Building fiscal and financial resilience against disasters in Panama

Source(s): World Bank, the
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Panama has instituted critical reforms to improve its technical and institutional capacity to manage the disaster risk resulting from natural and health-related hazards. The reforms allowed for a substantial increase in Panama’s capacity for Disaster Risk Reduction (DRR); targeted DRR priority actions by relevant ministries and government agencies; and established a stronger and comprehensive set of financial protection policies and instruments to deal with future disasters.

Client's perspective

“Our objective is to guarantee the necessary resources to mitigate the risks derived from the COVID-19 pandemic, mainly in the areas of health, social security, food, job preservation and generation of new productive capacities.”

Jorge Almengor, Vice Minister of Finance, MEF


Panama’s geographic location exposes it to the increasing frequency and intensity of multi-hazard events, including earthquakes, tsunamis, epidemics, climate-related hazards and coastal floods, among others, which poses major challenges for sustainable and resilient development in Panama and for its efforts to reduce poverty. These events affect Panama’s economy and its capacity to promote sustainable growth and resilient development. For example, the ENSO phenomena during the 2015-2016 dry season caused economic losses estimated at US$72 million in the agriculture sector  and US$40 million in Panama Canal revenues.  In the first half of 2019, El Niño-triggered drought led to economic losses estimated at US$15 million in Canal revenues, as well as a significant loss of crops and an alarming decline in fresh water resources.  In 2020, Hurricane Eta, though it did not make landfall in Panama, caused heavy rains, floods and landslides, resulting in deaths, displacement and agriculture losses totaling US$11 million.  Multi-hazard events are also predicted to increase in the Tocumen River Basin on the eastern edge of Panama City, where much of the country’s key infrastructure is located. 


The Panama Development Policy Loan (DPL) with Catastrophe Deferred Drawdown Option (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. The World Bank supported the Ministry of Economic and Finance (MEF) and several other public institutions to implement a comprehensive and multi-sectorial policy agenda aiming to enhance their capacity to manage disaster risk. The DPL with Cat DDO provided not only critical contingency financing for the government to respond to two distinct hazards, the 2015-2016 El Niño-triggered drought and the COVID-19 emergency. More importantly, it provided solid foundations for the country’s Disaster Risk Management (DRM) program. It supported the update of the country’s DRM policy framework through the enactment of the DRM National Policy, developing a planning instrument to efficiently implement the DRM National Policy, and supported the adoption of a framework for the financial management of disaster risk that includes contingency financing, insurance products, and a national emergency fund.

Therefore, strengthening the country’s capacity to manage these risks, by integrating disaster risk reduction in the country’s development and planning policies is vital for Panama’s efforts toward sustainable and resilient development and poverty reduction.  

200,000 emergency response protocols were developed for the Panama City metro, which benefits more than 200,000 people carried per day on average.


The Cat DDO supported Panama needs to continuously improve its capacity and to quickly adapt its fiscal and policy management to respond to disasters, as highlighted by the Country Partnership Framework (CPF) of 2015–2021. During its 10-year implementation period, the operation had important results, including:

  • Disaster risk criteria guidelines were incorporated in the National Public Investment System (SINIP) in 2012, which means that all new public infrastructure project proposals must meet certain sustainability and disaster resilience criteria, focusing on incorporating prospective and corrective DRR/CCA considerations in the pre-investment phase of all new public infrastructure projects, as well as enhancing the supervision of works during implementation.
  • A DRM financial management program was developed, which enabled the Government to: (a) maintain a sound fiscal position at the national level, which is necessary to support long-term rehabilitation and reconstruction needs; and (b) develop cost-effective and accessible financing mechanisms for immediate liquidity in case of a disaster, making it possible to rapidly address the needs of people in affected communities.
  • The adequate use of the contingency financing provided enabled to reduce the Government’s need to rely on unplanned budget reallocations and contributed to preventing disruptions to social protection and economic programs aimed at addressing the needs of vulnerable groups and communities. 

The Cat DDO supported the country’s most vulnerable population by contributing to the adoption of mechanisms to increase the government’s fiscal resilience and capacity to mobilize resources in the aftermath of a disaster. During the 10 years of the Cat DDO (2011-2021) implementation, the following results were achieved:

  • 100 percent of public investments and prioritization processes included disaster risk management (DRM) and/or climate change adaptation (CCA) considerations. 
  • 6 provinces, including Panama, updated their protocols for disaster preparedness and response.
  • Emergency response protocols were developed for the Panama City metro, which benefits more than 200,000 people carried per day on average.
  • 6 ministries carried out important disaster risk reduction priority actions, including: (a) created a specific DRM budget code within National Budget to tag and track investment proposals and channel resources for ex-ante DRM initiatives; and (b) updated the National Policy for Integrated Water Resources Management.
  • $41 million were triggered to help the Government to support the response to the COVID-19 public-health crisis. The liquidity provided was essential to reduce the Government’s need to reallocate funds from ongoing social programs. The DRM policy dialogue related to the operation also contributed to creating an enabling environment for a well-coordinated and inclusive multisector emergency response. As a result of this dialogue, the Government requested three new operations to meet expected medium- and long-term financial requirements: (a) an emergency loan for US$20 million under Fast Track COVID-1925; (b) a DPL operation for US$300 million aiming to support the post pandemic recovery agenda26, and (c) a second DPL with Cat DDO for US$100 million.
  • $25 million were disbursed to partially capitalize an emergency fund, aiming at financing urgent water-provision interventions in the areas most affected by the 2015-2016 El Niño drought.

Bank Group Contribution

The World Bank, through the International Bank for Reconstruction and Development (IDA), provided funding totaling $66 million to help finance this project. An additional $350 thousand trust funded technical assistance (Strengthen Disaster Risk Financing Capacity in Central American Countries – TF0A1413) was provided over the last 5 years of the project implementation, which provided critical support for the implementation of Panama’s Disaster Risk Financing Strategic Framework to integrate financial protection against both catastrophic events triggered by materialized natural hazards and public health-related emergencies.


The main implementing partner was the MEF, which established the Directorate of Investments, Concessions and Risks of the State, to manage the DRM policy dialogue among the various actors, including the World Bank and other relevant Government agencies, such as the National Civil Protection System (SINAPROC), the Ministry of Housing and Land Use Planning (MIVIOT), and Ministry of Environment (MIAMBIENTE).  The World Bank also collaborated with local governments, academia, and civil society to improve the design of this operation.

Looking Ahead 

Some areas supported under the first Cat DDO were supported under a second Cat DDO. Specifically, the Second Panama Cat DDO, under implementation, has contributed to the promotion and adoption of key historical reforms in the country, including the strengthening of the institutional framework for management and response to the impact of climate and disaster risk in a post-COVID context, the strengthening of the climate risk hazards identification and disaster risk assessment and the strengthening of capabilities and the development of territorial responsibilities for disaster risk management.   

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