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Published on: 21/07/2015

Since the start of the Millennium Development Goals (MDGs) in 1990 the world has made significant progress in improving access to water supply and sanitation services. When global coverage grew from 76% to 91% in 2015, 2.6 billion people have gained access to clean drinking water. Similarly, 2.1 billion people have gained access to sanitation, as global coverage level reached 68% in 2015 (UNICEF and WHO, 2015).

However, the progress of the MDGs was not a progress for all and disparities remain high between urban and rural areas and between least developed countries and the rest of the world. The remaining task is daunting, as the cost of reaching the poorest and the most vulnerable is quite high. There are still 663 million people without access to clean drinking water and 2.4 billion people without access to sanitation. To meet the universal access to water and sanitation targets of the Sustainable Development Goals (SDGs) by 2030, about US$ 27 billion needs to be invested annually (UNICEF and WHO, 2015).

In this context were the various water supply and sanitation financing side events organized at the Third International Conference on Financing For Development held in Addis Ababa from, 13 – 16 July, 2015. We report form the event co-organized by the Dutch Minister for Foreign Trade and Development Cooperation convened on the 15th of July. IRC was one of the co-conveners.

What are the challenges in financing Water, Sanitation and Hygiene (WASH)?

The share of water and sanitation financing in Official Development Assistance (ODA) is quite small as mentioned by the financing for development participants in the Addis Ababa Summit. There are competing demands for development finance and the WASH sector so far hasn't been very good in making the case for the sector. It isn't strong in generating data that helps to show how investment in WASH leads to better economic outcomes, some of the panelists argued. Fragmentation of the sector between water, health, housing and other ministries and the project based financing approach predominantly used in the sector lead to high transaction costs.

When it comes to local/national sources of financing, the WASH sector doesn't fare much better. The sector's share of national budgets in developing countries is low, as in some countries; only about 1/3rd or 1/4th of the budget allocated to education or health goes to water. Attracting private finance for WASH is also quite a challenge. For example, banks consider WASH a high risk sector and it is often difficult for water utilities to borrow from banks.

A rapidly growing urban population in developing countries adds to the challenge of WASH financing in the period of the SDGs. About 90% of the urban population growth between now and 2030 will happen in developing countries. The water infrastructures in urban areas need to more than double to cater for this rapidly increasing population.

What are the solutions to go 'from billions to trillions' in WASH?

One of the key phrases of the Addis Ababa Financing for Development conference, 'from billons to trillions' is explained as a call for the global community to move discussions from "Billions" in ODA to "Trillions" in investments of all kinds: public and private, national and global, in both capital and capacity, in order to meet the investment needs of the SDGs. The solutions recommended to bridge the financing gaps in WASH during the side events reflect the essence of this key phrase.

Panelists argued a mixture of financing modalities are needed, at different levels, which blend together, public and private investment with ODA. Finding the right balance between domestic and foreign resource, including aid, helps to ensure WASH financing becomes sustainable and more predictable.

ODA can be used to leverage more investment, from private or public sources, in the sector. One way of doing this is using ODA as a risk insurance or guarantee for bank loans. For example, in Kenya, a water financing facility was established to finance WASH projects for well performing utilities with higher capacity. Loans from banks were made available to water utilities in Kisumu and Nakuru towns and community water projects. Loans were provided with a twelve month grace period. ODA from USAID was used to provide 50% guarantee for the loan. The interest rate of the loan was lowered through negotiation from 20% to 15%.

Currently a number of development partners and mufti-lateral financing institutions are following suit in supporting this type of innovative financing modalities. According to a delegate from the US government, 100 billion revolving loan fund to municipal entities will be given and a fraction of that goes to guarantee loan. The African Development Bank is also starting a partial risk guarantee facility that provides partial credit guarantee to the private sector for investment in WASH projects.

While debit financing can be an option for utilities with higher capacity, in rural areas and in reaching poor households, increasing other forms of finance, such as, national public investment will be crucial.

However, what is needed is not just more money, but effective use of existing money. In-order to make the sector fit for finance; it should be able to turn 'cash flow into water flow and water flow into cash flow'. For this to take place, reform is needed in sector governance: policies, institutions and capacities. Reform is needed in the sector to improve efficient use of water, to maximize its impact and optimize use. Regulating water pricing is needed to prevent over abstraction and depletion, protecting the resource from misuse. "When water is given for free, it becomes the most expensive for the poorest", it is quoted. To make service delivery of utilities more efficient, they have to be autonomous and accountable, with an independent regulatory body.

ODA can be used to increase effectiveness of public investment, through building human resource capacity in the public sector at local and national levels, putting in place a good monitoring system, supporting the development of policies that attract investment and supporting the development of bankable projects.

A number of other measures can help improve financial effectiveness of the sector. At the national level, developing operational strategies, localizing SDG goals and robust progress tracking systems are essential. Strengthening national statistics institutions is essential to localize the SDG goals, establish a baseline and tracking system. Better sector alignment, harmonization and coordination will help the efficient use of resources.

Donors need to use more pool financing systems, instead of project by project approach. Better coordination between ministries responsible for WASH, including water supply, health, education and housing sectors is needed. Shifting focus to service levels and sustainability of infrastructures through, for example, improving response rate when schemes break-down, will help to positively influence willingness to pay at scheme level, and will help to attract investment, more broadly. Strengthening learning systems in the sector can contribute a lot by helping to document and disseminate best practices and innovations between NGOs, governments and private sector actors.

Final thoughts

Achieving the SDGs requires revolutionary change, as universal access by 2030 is a revolutionary idea. As it was particularly pointed out during the summit, boosting domestic revenue is needed. However, there are 45 countries globally that are off track of the MDGS on WASH that will not be able to make progress without ODA, because local capacities need to be built to raise local revenue, in order to increase domestic resource mobilization, which takes time (UNICEF and WHO, 2015).

Some of the innovative financing modalities presented during the side events show possible ways forward. And although ODA alone is not the answer to bridge the finance gap, many at the summit argue, we can go much further, if the 0.7% GDP commitments made by the developed countries are honored; and if aid goes to least developed countries. The Addis summit has seen further affirmation of the commitment made by rich countries to allocate 0.7% of GDP to ODA and 0.1-0.2 percent to go to least developed countries.


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