Somalia Urban Resilience Project Phase II Second Additional Financing

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1. Somalia is on the brink of famine. Four consecutive rainy seasons have failed, a climatic event not seen in at least 40 years. The 2022 March-June rainy season was well below average and is likely the driest on record, devastating livelihoods and driving sharp increases in food, water, and nutrition insecurity. It is estimated that over 7 million people have been affected by severe water shortages across the country, triggering mass displacement. Since January 2021, drought-induced displacement has exceeded 1 million people. There is a good chance that certain areas in Somalia will experience famine by October if crop and livestock production failure is widespread, key commodity international prices continue to rise, and humanitarian assistance fails to reach the most vulnerable. Already on September 8, 2022, the Global Famine Review Committee projected famine in two areas in the Bay region, spanning the period between October 2022 and March 2023, unless humanitarian aid is immediately scaled up. In addition, the conflict in Ukraine has contributed to higher inflation and higher cost of imports, further worsening the food insecurity. Between January and June 2022, humanitarian assistance reached 4.1 million people and has prevented the worst outcomes. However, the level of assistance is outpaced by rapidly growing needs. The fifth consecutive failed rainy season in September could prolong drought conditions into 2023. The Government of Somalia declared the drought a national emergency on November 23, 2021, and issued an urgent appeal for international assistance. 2. The impact of drought and floods has been exacerbated by the COVID-19 pandemic. The pandemic is having significant indirect effects on security, driven by the regional economic downturn and supply chain disruptions. Border closures have hurt trade, livestock exports, and household incomes. The ongoing severe drought is affecting Somalia’s economic recovery by reducing the country’s limited domestic agricultural production, including livestock - the country’s primary source of export earnings. More than an estimated three million livestock have died to starvation and disease since mid-2021. Furthermore, poor harvests and rising commodity prices, particularly for wheat and fuel following the invasion of Ukraine and the reduction of cross-border stable food imports due to the drought, are placing strains on household expenditures, especially for the poor. More than 40 percent of the population is projected to be food insecure between October and December 2022.3. The government has limited fiscal space and policy options to respond to the drought. There is limited fiscal space to allocate resources to respond to multiple climatic shocks, the COVID-19 pandemic, the impacts of the war in Ukraine, and regular security incidents. As Somalia is in debt distress and participating in the Heavily Indebted Poor Countries initiative, there are no opportunities to borrow to increase fiscal space to respond to crises. In response to the drought crisis, the Federal Government of Somalia (FGS) submitted a request for financing under the Crisis Response Window (CRW) Early Response Facility (ERF) to the World Bank on July 5, 2022 to scale the ongoing response. To date, US$ 1.15 billion has been raised by humanitarian partners for the wider humanitarian response, including FGS and by the World Bank. Yet, critical gaps remain across key sectors to prevent famine and provide life-saving assistance and sustain lives and livelihoods. All remaining available IDA resources for FY23 have been notionally programmed, leaving no additional resources for drought response or recovery, and making CRW ERF resources a critical last resort for much-needed additional support.4. This project seeks approval of the Board of Executive Directors for a proposed additional grant from the IDA in the amount of SDRX million (US$ 50.0 million equivalent) for the Somalia Urban Resilience Project Phase II (SURP-II, P170922). The proposed second Additional Financing (AF) worth US$ 50 million is financed by the Crisis Response Window (CRW) Early Response Facility (ERF) for Somalia. The original grant of US$112 million (SDR 82.15 million) was approved on December 19, 2019, and became effective on February 24, 2020. The first AF of US$ 41.5 million equivalent (US$ 21.5 million from the Multi-Partner Fund and US$ 20 million from IDA) was declared effective on July 14, 2022. Taken together, the SURP-II will have a total budget envelope of US$ 203.5 million with a project closing date of December 31, 2026.5. The proposed SURP-II second AF entails several key changes: (i) to restructure the project and add a new component – Component 4: Support for Urban Forced Displacement - and merge the ongoing support for drought-induced Internally Displaced Persons (IDPs) under the Contingency Emergency Response Component (CERC) with this component to provide urgent support for the newly arriving drought-induced IDPs and vulnerable host community members to alleviate the increased pressure on the already limited urban services and mitigate social tension; (ii) to scale-up Component 4 by adding US$ 45 million from the CRW ERF in the face of deteriorating drought and displacement; (iii) reduce the budget allocation for Component 2: Institutional Strengthening and Analytics from the existing US$5 million to US$ 1 million; (iv) increase the budget allocation for Component 3: Project Management and Capacity Building from the current US$ 20.5 million to US$ 29.5 million; and (v) retain the CERC now as Component 5 with a US$ 0 allocation. 6. SURP-II’s Project Development Objective (PDO) will remain the same: strengthen public service delivery capacity of local governments, increase access to climate-resilient urban infrastructure and services, and to provide immediate and effective response to an eligible crisis or emergency in selected areas. 7. SURP-II (the parent project and the first AF) comprises four components designed to strengthen urban resilience and municipal governance in key cities. SURP-II builds on the preceding and completed Somali Urban Investment Planning Project (P150374) and the Somalia Urban Resilience Project (P163857). It delivers prioritized basic urban infrastructure and reinforces the municipal government’s urban governance capacities using the country’s public financial management (PFM) systems. The parent project supports participatory decision-making processes to identify key urban investments that advance urban resilience in six strategically important cities across five Federal Member States (FMS) and the Benadir Regional Administration (BRA). These include the cities of Mogadishu (BRA), Garowe (Puntland), Baidoa (South West State), Kismayo (Jubbaland), Dhusamareb (Galmudug), and Beledweyene (Hirshabelle). The updated five components for the proposed Second AF are as follows:-Component 1: Urban Infrastructure and Services supporting the preparation and implementation of all infrastructure investments.-Component 2: Institutional Strengthening and Analytics including various technical assistance (TA) activities such as on informal settlements; climate-resilient operation and maintenance (O&M) of urban infrastructure; urban governance, including solid waste management; and hosting of mayors’ forum. These activities help strengthen core municipal functions.-Component 3: Project Management and Capacity Building providing the overall project management costs, including monitoring and evaluation (M&E), as well as the capacity building of the Project Coordination Unit (PCU), Project Implementation Units (PIUs), and relevant municipal staff.-Component 4: Support for Urban Forced Displacement to provide urgent support for the newly arriving drought-induced IDPs and the host communities to alleviate the increased pressure on the already limited urban services and mitigate social tension. The ongoing drought response activities under the CE