Strengthening Ecuador’s resilience and responsiveness to disasters and macroeconomic shocks

In 2016, unlike previous instances in which Ecuador was affected by flooding associated with the El Niño phenomenon, timely interventions for the construction of flood mitigation works safeguarded the lives and livelihoods of beneficiaries by protecting their homes and their banana, cocoa, and corn crops. At the beginning of the COVID-19 pandemic in 2020, as Ecuador imposed a lockdown mandate, the cash transfers channeled through the government’s Family Protection Grant (approved by the Ministry of Economic and Social Inclusion in response to the COVID-19 emergency) provided timely resources for vulnerable households to purchase food. In many cases, these cash transfers were the only financial support received by vulnerable households during the most challenging stage of the pandemic.

Challenge

Ecuador’s disaster and climate risk profile and macroeconomic and fiscal imbalances represented key vulnerabilities for the country’s development. Due to its geographical location and geological and hydrometeorological conditions, Ecuador was exposed to earthquakes, volcanic eruptions, floods, landslides, and the increasing impacts of climate change. In 2016, while the country was being pummeled by the effects of the El Niño phenomenon, Ecuador was struck by a 7.8 magnitude earthquake, resulting in 676 deaths, 6,274 injured and 80,000 displaced, $3.3 billion in reconstruction costs, $515 million in losses in the productive sector, and 21,823 jobs lost. At the same time, Ecuador’s dollarized economy and high dependence on natural resources represented a key challenge to sustained growth and poverty reduction. In 2014, after a 13-year period of rapid economic growth, Ecuador’s large macroeconomic and fiscal imbalances widened due to a decline in oil prices and the strengthening of the United States (US) dollar. In March of 2020, Ecuador was hit hard by the COVID-19 pandemic, exacting a significant toll in both human and economic terms.

Approach

The project aimed to support the recovery of basic services in disaster-affected sectors, including public water, health, social protection, and disaster risk management. The operation supported the government’s disaster resilience agenda by providing ex-ante response for imminent disasters, such as floods caused by the El Niño phenomenon, and contingent financing for the acquisition of medical equipment after the earthquake and to support vulnerable populations through cash transfers during the lockdown instituted in response to the COVID-19 pandemic. Moreover, the operation supported the government’s efforts to strengthen macroeconomic resilience to external shocks through TA to enhance the existing fiscal and budgetary framework. In parallel, the operation served as a catalyst for several analytical and capacity building activities (funded through the Global Facility for Disaster Reduction and Recovery (GFDRR)) to strengthen the national disaster risk management system and establish Ecuador’s first Disaster Risk Financing Strategy

Results

The investments and activities completed through the project and parallel TA directly contributed to saving lives through the construction of flood mitigation and protection works and the purchase of medical equipment. During the COVID-19 pandemic, it helped cushion the projected increase in poverty through the provision of emergency cash transfers to vulnerable households. It also promoted resilient economic development through the construction of protective works for crops against floods. It provided TA to the MEF to update and improve existing macroeconomic models and develop a Disaster Risk Financing Strategy. It also provided TA to the National Service for Disaster Risk and Emergency Management (SNGRE) to strengthen risk reduction, emergency response, and post-disaster reconstruction and recovery.

The project directly benefited a total of 2,348,372 people (51 percent of whom were female) through the investments and activities highlighted below.
Between 2016 and 2018, the project helped protect 203,600 people and 173,500 hectares of crops by constructing six flood prevention and mitigation infrastructure works, which contributed to enhance disaster preparedness and risk mitigation, including: dredging of drainage channels and a riverbed, construction of three riprap walls along three river banks and construction of a gabion wall on a river bank.
It also supported the modernization of 284 health facilities in several provinces to serve 903,080 residents affected by the 2016 earthquake and the El Niño phenomenon. The hospitals were equipped through the purchase of medical equipment, helping to strengthen the health sector’s capacity for disaster response.
The project provided $45.8 million in emergency cash transfers to 382,239 vulnerable households during the initial lockdown prompted by the COVID-19 emergency (88 percent of eligible beneficiary households were female-headed households). Emergency cash transfers provided effective consumption protection, especially for extremely poor households, who were able to cover at least 11 percent of their monthly food basket in April and May 2020. Given the flat characteristic of the transfer, cash transfers were more effective in poorer households with fewer members.
This initiative also supported the opening of 6,700 additional payment locations to facilitate disbursement of benefits and supported modifications to the poverty index in order to identify poor and vulnerable households more accurately. These enhancements resulted in maximizing the number of eligible recipients who were able to receive a cash transfer at a critical time during the start of the pandemic.
The project supported the MEF to update and improve existing macroeconomic models, including better understanding of the economic impacts of climate change, which contributed to strengthening the MEF’s capacity to respond to disasters and macroeconomic shocks.
The project helped strengthen the government’s capacity to design and implement financial protection instruments against disasters through the development of a comprehensive Disaster Risk Financing Strategy in 2020. Institutional capacity and inter-agency coordination for disaster risk management were also strengthened through support to the SNGRE in 2019-2020 to develop methodological and strategic guidelines for the National Disaster Risk Reduction Plan (“PrevieneEc”) and strategic mechanisms for humanitarian response in emergencies under the National Disaster Response Plan (“RespondeEc”), and to strengthen the framework for post-disaster impact and needs assessments and recovery planning.

Bank Group Contribution

The World Bank, through the International Bank for Reconstruction and Development (IBRD), provided a loan in the amount of to $52.8 million. $800,000 grants from GFDRR and the Japan International Cooperation Agency (JICA) ’s trust funds financed TA and advisory services.

Partners

The TA provided to the MEF and the SNGRE supported the planning and development of key actions for disaster risk reduction, emergency preparedness and response, and financial protection against shocks. These advisory and analytics activities were financed by GFDRR and the JICA.

Looking Ahead

The World Bank continues to support the disaster risk reduction agenda in Ecuador to confront multiple key challenges, including to generate better risk information to support decision-making, mainstream risks caused by natural hazards in national policies, strengthen institutions to ensure adequate enforcement of regulations, and improve inter-agency coordination. It does so in a number of ways, including through the implementation of the Disaster Risk Financing Strategy, which aims to contribute to safeguard public and private assets against disasters, guarantee support for those affected, improve the efficiency and transparency of post-disaster public spending and reduce the disruption to ongoing development programs.

In the Ecuador First Green and Resilient Recovery (GARR) project, approved in February 2022, the Disaster Risk Financing Strategy has been included as a key basis for a results indicator under the Prior Action on public financing for climate change mitigation and adaptation, highlighting its importance for management of contingent liabilities.