Dominica: Strengthening Fiscal and Climate Resilience DPC

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This Development Policy Credit (DPC), amounting to US 24 million dollars (SDR 18.5 million), is the first of a programmatic series of two operations that seek to (i) strengthen Dominica’s domestic revenue mobilization and financial sector resilience and (ii) promote biodiversity and disaster preparedness. The first pillar aims to mobilize domestic revenue and enhance financial sector resilience. Key reforms under this pillar include raising excise taxes on diesel, sugar-sweetened beverages (SSB), alcohol, and tobacco. These measures target revenue growth, lower greenhouse gas emissions, and encourage better health outcomes. To address the low asset quality of CUs, the pillar also supports a more robust Comprehensive Supervisory Assessment (CSA) process for assessing financial institutions’ stability. The second pillar focuses on biodiversity protection and disaster preparedness. It supports the establishment of the first marine protected area for sperm whale reserve (SWR or Reserve) and the adoption of a risk-based asset management system to enhance preparedness for climate events. The policy reforms implemented through this operation are expected to mobilize resources, enhance financial sector stability, promote biodiversity, and bolster resilience to climate change and natural disasters. The increased excise tax on diesel is projected to boost revenue and support environmental sustainability by curbing fuel consumption. Similarly, higher excise taxes on SSB, tobacco, and alcohol are expected to generate significant revenue and improve health outcomes, especially for men. The CSA will result in corrective measures to improve the financial position of the Dominica Agricultural Industrial and Development Bank (AID Bank), which is wholly state-owned, and CUs, facilitating Dominica's sustainable development. The SWR will safeguard habitats and increase government revenue from swim-with-the whales (SWW) permits and whale watching (WW) passes, benefiting both conservation efforts and local tourism. Inventorying public fixed assets and assessing their level of risk will help prioritize mitigation measures, enhancing building maintenance and climate resilience.