which such status is in effect. Once such a declaration has been made, it is published in the Government Gazette and communicated to the National Assembly by the Minister responsible for disasters. The declaration shall remain in force for a period of three months from the date specified as the commencement date of the state of disaster. The President, by notice in the Gazette, may withdraw such declaration or extend the period by not more than another three months. Any reduction or extension on the time of effectiveness shall be done by notice in the Gazette, published before the expiration of the initial period.

Table 5.1: Key major declared disasters in Malawi

Year Nature of Disaster 1946 Floods/Napolo 1949 Drought 1991/92 Drought 1991 Floods/Napolo 2003 Floods 2004/5 Drought 2012 Stormy rains 2013 Stormy rains 2014/15 Floods 2015/16 Drought 2017/18 Fall Army Worms 2019 Tropical Cyclone Idai

Source: Adapted from DoDMA Data Base (2018).


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Figure 5.1: Process for Declaration of a State of Disaster


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ANNEX 6: NATURAL DISASTERS AND HEALTH RELATED SHOCKS 1. Malawi’s long history of cyclical weather-induced disasters threatens health outcomes. Although the direct effects of natural hazards on health outcomes can be difficult to measure given the complexity of identifying the onset of illnesses and/or physical and mental conditions, health outcomes undoubtedly have declined in Malawi in the aftermath of disasters. For example, following the 2015 floods (which affected 1,150,000 people, displaced 336,000 and killed 104)31, a surge in cases of the top five diseases was observed, including: Malaria (23.1 percent), skin infection (39.9 percent), ARI (acute respiratory infection, 19.9 percent), diarrhea (18.2 percent), and eye infection (8 percent), compared to the baseline year of 2013-2014.32 Furthermore, the very infrastructure needed to address heightened demand for health care following the floods was undermined: health facilities were damaged in 6 districts, and 2 public health facilities were fully destroyed in Ntcheu (Masasa and Namisu dispensaries). In addition, 20 health facilities were partially damaged; of these, 18 were primary care facilities (public) and two were secondary care-level facilities. In Chikwawa and Zomba, some facilities were inaccessible due to damaged bridges and roads. Health centers in the affected areas also faced problems with health workers being absent, as their homes were affected, and/or they lacked medical supplies to manage the increased needs of the displaced populations.33 There was also a disruption of routine critical health services, such as vaccinations, leading to a high likelihood of vaccine-preventable diseases, such as measles.34

2. Malawi is also exposed to public health risks, including epidemics. East Africa is uniquely vulnerable to emerging infectious diseases and endemic zoonoses, with epidemics of infectious diseases ranking among the top five disaster hazards in the region. For example, cholera epidemics have been a principal threat to Malawi with close to 60,000 people affected and 1,415 deaths between 1997 and 201435. Such a backdrop coupled with the Malawi’s vulnerabilities to natural disasters have contributed to the Government’s increased efforts to strengthen policies and mechanisms to manage disasters, pandemics, and other risks. For example, with the support of the U.S. Centers for Disease Control (CDC), World Health Organisation (WHO) and other cooperating partners, an initiative to strengthen laboratory management towards accreditation has been put in place with 22 laboratories having been accredited36, thus far. In addition, WHO and the Ministry of Health are working towards scaling up implementation of Integrated Disease Surveillance and Response (IDSR) guidelines, a critical tool to monitoring and mitigating the threat of epidemics.

3. Linking the Cat DDO and health related shocks. The Cat DDO is designed to provide timely liquidity to a country facing a natural catastrophe and has been successfully deployed for natural hazards like earthquakes and hydro-meteorological events. The Cat DDO can also be utilized for public health-related shocks. As a complementary instrument to the Cat DDO, the Pandemic Emergency Financing Facility (PEF) was developed by the WBG, in consultation with the WHO and other development partners, and the private sector, to help fill a critical gap in the international aid architecture, as one part of the global solution to strengthening pandemic risk management. The PEF helps fill the financing gap that occurs after the initial outbreak and before large-scale humanitarian relief assistance can be mobilized. 31 World Bank, Project Appraisal Document (PAD) for Malawi Floods Emergency Recovery Project (P154803), World Bank, April 24, 2015, p.2. 32Government of Malawi, WBG, United Nations, and European Union, Malawi Drought 2015-2016: PDNA, 2016, p.26. 33 World Bank, Project Appraisal Document: Malawi Floods Emergency Recovery Project, p.41. 34 PDNA, p. 26. 35 EMDAT data. 36 GoM, Ministry of Health and Population website.


