| Abstract |
Sanitation services are beneficial for communities at large. They generate strong positive health and environmental
benefits to society (“externalities”). Public financing is an important way to stimulate the provision of these services,
but there are serious issues with the way public subsidies for sanitation have been delivered up to now. Recent estimates
show that the sanitation MDGs will simply not be met in a number of countries if “business-as-usual” continues. Results- based financing (RBF) has emerged as an important new way of financing public services in general and basic services in particular. One type of RBF known as output-based aid (OBA) tends to be used to target subsidies for poor customers by providing service providers the incentives to serve areas of greatest need. Unfortunately, experience with OBA in sanitation is limited. One of the motivations for this paper is to consider why this is the case. Given existing experiences in sanitation more broadly, and results achieved from OBA in other sectors, it appears that OBA could present advantages over traditional (input-based) financing for sanitation.The attached study looks at how such OBA schemes might be designed by analyzing the sanitation value-chain, and what institutional, financing and risk mitigation measures would be required for each type of OBA scheme. Questions discussed include “what” outputs should be subsidized and “who” are the most likely candidates to provide output-based sanitation services. Introducing OBA schemes for sanitation will only be one part of a larger set of necessary high-level sector reforms that countries need to undertake to substantially
improve and scale-up access to sanitation services for the poor. Nevertheless, their introduction could go some
way towards improving access through greater targeting and better incentives for service provision. [authors abstract]
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