Kenya, along with its neighbors, is extremely vulnerable to climate change impacts, including longer periods of drought and less predictable rainfall patterns. In this unprecedented time of the global COVID-19 (coronavirus) pandemic, climatic shocks are always top of mind for Kenyans.
In recent years, Kenya has sought to be at the center of its own disaster risk management to respond to its people faster. In 2018, the government and the World Bank developed an innovative development policy program along with a deferred drawdown option in the case of a catastrophe.
The $200-million Disaster Risk Management (DRM) Development Policy Financing with a Catastrophe Deferred Drawdown Option strives to strengthen the government’s institutional, technical, and financial capacities to manage the impact of climate and disaster risks.
Firstly, the development policy program provides support for policy reforms that strengthen resilience to climate and disaster risk in the urban and water sectors, mainstream DRM into development planning and public investment, while increasing the transparency of government interventions for climate adaptation and mitigation. In addition, it supported the Government of Kenya adopt their National Disaster Risk Financing Strategy, the first in Africa, which seeks to strengthen the financial resilience of the budget, counties and the vulnerable in Kenya to shocks.
Secondly, the catastrophe deferred drawdown option (Cat DDO) allowed the government to access contingency funds in the aftermath of disaster caused by natural hazards or health emergencies. After an eligible drawdown request is made, the World Bank immediately disburses the funds within two to three business days. This flexible and prompt financial tool supports rapid emergency response and helps to alleviate the economic and humanitarian costs associated with delays in securing needed financing.
Within its second year of implementation, the Cat DDO is now fully disbursed. The first disbursement of $70 million was to support the government’s response to the severe flooding due to extreme rainfall in 2019. The floods damaged infrastructure all over the country. The second drawdown for the remaining $130 million was disbursed to support the rapid mobilization of a social and economic response to the COVID-19 pandemic crisis. Demonstrating the rapidly disbursing nature of the instrument, the funds were deposited into the Kenya government’s account within 48 hours of the drawdown request.
The Cat DDO is the first to be financed by the International Development Association, the part of the World Bank that helps the world’s poorest countries. It is advancing Kenya’s efforts to build resilience to shocks and supports the government to better manage the impacts of disasters—from public health disasters like the current global COVID-19 pandemic to natural disaster and climate shocks.
“These contingent lines of credit being developed with the World Bank are a core component of countries risk layering financing strategies which seek to strengthen the financial resilience of our clients to shocks,” said Barry Patrick Maher, World Bank Senior Financial Sector Specialist. “This work is more critical today than ever as countries respond to multiple fiscal emergencies,” he added.
Planning for Shocks
The critical nature of Cat DDO financing is born of urgency in a time of uncertainty. Kenya endured drought from 2008 to 2011, adversely affecting 3.7 million people and causing $12 billion in damages and losses. Between 2002 and 2012, international donors provided about $267 million every year in humanitarian assistance. Still, these funds were subject to difficulties and delays.
The Cat DDO for Kenya plays a key role in demonstrating the significance of better planning and putting in place delivery systems that can rapidly deal with external shocks.
The program also provides for technical assistance as well as access to best practices in preventive interventions, including nature-based solutions, green infrastructure, climate-resilient feeder roads and bridges, and better construction for housing.
Risk modelling is critical to understanding the likelihood and impact of future shocks and therefore the likelihood that the Kenya Cat DDO will be triggered. Using historical data as well as simulations following swift climate change events, risk modeling was conducted in Kenya to inform policy and the preparation of the Disaster Risk Financing strategy, as well as putting the Cat DDO in place.
When a Crisis Hits, People Need Help—Fast
The project is anchored in the inclusion of the poorest and most vulnerable to improve their resilience. As in many countries in sub-Saharan Africa, natural disasters in Kenya also have a substantial social impact, leading to increases in food insecurity, poverty, and inequality. Moreover, the disruption of public utilities, such as potable water or sewage systems, communications, and transport infrastructure pose a threat to the health, assets, and livelihoods of people during a crisis. Governments that can quickly tap into financing to deliver immediate relief and get services back up and running can reduce or even eliminate some of these adverse effects.
The results of this work will inform future safety net programming and financial mechanisms that can respond quickly in times of extreme climate shocks in other countries. For example, Mauritania and Senegal are also engaged in safety net programming to access relief at the time of natural or health-related disaster. Cat DDO financing can be coupled with insurance and other instruments to allow financing to flow faster when humanitarian or natural disaster strikes. The project offers a snapshot of best practices in rapid emergency response, which is among the development-centered climate initiatives that will be scaled up in the Next Generation Africa Climate Business Plan.