Crisis Response and Preparedness
DPFs played a key role for reinforcing foundations for long-term development, crisis response, and preparedness. Many countries have used the “Catastrophe Deferred Drawdown Option” (CAT-DDO) designed to provide quick liquidity to manage natural disasters, and support crisis preparedness, response, and recovery. DPFs have surged during global crises; the fast-disbursing and fungible nature of the instrument makes it suitable to meet countries’ short-term emergency financing needs while supporting their medium-term policy agenda. DPF financing was particularly supportive of fragile, conflict, and violence (FCV) affected countries during crisis periods. Similarly, DPF support to small island developing states in the aftermath of the global financial crisis (GFC) and COVID-19 was primarily aimed at supporting crisis response. The emergency funding proved particularly valuable in responding to the COVID-19 emergency, as indicated by the high number of disbursements from existing CAT-DDOs in 2020.
Overall, a large share of DPFs supported pandemic recovery efforts, alongside other response instruments. 93% of DPF commitments between April 2020 and June 2021 were part of the COVID-19 response. While the strategic focus of COVID-19 DPFs varied over time, most operations included both immediate crisis response as well as medium-term policy components to pursue a sustainable recovery. Countries in all WBG regions received DPF support during the pandemic.
Seychelles built capacity for disaster response which enabled fast and efficient reaction to the COVID-19 pandemic.
A Seychelles DPF was prepared in the wake of Tropical Cyclone Felleng in 2013. The disaster risk management policy instruments created, capacities developed, exercises conducted, and stakeholder coordination mechanisms established during the initial implementation of the program enabled a fast and efficient response during successive natural disasters and the COVID-19 pandemic.
Fiscal and Debt Sustainability
Many DPF operations support fiscal and debt sustainability, with the objective of supporting macroeconomic stability, building fiscal buffers for resilience to shocks and broadening fiscal space for future investments in human and physical capital. Even before the pandemic, public-debt vulnerabilities were rising. Between the FY11–FY15 and FY16–FY21 periods, DPFs increased their focus on revenue mobilization. This trend reflects an expanding body of research on tax-collection performance and the World Bank’s growing emphasis on supporting clients’ efforts to increase domestic revenue mobilization through reducing tax exemptions or enhancing tax-related transparency and reporting. Expenditure-related reforms also remain a key policy area of fiscal and debt-related DPFs, focusing on size, efficiency, and composition of public spending. The new IDA Sustainable Development Financing Policy (SDFP) has reinforced the role of DPFs in helping countries address debt vulnerabilities via improved debt management, debt transparency, and fiscal sustainability.