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Funds made available quickly in this timeframe are essential to preventing a severe outbreak from becoming a pandemic.

4. The Cat DDO and PEF can be complementary risk financial products that could provide liquidity to the country to respond to health-related events. The Cat DDO can provide timely liquidity to Malawi for health-related events, such as an epidemic outbreak, not only when an outbreak escalates to an emergency but also at an early stage to prevent an escalation. The PEF can provide resources to respond to selected disease outbreaks at a certain severity but before they assume pandemic proportions. Both instruments will be well coordinated. The typical sequencing for Cat DDO and PEF drawdowns for health-related events is presented in Table 6.1. The Cat DDO and the PEF complement each other in that both provide liquidity to countries but on different terms and conditions, strengthening the country’s resilience to shocks.

Table 6.1: Use of PEF and Cat DDO resources for disease outbreaks

Sources of funds

A Neither Cash nor Insurance Window has been activated

B PEF Cash Window has been

activated; Insurance Window has not been activated

C PEF Insurance Window has

been activated

PEF

Insurance Window

Not available Not available AVAILABLE Use: for emergency stage interventions

Cash Window

Not available AVAILABLE Use: for early or emergency stage interventions Subject to: PEF Sector Board approval

Not available

CAT DDO AVAILABLE

AVAILABLE

AVAILABLE

Source: Adapted from Kenya Cat DDO (P161562) Program Document. 5. Within the health sector, the proposed operation will complement and leverage resources from three projects with relevant objectives. These projects are the: • Southern Africa Tuberculosis and Health Systems Support (P161791) (approved in 2016). The project

strengthens core public health functions including laboratory networks and disease surveillance, which are vital aspects of strengthening health system resilience. Project resources proved vital in helping to ensure rapid response to the cholera outbreak, which impacted Malawi in late 2017 through early 2018. Specifically, the project provided resources to improve case management and patient care through the procurement of protective clothing, drugs and medical supplies; provide training of staff in laboratory-based surveillance; and strengthen collaboration and disease surveillance in cross-border areas.

• Investing in Early Years for Growth and Productivity in Malawi (P164771, December 2018), which seeks to improve coverage and utilization of early childhood development services with focus on nutrition, stimulation and early learning. This project has a strong emphasis on stunting and malnutrition, which are clear outcomes of Malawi’s high poverty and food security challenges. This project also includes a Contingent Emergency Response Component, for addressing eligible disasters, including health; and

• Africa CDC Regional Investing Financing Program (Pipeline, March 2019), which has the objective of assisting the Africa CDC, Ethiopia and the Southern Africa regional collaborating center in Zambia to


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establish infectious disease control systems for the benefit of African Union member states and its citizens.

6. The proposed operation is also aimed at building programs and strategies that complement the health sector’s preparedness and strengthen the national response to shocks. Accordingly, two of the Cat DDO’s Prior Actions, B.1 (the Malawi National Meteorological Policy) and C.1 (the MNSSP II, will help mitigate health-related consequences of an imminent shock. A new National Meteorological Policy and its implementation is a critical step towards facilitating vital information about weather forecasts and conditions to farmers, the Government, households and communities for planning and preparedness purposes. With key information disseminated appropriately, the GoM would be better informed and able to prepare a response across sectors, as would farmers and community leaders. The new MNSSP II will accelerate implementation of shock-sensitive social protection programs in Malawi, an important step towards better preparedness and response. This in turn, could lead to better nutrition and health outcomes and greater resilience to disease following an event.


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ANNEX 7: DISASTER RISK FINANCING AND INSURANCE

1. When disaster strikes, governments often face acute financing needs. DRF is about arranging financing in advance so that funding is available for rapid response, recovery, and reconstruction following a disaster event. Ex-ante financial instruments can help countries increase their financial resilience against disaster and climate risks as they increase access to rapid financing to address emergency response and early recovery needs; smooth potential budget volatility associated with post-disaster expenditures; and incentivize disaster risk reduction.

