Advancing policy reforms in Peru to reduce risk from hazards
Geologic and climate-related risks posed major challenges for sustainable and resilient development in Peru and for its efforts to reduce poverty. Peru lies in the “Pacific Ring of Fire,” a highly seismic region where about 80 % of the world’s earthquakes occur. Furthermore, its location on the tropical west coast of South America exposes the country to El Niño oscillations, which are characterized by prolonged, torrential rains. Due to the lack of land-use planning, inconsistent application of technical standards, and insufficient mainstreaming of hazard and risk knowledge to shape decision-making processes, disaster risk had been increasing. Forty-six percent of the nation’s territory is used or occupied by over one-third of the population, most living in conditions of high to very high vulnerability. Nearly half of the country’s 32.5 million people have been affected by floods, droughts, forest fires, earthquakes, landslides, or volcanic eruptions, and more than 511,000 people lost their homes to natural disasters between 1990 and 2020.
Peru was among the first countries to use the Bank’s Development Policy Loan with a Catastrophe Deferred Drawdown Option (Cat DDO) and has made substantial progress in advancing the disaster risk management (DRM) agenda. The Peru Cat DDO operation aimed to support the government’s efforts to strengthen the country’s institutional and legal framework for promoting risk reduction and reducing its fiscal and physical vulnerability to disasters in key sectors. These efforts include (i) establishing a results-based budgetary program for DRM, (ii) approving the DRM law and the DRM plan to implement the mandates under the law, (iii) developing a financial protection strategy against disasters with a range of instruments to improve capacity to mobilize resources in the event of a disaster, and (iv) working closely with sectors managing critical and essential infrastructure. Peru has achieved important milestones and has been widely recognized in the Latin America and Caribbean region for its progress.
Between the operation’s approval in 2010 and its closure in 2020, the government of Peru introduced policy reforms focused on strengthening the nation’s capacity to mobilize resources in the event of a disaster and to promote risk reduction. The Cat-DDO supported the following outcomes:
Pillar 1: Risk Reduction Policies in Public Investment
- Specific allocations for PREVAED-PP068, the budgetary program for disaster risk reduction and emergency response, grew from US$19 million in 2011 to US$400 million in 2019.
Pillar 2: Vulnerability Reduction Actions in the Government of Peru’s Priority Sectors
- The Pan-American Health Organization’s Hospital Safety Index was used to evaluate 91 % of Peru’s hospitals and institutes.
- Retrofitting investment preparations were made for five hospitals in Lima and a budget of US$24 million was allocated for work to be completed by 2022.
- The National Safer Hospitals Policy was updated and approved in 2017, mandating that all health facilities integrate risk reduction procedures.
- The Water and Sanitation National Plan 2017–2021 was approved. It includes policy guidelines and indicators related to mitigating climate change and disaster risks. Forty-one water and sanitation service companies established contingent funds for disaster risk management.
Pillar 3: Financial Protection Mechanisms against Disasters Resulting from Natural Events
- Under the Financial Protection Strategy against Disasters, the Ministry of Finance mobilized US$1.2 billion in contingent credit lines to respond to disaster impacts, and it participated in the Pacific Alliance catastrophe bond, issued by the World Bank Group in 2018, for US$200 million for earthquake risks. Following the magnitude 8.0 earthquake in 2019, this fund paid out US$60 million.
- A new public investment system (Invierte.pe) includes guidelines to integrate DRM considerations into the project formulation cycle.
World Bank Group Contribution
The World Bank, through the International Bank for Reconstruction and Development (IBRD), provided a loan in December 2010 in the amount of US$100 million to finance this Cat DDO. The Bank also approved US$400 million in IBRD financing in 2015 for a second Cat DDO (closed in 2018) that supported additional sectors to mainstream DRM. One key sector was education, and in 2017, risk reduction was integrated into school infrastructure planning and investments by adopting the first national school infrastructure plan, including an earthquake vulnerability reduction program.
The project also benefited from two grants from the World Bank–administered Spanish Fund for Latin America and the Caribbean (SFLAC): the first grant, US$310,000, helped to build capacity and to support mainstreaming of risk information into the planning processes, in particular through the national public investment system and the General Directorate for Public Budget within the Ministry of Economy and Finance. The second SFLAC grant, in the amount of US$300,000, supported the Geophysical Institute of Peru in generating probabilistic seismic hazard information and the health and education sectors to conduct seismic risk assessments of their infrastructure portfolio in the Lima metropolitan area.
Key partners in supporting the government’s efforts to increase capacity to mobilize resources and promote risk reduction included the Global Facility for Disaster Reduction and Recovery (GFDRR) and the Switzerland State Secretariat for Economic Affairs (SECO), both of which mobilized grant resources throughout the life of the DRM engagement to provide technical assistance in key areas and sectors.
Through GFDRR, the Probabilistic Risk Assessment Program (CAPRA) used a portion of funding supplied by Australia (overall program funding of US$1.7 million) to provide capacity building and advisory services focused on strengthening Peru’s technical and institutional capacity to quantify and use risk information, building on SFLAC’s work. A US$1.4 million grant was also financed by Japan to support the Ministry of Education in mainstreaming DRM in the education sector, specifically to support the ministry in formulating the first national school infrastructure plan. Through SECO, US$988,000 was mobilized to support a range of activities focused on strengthening the government’s post-disaster financial response capacity, including preparing a national disaster risk financing strategy, launched in 2016.
In 2010, given the country’s high seismic risk, the National Safe Hospitals Policy was approved, which included key vulnerability reduction actions for hospitals and health facilities. As part of this initiative, over 90 % of Ministry of Health hospitals were evaluated using the Hospital Safety Index, providing a snapshot of the probability that a hospital or health facility will be able to maintain operations during and after an emergency. Fifteen structural vulnerability studies of hospitals were also completed and, based on this work, five hospitals (Dos de Mayo, Hipólito Unanue, Cayetano Heredia, Arzobispo Loayza, and Maria Auxiliadora) in Lima will be retrofitted.
Two of these hospitals (Arzobispo Loayza and Dos de Mayo), identified as part of Peru’s cultural heritage, required further coordination with the Ministry of Culture to preserve their historic buildings. The government is committed to improving the structural safety and conditions in all five hospitals, and it has allocated about US$24 million for the effort, expected to be completed by 2022. These interventions are key to having safer, more resilient hospital infrastructure and ensuring continuity of services even in the event of a disaster.
An opportunity has emerged to continue the Bank’s DRM engagement in Peru. Taking into account lessons from the 2017 El Niño Costero and the COVID-19 pandemic, recent analytical work financed by the Bank has gathered evidence and provided policy recommendations to the government of Peru for increasing the resilience of local governments’ key sectors to seismic and hydrometeorological disaster impacts (particularly floods and droughts). A new Cat DDO could provide support to further consolidate reforms introduced under Cat DDOs I and II and support key areas identified by the analytical work, such as including other priority sectors and the subnational level to increase their resilience to natural disasters and pandemics.