The World Bank approved a US $ 275 million Disaster Risk Management Development Policy Loan for Morocco that contains a Deferred Drawdown Option for Catastrophe Risks (Cat DDO) designed to help the country strengthen its capacity to manage the financial impact of natural disasters and climate-related shocks, and to upgrade its institutional framework for disaster risk management.
“The Cat DDO aims to help Morocco develop a comprehensive framework for disaster risk management, building on a previous World Bank-supported program, the Integrated Disaster Risk Management and Resilience Program for Results. Developing comprehensive risk insurance is particularly critical for the vulnerable population whose livelihood can be threatened in the event of a natural disaster, ”said Jesko Hentschel, World Bank Maghreb Country Director.
The Cat DDO will support reforms designed to strengthen the financial, governance, and operational framework of the Solidarity Fund against Catastrophic Events (Fonds de Solidarité contre les Evénements Catastrophiques, FSEC). This fund is a critical tool which complements private insurance by providing compensation to the uninsured, such as the poor and most vulnerable. It makes use of sophisticated risk financing instruments to cover losses caused by extreme flooding and earthquakes.
Critical reforms brought by this new program include a parafiscal charge on insurance policies designed to create a sustained source of financing for the FSEC, as well as measures to bolster the private insurance market in a case of a catastrophic event. The program also aims to develop a registry or beneficiaries to allow timely, targeted compensation to populations affected by a disaster.
The Cat DDO approach contains widely proven financial and policy tools used to provide a contingent line of credit. After a natural disaster, it would give the government immediate access to liquidity, adding a critical layer to Morocco’s risk management policies. Besides, the programs to upgrade the country’s institutional framework for disaster risk management as well, by strengthening the National Civil Protection system and creating a National Flood Risk Management Information System.
“The program will help the government’s understanding of the financial risks associated with natural disaster and also improve its knowledge of how to prevent these risks through better investment planning and more investment in risk reduction, preparedness, and financial protection,” said Augustin Maria, Senior Urban Development Specialist and co-Task team leader. Under the CAT DDO loan conditions, the line of credit will be available for disbursement at any time within a period of three years, which can be extended up to four times for a total period or fifteen years. A one-time front-end fee or 0.5% of the loan amount is paid upon signature of the loan agreement, while a 0.25% renewal fee is charged for each possible extension during the fifteen-year timeframe.