Disaster Risk Management Development Policy Loan with a Catastrophe Deferred Drawdown Option

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The Program Development Objective (PDO) of the Building Disaster and Climate Resilience Program Project for Romania is to strengthen Romania’s institutional and legal framework to effectively manage the physical, social and fiscal impacts of natural disasters and climate change.This objective will be achieved through reforms under two pillars: i) Strengthen the Borrower’s national framework for disaster risk management and (ii) Strengthen the Borrower’s capacity to systematically identify and reduce disaster and climate risks and to manage the financial impact of disasters.The proposed operation contributes to the national objective to reduce disaster risk as articulated in the Sendai Framework for Disaster Risk Reduction 2015-2030, adopted by the Government at the Third UN World Conference for Disaster Risk Reduction in Sendai, Japan in March 2015.The design of this DPL with a Catastrophe-Deferred Drawdown Option (Cat DDO) builds on the experience of the 16 Cat DDO’s approved and implemented by the World Bank since 2008 as well as robust research on disaster risk management and climate change adaptation. In summary: (a) disasters must be managed instead of being treated as exogenous shocks to development that cannot be proactively addressed, (b) DRM is most efficient when based on adequate risk identification, (c) an ex-ante strategy to finance response, recovery and reconstruction is essential for faster recovery after a disaster event, (d) prevention pays and governments can take many actions to reduce disaster risk without incurring additional costs, (e) it is important to secure the availability of a flexible source of funding to cover early disaster response and recovery, (f) the implementation of a DPL with a Cat DDO should be set in a broader assessment of the fiscal risks from disasters and climate change, (g) improvements in budget execution mechanisms are critical to successful implementation, and (h) proactively managing the contingent liabilities from disasters can protect the Borrower’s budget and fiscal balance. The total amount of the DPL is Euro 400 M (US$ 493.06 M equivalent).