10 things IRC, Water.org and the World Bank think you need to know about the enabling environment for finance in WASH
Published on: 30/04/2019
Interest in finance is going mainstream in the water, sanitation and hygiene (WASH) sector, at least if the great variety of presenters at the All Systems Go! Symposium is anything to go by. What has been, at least until now, a subject of interest primarily to a small group of finance nerds is now – and not before time – being talked about by everyone. That they are doing so from the perspective of strengthening the whole WASH system, and not just building infrastructure, is even more encouraging.
To date, discussions on WASH finance have tended to focus exclusively on either the supply of, or the demand for, finance: either on improving financial management of individual service providers (thus decreasing their perceived risk to lenders); or, on facilitating complex financing deals between suppliers of finance and financial intermediaries (providers of loans to service providers). This latter is the main concept behind the increasingly fevered discussion around blended finance.
Yet the reality is that addressing the WASH sector's well- known financing gap will require more than developing "bankable projects" or sophisticated blended financial mechanisms. Without also addressing the foundational systemic issues that make the entire sector unattractive for investment, financial solutions (however fancy), will continue to be short-term, un-sustainable and project driven - effectively promoting and prolonging dependence on external support.
Taking as a starting point the need to make the entire sector more attractive to finance, and to anchor the finance discussions within a systems strengthening approach, 10 foundational issues for mobilising finance for WASH (Figure 1) have been identified in a new paper that was unveiled during the symposium. Developed by Water.org, IRC, and the World Bank, the paper focuses on three crucial groups of stakeholders within the WASH system: government, service providers and suppliers of finance.
If 10 issues seem like a lot, it is better than the 20 we started with! In writing the paper, we focused hard on narrowing it down to a set of critical issues that are so interdependent and fundamental that they need to be addressed as a group. While, if we only solve half of them, the other half will remain an insurmountable hurdle to sustainable finance.
Addressing all ten 10 of these foundational issues, at the same time, across a country is what a systems approach to finance looks like. In the last few years there has been progress made on many of these, but seldom on all. Personally, I think that one of the most neglected areas is the engagement with government on its unavoidable responsibility for financing of the sector. Why? Because, in the words of UNICEF's Evariste Kouassi, "Only governments have the capacity to mobilise the amount of finance required to reach the SDGs, but it's everyone's responsibility to address the foundational issues".
How can we progress towards achieving SDG 6? Much emphasis is put on developing national sector strategies and, during the symposium, we heard a lot about district master plans. These are critical processes and documents. Yet without finance, they run the risk of remaining little more than paper: wish lists of the which we have seen too many of already. To become a reality, and to have a chance of really changing anything, these documents and processes need to be accompanied by financing strategies.
Financing strategies not for one utility or village, but for a country's WASH sector as a whole. A financing strategy that outlines how different sources of funding will pay for different levels of service. A financing strategy that clearly identifies which financial sources are available (user fees, public finance, and commercial finance) for which pieces of the sector investment pie: capital, recurrent costs, regulation etc. A financing strategy that addresses the specific needs of the WASH sub-sectors (water, sanitation and hygiene), because financing sanitation looks very different to financing water, particularly for non-sewered connections which are much more dependent on grants and concessional loans (the paper has a glossary that explains what all these are). Financing strategies also need to look at the correct and just balance between the different sources. I am convinced that at the moment too much public finance is going to projects and geographical areas that could be covered by private finance, namely: subsidising high quality services to the better off.
Again, the solution is to stop looking at finance on a deal by deal (utility by utility) basis and consider funding a country's WASH sector as a whole. Only when looking at the whole, as part of a national financing strategy, can private finance be effectively directed to where it can make a profit; tariffs adjusted to pay for as much as is equitable; and public finance effectively freed up for other purposes - reaching the most marginalised and those parts of the sector that will never be bankable.
It is both unrealistic and fundamentally unjust to expect the poor to pay the full costs for (bad) water and sanitation services. Yet as frequently documented, there is simply not enough international development assistance to bridge the gap, while international finance is not a viable source of subsidy. Public finance in the form of tax revenue is, therefore, an unavoidable part of the solution. If they are to take their leadership role seriously, national governments need to take the lead; developing a financing strategy for achieving the targets they have set, and then committing to providing the political leadership necessary to deliver it.
Summing up three days of intense discussion is difficult, but here are my five key takeaways from discussing the foundational issues during the All systems go! WASH symposium:
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