2. Typically, national resources for disaster response are limited, and financing options are not agreed upon and set up in advance. Therefore, to meet their funding gap for disaster response and recovery, governments are likely to:

• Appeal for international assistance, which implies uncertainty regarding the amount of donor financing provided and often significant delays.

• Reallocate funds from other government programs, with potential negative impacts on long-term development programs; and potentially costly delays, depending on a country’s rules for budget reallocations.

• Issue debt, though this is not always an option or may be very costly due to non-liquid markets/lack of market access and/or debt sustainability concerns.

3. Disaster risk financing aims to better prepare for the cost of disasters, and thus ensure predictable and timely access to much-needed resources after an event. Ultimately, this can reduce overall response costs while mitigating the impact of disaster on the economy and the most vulnerable. DRF complements other elements of a comprehensive DRM strategy, ranging from investments in risk reduction to improved preparedness and resilient reconstruction. As such, DRF is aims to manage the residual risk that cannot be addressed through risk reduction and preparedness (as this might be unfeasible or too costly).

A range of available instruments

4. Governments can choose from a menu of financial instruments and mechanisms that help address different risks (ranging from recurrent/low-impact to more rare/high-impact events) and different funding needs (ranging from short-term emergency relief to recovery and reconstruction), including:

• Contingency/reserve funds to finance relief and rehabilitation. In some cases, such funds also finance prevention activities and reconstruction.

• Contingent loans, which give countries access to liquidity immediately following a disaster shock. The Cat DDO is designed to provide liquidity in case of a medium-sized (or cumulative) disaster and thus provide bridge financing while other sources of funding are being mobilized.

• Market-based risk transfer solutions, while still rare in developing countries, can be cost-effective to provide coverage against catastrophic events. A broad menu of instruments—derivative contracts, insurance contracts, and catastrophe bonds (CAT bonds)—can be used to transfer the risk of specific meteorological or geological events (droughts, hurricanes, earthquakes, and floods) to capital and insurance markets. Market-based risk transfer products are priced on the basis of scientific information and probabilistic modeling of damages. Triggers for payouts of such instruments are typically parametric, i.e. payments are triggered if a pre-agreed threshold of a


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contractually agreed parameter or index is crossed. Examples of such indices include level of rainfall, tropical cyclone wind speeds, earthquake intensity, etc.

• Catastrophe risk pools, in particular, are emerging as a promising vehicle to help countries access cost-effective risk transfer solutions. They facilitate: (i) diversifying risk across multiple countries with different risk profiles; (ii) establishing joint reserves (joint surplus capital) to self-insure a part of the risk; (iii) transferring excess risk to the reinsurance and capital markets; (iv) sharing operational costs, such as program development and day-to-day back-office operations; and (v) building up a better foundation of risk information. Examples of sovereign/supranational pools include the Caribbean Catastrophe Risk Financing Facility (CCRIF), Pacific Catastrophe Risk Assessment and Financing Initiative (PCRAFI), and ARC.

The importance of comprehensive risk financing strategies - different instruments are complementary

5. An important first step for putting in place a portfolio of adequate and complementary risk financing instruments, is for a country to develop an official risk financing strategy.37 Experience gained over the past 15 years across more than 60 countries suggest that:

• Risk financing strategies need to support client countries in achieving their policy objectives. This involves clarifying the policy objectives (rapid access to liquidity, protection of the vulnerable from shocks, etc.) and identifying the target beneficiaries (government, households, subnational governments) and the perils to be covered. For instance, if a government seeks to increase the resilience of the most vulnerable to disaster shocks, it might invest in a scalable social protection mechanism. Such mechanisms allow Governments to reach more people after a shock and/or increase support to people already covered by a safety net.

• It is important to use the appropriate financial instruments for each layer of risk (see Figure 7.1).38This is particularly true for insurance. Stand-alone sovereign insurance schemes have collapsed in the past largely for two reasons: (1) the insurance product was poorly explained to the insured (governments), and/or (2) basis risk events.39 These issues have been extensively documented40 and are further reasons – in addition to cost-effectiveness – why instruments such as the Cat DDO and sovereign insurance should be considered complements rather than substitutes.

