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More public funds for water and sanitation; ‘What would move the Finance Ministers hearts?’

Published on: 14/07/2015

The Conference Financing for Development (13 – 16 July 2015) will make a strong call on the importance of increased domestic public finance towards funding the realisation of the Sustainable Development Goals.

By Erma Uytewaal and Jeske Verhoeven of IRC

The Third International Conference on Financing for Development will bring together the Heads of States, Ministers of Finance, Foreign Affairs and Development Cooperation and other high-level representatives including non-governmental organizations and business sector entities in Addis Ababa, Ethiopia. At the Conference the financing and implementation of the post-2015 development agenda, the Sustainable Development Goals, will be the main topic of discussion.

This blog discusses the role of the Sanitation and Water for All partnership, in support to its members, towards increasing domestic resource mobilisation for universal access to water and sanitation. It also argues why public funds are important to achieve the Sustainable Development Goals and how public financing can be complemented by other sources of income (i.e. aid). Finally, it details what Sanitation and Water for All can do to support its partners in enhancing public resources for the water and sanitation sector.

An expensive vision. How to finance it?

The world is expected to officially adopt the new Sustainable Development Goals in September 2015 at the United Nations General Assembly in New York. The goals will guide global and national policies for the coming 15 years and provide a broad scope with impressive targets as achieving universal access to education, to public health care and to clean drinking water and adequate sanitation. The question that is on the table in Ethiopia during the Conference on Financing for Development is how to finance the achievement of this vision.

Realizing the Sustainable Development Goals will be expensive. It is estimated that achieving the Sustainable Development Goals will require between US$ 3.3 and US$ 4.5 trillion a year from developing countries (Kishimoto and Boys, 2015). The money needed to reach all Sustainable Development Goal targets will come on top of an already existing annual investments gap of US$ 2.5 trillion (Kishimoto and Boys, 2015). For the water and sanitation sector alone, the annual financing gap is estimated at US$ 26.7 billion (Kishimoto and Boys, 2015).

Reaching the Sustainable Development Goals will require more funds, especially taking into account the already existing funding gap. But how that can be achieved is a central question to be addressed. More effective use of the existing resources seems to be the way to go, particularly as there does not seem to be additional money for development available from donor countries (Hurley, 2015). However, the good news is that there are many commitments and ideas, which, if implemented, will make a significant impact on the new sustainable development agenda (Hurley, 2015).

No new money but new ideas; Public funding in the spotlight

One important emerging idea on how to finance the Sustainable Development Goals concerns the role of public funding. High expectations are being set for the role that domestic resource mobilization can play in financing the post-2015 development goals. This implies the responsibility of countries to enhance the collection of tax revenues by national and local governments, for achieving the sustainable development agenda.

In the water and sanitation sector, highlighting the importance of public funding requires a shift in policy. It means moving away from the emphasizes of the recent years on the potential of the private sector to realise development, the idea of raising prices to costs recovery levels and the over dependence on aid money (Bayliss, 2013). As Kishimoto and Boys (2015) put it;

"The idea that private finance can bring the needed investment to the water and sanitation sector is remarkably persistent in global policy circles and leads to a dangerous lack of attention to the far more realistic option of mobilising public finance for infrastructure to provide essential services for all. Public finance is the real solution. "

Markets have not been effective in providing "public goods" like the provision of safe drinking water and adequate sanitation services at scale, or in reaching the poor. Domestic public finance is important to create a conducive environment for market-led solutions. Historical evidence from rich countries also indicates that domestic public finance has almost always played a critical role in creating and maintaining water and sanitation services, even in market-led economies like the United States (Fonseca, 2015).

The bottom line is that universal water and sanitation services will require governments to invest more money, and to invest it more effectively. This will be an important plea during the Addis Conference on Financing for Development. The obvious question then is; but how?

Different countries, different financing needs and approaches

More money is surely going to be critical for achieving the water and sanitation Sustainable Development Goal (i.e. number 6) of universal coverage by 2030. The question is however how public finance can be most effectively spent that it catalysis both aid money and the development of dynamic markets for water and sanitation. In other words: 'What needs to be done to develop effective public finance systems?'

Public finance is not a panacea. It will not be able to do it all. Domestic public finance is only part of the solution. To finance universal sustainable water, sanitation and hygiene services will require a mix of a) domestic public finance, b) user finance (derived from household payments for services received, i.e. from tariffs), and c) donor finance (i.e. aid).

An effective public finance system will leverage the right mix of finances from these different sources and channels. To attain the Sustainable Development Goals it will be essential to ensure that countries access the financing that best suits their needs.

Finding the right mix of finance sources will be dependent on a variety of factors such as the general socio-economic development status of the country, governance, progress in the water and sanitation sector, the WASH sectors' particular challenges and its capacity.

In low income countries with a fragile governance structure and no significant functioning financial system, the capacity to raise public funds through national taxes may be very limited. Hence in these countries it will be important to use aid money strategically to complement the limited available domestic public funds, while the financial system is developed and strengthened as part of the water, sanitation and hygiene sector's capacity building. This will take time and needs to go alongside the financing of new and ongoing large scale programmes to enhance access to water and sanitation services.

In upper middle income countries, with basic and functioning financial mechanisms, the options for generating and leveraging domestic funds are much greater. Here aid money can complement public funds in strengthening the water and sanitation sector capacity on the way to aid independence. This implies the need for the development of a solid domestic financing system for water, sanitation and hygiene service delivery.

