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Financial indicators for water and sanitation at national level: what do we really need to know and early warning system

Published on: 18/04/2016

Many colleagues are developing mechanisms to track progress towards Goal 6 of the Sustainable Development Goals.

This blog is meant to support those efforts by answering the question: What indicators can be used as a diagnostic tool for the adequacy of budgets and financial flows for water and sanitation?

The current proposed SDG indicator framework will mainly track outcomes: the number of people with access to water and sanitation services. That is what ultimately matters but it is also an indicator that only gives off a ‘late’ alarm. If a country is not showing much progress on access to services yet, it will take several years to address the root causes of the problem. See the blog 15 years to make history, 5 years to make change.

This is the reason why it is also important to track inputs into the sector, particularly money, which can give off an 'early' alarm. If for example, analyses show that the funds available for water and sanitation are too little to address financial gaps, it can be addressed much earlier, before it translates into stagnating or lower coverage figures (see for instance Uganda and Tanzania as examples).

Tracking financial indicators does not require sophisticated monitoring systems

The key question is then which financial indicators to track and what level of detail and break-down is needed. This is what was discussed at a recent sector meeting organised by UNICEF and where the inspiration to write this blog comes from.

Tracking financial indicators does not require a sophisticated monitoring system. In my experience, it is perfectly possible to collect this information from secondary sources if there is some openness in sharing government financial flows on water and sanitation. However, it does require a system that is tracking government expenditure at different levels. This is already the case in most public administrations in lower income countries.

The problems emerge in the reconciliation of accounts, the level of disaggregation of data and most important for the water sector: linking the money flowing into the sector with the number of people accessing a decent service. See some examples in the testing phase of the WHO TrackFin methodology in three countries in this flyer.

Financial outcomes: what we want to achieve?

From a financial perspective there are three key outcomes which would support countries to reach Goal 6:

  • Outcome 1 Financial flows to the sector are adequate and predictable to meet the targets of universal access to sustainable services
  • Outcome 2 The sector is able to attract different sources of funding
  • Outcome 3 Service providers are financially sustainable

These outcomes can be translated into a few questions at national and service provision level. There are many more aspects that we would like to know but these are really essential:

  • How is money allocated to the sector?
  • How much is allocated to the sector?
  • How much is spent?
  • Where is the money spent? This refers to geographic, subsectors (water, waste water, sanitation, hygiene, etc.) and cost categories (development and recurrent).
  • The ability of governments to raise funds from different sources (public, private, domestic or international).
  • Is service provision financially sustainable?

The basics: what we need to know

For each of the outcomes above there are some basic criteria that can be assessed. Failure to assess these criteria means that the sector is not able to understand the gaps and set priorities for achieving Goal 6. They are not ideal but they can be assessed with limited financial information systems.

OutcomeBasic criteria
Adequacy of financial flows to meet universal targets- The budget and expenditure are known and disaggregated between each of the sub-sectors (rural, urban, water, sanitation)
- The budget utilization rate (i.e. the ratio between expenditure and budget) over the last three years is known and higher than 90 percent
- Budget adequacy: the budget and expenditure for recurrent costs to provide adequate support to the delivery of (basic) services are known
- Budget adequacy: the budget and expenditure for capital expenditure to meet national water sector investment targets are known
Capacity to attract different funding sources- The present financing flows and sources (tariffs, taxes and transfers) are known
- There are legal and institutional frameworks for financial transactions to take place
Service providers financially sustainable- The percentage of costs of service providers that are covered by revenues is known
- The budget allocations and expenditure to the poorest or vulnerable groups is known

Moving to the next level

Some would argue that the above are simplistic. In reality most of the countries which are off track to meet the water and sanitation targets are not able to report on the basic financial criteria above. Those would need to be addressed first.

For those institutions that are able to generate the information mentioned in the table above, and want a more in-depth assessment, the following "markers" can be used to answer accountability, transparency and equity aspects related to financing the sector. For service providers, climate resilience and criteria related to the environment also start emerging at this more sophisticated monitoring level.

OutcomeMore sophisticated criteria
Adequacy of financial flows to meet universal targets- The budget and expenditure are publicly available
- Allocations to sub-national level incorporate equity criteria (to be defined by each country)
- There is a body that represents the needs of WASH citizens in the budgeting processes
- The funding for WASH in schools, health centres and national sensitization campaigns has been explicitly addressed in the budgeting process and is adequate
- There is the ability to have multi-year budget allocations
- Long-term (at least 3 years) commitments are known
- There is a clearly articulated procurement process
Capacity to attract different funding sources- Public allocations to water and sanitation as a percentage of GDP are known
- The percentage of aid that supports nationally defined plans and budgets is known
- Existence of financing institutions that support the sector
- Existence of a domestic bond market
- There is a ready pipeline of bankable projects
- Functional financial mechanisms and instruments (i.e. credit enhancement to less credit worthy) are being used
Service providers financially sustainable- Sector providers are internalising externalities: costs account for source protection, conservation and waste management
- Existing incentives for environmentally sustainable efficient technologies
- Tariff setting takes into account the most disadvantaged

If we want to measure progress towards the SDGs, we need to go beyond tracking the ultimate outcome: people with services. If financial flows are too little or not well targeted, alarm bells should start ringing that we need to do something drastically different to achieve the 2030 targets. I believe that the basic indicators presented above can act as an early alarm system.

IRC has many years of experience is supporting governments and institutions tracking costs and finances to the sector. Give us a call if you need help in setting up your alarm system or, when the alarm bells are already ringing we can help you analyse the financial problems and how to overcome them.

Thanks to the colleagues who participated in the financing group discussions of the UNICEF WASH Bottleneck Analysis Tool that took place in Washington DC early February 2016: Guy Hutton and Sophie Trémolet from the World Bank; Jeff Goldberg from USAID; Gregor von Medeazza and Evariste Kouassi Komlan from UNICEF. This blog does not necessarily reflect their views, but their inputs have been taken on board.

The UN-Water GLAAS TrackFin Initiative has a detailed guidance document that sets out a proposed methodology to identify and track financing to the WASH sector in a coherent and consistent manner across several countries. Highly recommended.

Disclaimer

At IRC we have strong opinions and we value honest and frank discussion, so you won't be surprised to hear that not all the opinions on this site represent our official policy.