The World Bank (WB) on Wednesday approved a US $ 275 million loan to Morocco for development policy support for disaster risk management and a deferred drawing option in case of disasters (or Cat DDO).
The operation was designed to help the country be better able to manage the financial impact of natural disasters and climate shocks, but also to upgrade the institutional framework for disaster risk management, the WB said in a statement. “This new financing with deferred drawing option aims to help Morocco acquire a comprehensive framework for disaster risk management, building on a previous project funded by the World Bank – the Integrated Management of Natural Disaster Risks and Resilience Program”, underlines Jesko Hentschel, director of operations of the World Bank for the Maghreb, quoted by the press release. The development of a comprehensive insurance system is particularly crucial for vulnerable populations who are exposed to the loss of their livelihoods in the event of a natural disaster, he added. This loan will support reforms aimed at strengthening the financial, administrative and operational framework of the Solidarity Fund Against Catastrophic Events which provides a vital and complementary role to that of private insurance by providing compensation to uninsured people, specifically the poor and the most vulnerable. It is based on sophisticated risk financing instruments and covers losses caused by floods or earthquakes.
In addition, the WB specifies that the reforms planned under the new program concern in particular the creation of a parafiscal tax levied on insurance contracts and which will provide the Solidarity Fund with a continuous source of funding, as well as measures intended to strengthen the private insurance market. The program also plans to establish a registry of beneficiaries to provide timely and targeted compensation to disaster victims. The deferred drawdown option, which is based on proven financial tools and means of action, consists of a conditional line of credit. In the event of a natural disaster, it will allow the government to immediately access liquidity, thereby bringing a crucial additional resource to Morocco’s risk management policies. The program also aims to modernize the national institutional framework for disaster risk management, by strengthening the civil protection system and creating an information system for flood risk management.
“This program will help governments understand the financial risks of natural disasters. It will also help the authorities to better control how they can prevent these risks by better planning investments and by investing more in reducing and anticipating risks as well as in financial protection, “said Augustin Maria, senior specialist urban development and co-responsible for the project. Under the terms of the loan, the line of credit may be disbursed at any time within three years, which may be renewed four times for a total period of 15 years. An initial commission equal to 0.5% of the loan amount will be paid at the signing of the financing agreement, to which will be added the payment of a renewal commission of 0.25% for each possible extension.