Effective approaches to build sector finance systems

Building a finance system that can leverage the right mix of finances (i.e. domestic public finance, user finance and donor finance) will require that all key actors, governments, donors, Non-Governmental Organisations and water, sanitation and hygiene service providers work together in creating an enabling environment for governments to mobilize public finance. Aid will need to be delivered in such a way that it supports, and not undermines, the development of a solid and sound domestic finance system.

Public finance forms part of a wider governance conundrum. This means that improved water, sanitation and hygiene services will require not just more government investment, but many other fundamentals including clear institutional mandates, institutional capacities, political willingness and commitment. Good governance will be essential for efficient use of public finance to the benefit of all people, not only the happy few.

The discussions during the last AfricaSan Conference in 2015 in Dakar, Senegal, on the attainment of countries to the eThekwini commitment (1), underlined this complexity and was nicely summarized by Guy Norman from Water and Sanitation for the Urban Poor; "Clearly, it is not just about money. It is also about governance and capacity (Norman, 2015)."

One caveat to be made here concerns the lack of adequate information on financing streams in the water, sanitation and hygiene sector. It's difficult to plan for country specific financing strategies without the basic information on the available resources, the particular financing streams and the conditions under which the resources are deployed. Hence there is a need for all countries to put more emphasis on measuring and tracking what resources are going into the water and sanitation sector. And where needed, this will require the support of the donor community as capacities and systems will need to be built and improved to allow for the tracking of resources.

Role of Sanitation and Water for All

The Sanitation and Water for All partnership has an important role to play in increasing awareness and understanding of the role of public finance and domestic resource mobilisation among all its members; governments, donors, Non-Governmental Organisations and organizations of civil society. Next to awareness raising, the partnership will need to be prepared to support in- country decision-makers in translating the commitments made in effective use of enhanced public funding for the water and sanitation sector. One means could be for the partnership to support learning among countries, south to south, in how to enhance public funding and to strengthen finance systems including Monitoring and Evaluation to track finances and improve governance in the water and sanitation sector.

Priority for water, sanitation and hygiene on the national development agenda is already one of the main drivers of the Sanitation and Water for All partnership. Many Sanitation and Water for All partner countries have committed during the Sanitation and Water for All High Level Meeting in 2014 to increase their national budget for water, sanitation and hygiene. New commitments from partner countries as well as from donor countries and other partner organisations on how to ensure achievement of Sustainable Development Goal 6 (i.e. universal access to water and sanitation for all by 2030) will be presented and discussed at the next High Level Meeting in 2016. And of course, beyond the formal commitment, there will be the need for effective behaviors that convert political statements into reality on the ground.

Julian Kyomuhangi from the Ministry of Health in Uganda argued in a session during the last AfricaSan in Dakar, Senegal (May 2015) that it's about the politicians who pay lip services to sanitation and then do not sign the check. She stated; "Maybe God will move their hearts (Norman, 2015)." We would not leave it up to God, but rather believe in the potential of the Sanitation and Water for All partnership to make the difference. The partnership has several platforms and instruments in place such as the Sanitation and Water for All partnership meeting in the second half of 2015, and the ministerial meeting planned for the beginning of 2016, that provide opportunity to raise awareness on the importance of public funds for the realization of the Sustainable Development Goals and what it will require from the different stakeholders involved.

Commitment of all Sanitation and Water for All members to display effective behaviours in support of developing sector capacities, including the development of a solid and sound domestic finance system, will be crucial. And last but not least, the willingness among the Sanitation and Water for All partners to keep each other truly accountable for the commitments to build those systems, will be a key feature to pursue.

Footnote

1) In the eThekwini Declaration (2008) African Heads of State committed to allocate 0,5 % of their national budget to sanitation.

References

Bayliss, K., (2013). Financing Water in Africa, No. 182, SOAS Department of Economics. Working Paper Series. Available at <www.publicfinanceforwash.org >

Fonseca, C., (2015). Domestic Resource Mobilisation and WASH in the Financing for Development Agenda. Finance Brief 4, Public Finance for WASH. Available at <www.publicfinanceforwash.org >

Hurley, G. (2015). Financing development: High expectations for conference in Addis Ababa. Quoted in Dag Hammarskjöld Foundation and the United Nations Development Partner (UNDP) Multi-Partner Trust Fund, 2015. Office Publication: Financing the UN Development System: Getting it Right for a Post-2015 World, Issue: Seminar Papers and Report, p. .Available at < http://www.daghammarskjold.se/wp-content/uploads/2015/03/Financing_the_UN_Development_System_Final_web.pdf >

Norman, G. (2015) Taking government budget commitments forward. Presented at AfricaSan 4 conference in Dakar, Senegal, May 2015. Available at <www.publicfinanceforwash.org >

Norman G., Fonseca C. and Trémolet, S., (2015). Brief 1: Domestic public finance for WASH: what, why, how? Public Finance for WASH. Available at <www.publicfinanceforwash.org >

Kishimoto S. and Boys D, (2015). Learning from the past: Public finance and democratic control are key to achieving the SDG SDGs. 2015. Available at < www.publicfinanceforwash.org/blog/learning-past-public-finance-and-democratic-control-are-key-achieving-sdgs

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