37 See for example: Clarke et al. (2016). 38 See for example: World Bank. 2017. Sovereign Climate and Disaster Risk Pooling - World Bank Technical Contribution to the G20. Washington, DC. 39 Basis risk refers to the risk – with parametric insurance – that a parameter or a loss model do not capture an actual loss. If the exceedance of a given parameter or of a modelled loss are chosen as the trigger for a payout, the failure of such a parameter/loss model to capture actual losses can result in situations where a country experiences significant loss but receives no / low payout. This risk is inherent in insurance with parameter/index/model-based triggers. However, through rigorous review and testing of such risk transfer products this risk can be managed and understood. 40 See for example: EOD (Evidence on Demand). 2016. Understanding the Role of Publicly Funded Premium Subsidies in Disaster Risk insurance in Developing Countries. Report.


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Figure 7.1: Layered Disaster Risk Financing Approach

Source: Financial Protection Against Disasters, World Bank 2014.

Disaster Risk Finance can benefit various stakeholders 6. Governments normally seek to strengthen the financial resilience of four different groups: national and local governments; homeowners and SMEs; farmers; and the poorest. Respectively, these groups can be protected via the following:

• Sovereign disaster risk financing aims to increase the capacity of national and subnational governments to provide immediate emergency funding as well as long-term funding for reconstruction.

• Property catastrophe risk insurance aims to protect homeowners and SMEs against loss arising from property damage.

• Agricultural insurance aims to protect farmers, herders, and fishermen from loss arising from damage to their productive assets.

• Disaster-linked social protection helps governments strengthen the resilience of the poorest and most vulnerable to the debilitating effects of natural disasters. It does this by applying insurance principles and tools to enable social protection programs such as social safety nets to scale up and scale out assistance to beneficiaries immediately following disaster shocks.


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ANNEX 8: MAJOR DEVELOPMENT ACTS, POLICIES, AND STRATEGIES IN MALAWI RELATED WITH DRM AND CLIMATE RESILIENCE

1990 - 1999 2000 – 2009 2010 - 2017 Disaster Preparedness and Relief

Act (1991) National Constitution of Malawi

(1994) Environmental Management Act

(1996) National Forestry Policy (1996)

Forestry Act (1997) National Housing Policy (1997) Malawi Decentralization Policy

(1998) Malawi Vision 2020 (1998)

Local Government Act (1998)

National Land Resources Management Act (2000) The Irrigation Act (2001)

National Environmental Action Plan (2002)

National Land Policy (2002) National HIV and AIDS Policy (2003)

National Strategy for Sustainable Development (2004)

National Environmental Policy (2004)

National Food and Nutritional Policy (2005)

National Water Policy (2005) National Food Security Policy

(2006) National Sanitation Policy (2006)

Malawi Growth and Development Strategy I: 2006-2010 (2006) Mines and Minerals Policy of

Malawi (2007) National Gender Policy (2008)

National Adaptation Program for Action (2008)

National Social Protection Policy (2008)

National Registration Act (2009) National Nutritional Policy and

Strategic Plan (2009)

Child Care, Protection and Justice Act (2010)

National HIV and AIDS Policy: 2011-2016 (second edition, 2011)

Malawi Growth and Development Strategy II: 2011 – 2016 (2011) National Social Support Policy

(2012) National Education Policy (2013) National Nutritional Policy (2013)

National Climate Change Investment Plan: 2013 – 2018

(2013) Mines and Minerals Policy of

Malawi (2013) National Adaptation Program for

Action (Revised, 2015) National Biodiversity Strategy and

Action Plan (2015) National Disaster Recovery

Framework (2015) National Gender Policy (second

edition, 2015) National Forestry Policy (2016)

National DRM Policy (2016) National Climate Change

Management Policy (2016) National Agriculture Policy (2016) National Irrigation Policy (2016)

Malawi Growth and Development Strategy III: 2017-2022 (2017) Agriculture Risk Management

Strategy: 2017-2022 (2017) Source: Adapted from World Bank, 2018 (Hard Hit by El Niño: Experiences, Responses, and Options for Malawi)