Tuvalu Development Policy Operation

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The objective of the First Development Policy Operation Program for Tuvalu is to support reforms that strengthen public financial management and improve the delivery of social services, while providing critical financing to enable the rebuilding of fiscal buffers. Tuvalu's economy is highly vulnerable to challenges stemming from its very small size and geographic isolation, and relies heavily on grants to meet its development financing needs. The Global Financial Crisis (GFC) contributed to the depletion of Tuvalu's main fiscal buffer, impeding the Government of Tuvalu (GoT's) ability to meet its financing requirements. At the same time, poverty in Tuvalu's outer islands deepened as a series of shocks including water shortages, deteriorating soil quality and increasing prices contributed to rising poverty. The GoT has shown commitment to reforms to strengthen its fiscal position and to improve public services but the fiscal outlook is fragile. This program document proposes a Development Policy Grant for SDR 2 million (USD 3 million equivalent) as the first in a programmatic series of two operations in support of Tuvalu's ongoing reform efforts. The operation is expected to contribute to the improved wellbeing of Tuvaluans in both Funafuti and the outer islands. The operation carries risks stemming from thin institutional capacity in the GoT, and an uncertain external environment.