Technical Analysis to Inform the Trigger Design for Adaptive Safety Nets to Respond to Climate Shocks in Malawi

The Government of Malawi (GoM) put in place a mechanism to enable its flagship social protection program, the Social Cash Transfer Program (SCTP), to scale up to additional beneficiaries in the event of climate shocks, initially prioritizing drought. This scalable mechanism promotes early action using pre-agreed and transparent triggers for funding, pre-positioned financing instruments linked to those triggers and pre-targeting of vulnerable households. It also relies on having financial systems (e.g., digital payment accounts) in place to ensure funds reach beneficiaries when needed. This analysis summarizes the technical work that was conducted to build the government’s capacity to design a trigger mechanism.

Designing a Scalable Trigger Mechanism

During its first year of implementation, in 2021-2022, GoM provided assistance to around 74,000 households in three districts through a scale-up of the SCTP. This scale-up contributed to protecting the livelihoods of poor and vulnerable households in the country. The mechanism triggered due to an unprecedented late onset of rainfall, resulting in failed planting in several areas of Malawi. This situation was followed by a series of cyclones and worsening macroeconomic conditions, which increased food insecurity in the country. 

The World Bank partnered with Tetra Tech, a consulting and engineering firm, to provide in-depth technical assistance to the GoM, particularly in designing the trigger to determine when the SCTP should be scaled up. This effort was supported by the World Bank’s Social Support for Resilient Livelihoods Project (SSRLP), with capacity building and technical expertise from the World Bank’s Crisis and Disaster Risk Finance team. Funding was provided through the Disaster Protection Program (funded by the United Kingdom (UK)) and the Global Shield Financing Facility (formally the Global Risk Financing Facility, funded by the UK and Germany).

This assignment included three main steps: 

1. Review available drought data sources in Malawi, including satellite data (rainfall, vegetation, soil moisture and evapotranspiration) as well as more subjective and local sources, such as food insecurity, crop yields and market prices. 
2. Review drought risk models that have been used in Malawi and the region. Based on the lessons from past risk models, compare the performance of different indexes using satellite data to identify droughts in Malawi. These indexes were correlated with historical food insecurity and crop yield losses to assess their ability to identify drought conditions. 
3. Develop a framework for a triggering mechanism in drought-prone districts. 

Implementing the Mechanism

The SCTP scalable mechanism was implemented for the first time during the 2021-2022 rainfall season. That rainfall season was characterized by an unprecedented late onset that resulted in failed planting in several parts of Malawi. On top of that, livelihoods were affected by three cyclones — Ana, Dumako and Gombe — and by macroeconomic factors related to the Russia-Ukraine conflict. Based on the 2021-2022 season conditions, the government scaled up the SCTP in the three districts — Blantyre, Ntcheu and Thyolo.

The drought index risk model behind the primary trigger structure performed well in predicting food insecurity. In addition, the primary trigger met reinsurance industry standards. The risk model was validated by a team of technical experts, including actuaries, and provided reliable and robust outputs when calibrated against historical satellite, yield and food security data. This is important given that the primary trigger will be linked to a parametric risk transfer product covering part of the costs of scaling up the SCTP in response to drought. The secondary trigger based on the evidence review will not be part of the risk transfer product. The scale-ups triggered by the evidence review are covered by a contingency financing window.

Designing Future Scalable Mechanisms

The technical assistance provided in Malawi for the design of the mechanism serves as a good example of how the World Bank and technical partners can assist in implementing adaptive safety nets in other countries. 

In summary, the following steps can be taken to kick-start the design of a scalable mechanism: 

1. Understand the linkages between livelihoods, food insecurity and shocks in the country or region of interest. 
2. Assess potential satellite data sources that could be used as the basis for designing objective and early mechanism triggers in the country or regions of interest. 
3. Assess availability of food security, yield, price and other data sets in the country and regions of interest that could serve for correlation analysis and as the basis for a fail-safe trigger. 
4. Assess the readiness of delivery systems to allow for social safety net program scale-ups. 
5. Discuss the government’s, donors’ and strategic partners’ commitment to investing in delivery systems that can support social safety net scale-ups, and their interest in setting up a dedicated working group to design and implement a scalable mechanism.