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Funding and financing in the water sector. Revisiting the challenges and opportunities for the coming decade

By George Joseph, Yi Rong Hoo, Aroha Bahuguna and Qiao Wang, Water Global Practice, World Bank, Washington DC, USA

Throughout human existence, water availability, or lack thereof, has profoundly shaped the prosperity and well-being of people. It is at the heart of economic progress, human capital development, and sustaining our ecosystem. However, the global water landscape faces a turbulent confluence of challenges. Presently, 4 billion people live in water-scarce areas, and one in four cities faces water insecurity [i]. Growing populations also means more water is needed to produce more food. But, across the world, one in ten people goes to bed hungry each night, and more often than not, crops get destroyed due to too much or too little water [ii]. Nine out of ten climate events are water-related [iii]. One child under age five dies roughly every 100 seconds from diarrhea-related diseases stemming from poor water and sanitation. That’s 273,000 child deaths every year [iv] It is becoming evident that we are falling far short of meeting the world’s ambitions for achieving the Sustainable Development Goals (SDGs) of safely managed drinking water and safely managed sanitation and hygiene for all by 2030. Today, nearly 2.2 billion people—more than one of every four people—still lack access to safely managed water services while another 3.5 billion individuals live without safely managed sanitation services[v]. It is crystal clear that we live in a water-insecure world.   

In response to these pressing issues, the 2023 United Nations Water Conference emphasized the need for the international community to act decisively and collectively with the speed and priority that the urgency of our water crisis demands [vi]. Furthermore, the Global Commission on the Economics of Water advocates for a fundamental shift in how we perceive the economics of water—not merely as a commodity but as a global public good. The World Bank has also recently included among the eight global challenge programs, “Water Security and Access”, a testament to the gravity of the challenge [vii].

Funding a Water Secure Future

The sluggish progress toward achieving the SDGs for water indicates a need for more spending in the sector. But how much is actually needed to achieve these targets? Numerous studies have previously sought to determine the “spending needs” to meet these targets. Still, they have ultimately failed to come up with reliable estimates of the spending gap due to the inability to account for the sector’s actual expenditures.

A recent World Bank study, Funding a Water Secure Future. An Assessment of Global Public Spending (2024) [viii], is a pioneering effort to assess spending across the global water sector comprehensively. It aims to provide a 360° view by estimating the financing gaps necessary to achieve the SDGs by accounting for actual spending in relation to the sector’s financial requirements at the national, regional, and global levels.

The report looks deeper into the level and trends of public spending in the water sector, how well public funds are spent in the sector (budget alignment, budget execution, efficiency, and equity), and the funding and financing gaps to achieve sector goals. A wide variety of data sources, including budget data, Private Participation in Infrastructure (PPI) data, Creditor Reporting Services (CRS) Data, as well as econometric and modeling techniques, are employed to provide answers to the above questions.

Some of the key highlights of the report include:

  • Overall, annual spending in the water sector for developing countries is about US$164.6 billion, just about 0.5% of the total GDP and 1.2% of total public spending.
  • The government (85.5%) and SOEs (5.9%) spend the most on the water sector, while the private sector’s share of total spending is marginal-  about 1.7%.
  • To achieve the SDG targets for universal access to safe water and sanitation, the world is experiencing an annual spending shortfall of between US$131.4 billion and US$140.8 billion. To bridge the spending gaps, Sub-Saharan Africa must increase annual spending in WSS to 17 times its current level; South Asia – 9 times; FCVs – 29 times; and LICs – 42 times.
  • Despite large spending gaps, the water sector is not able to spend all the allocated budget. The annual budget execution rate is about 72%.
  • Due to inefficiencies, the typical water utility experiences an annual loss in monetary terms amounting to about $21 million or about 16% of their operating costs.

Finally, public spending in WSS tend to benefit urban and wealthier communities, more than their rural and poorer counterparts. This disparity is most stark in Sub-Saharan Africa.

Bridging the global water funding gap requires a comprehensive set of strategies, these include a) improving the utilization and efficiency of public spending through reforms in public investment management (PIM) and public financial management (PFM); b) catalyzing additional long-term finance through reforms such as credible regulatory systems for tariff setting and targeted spending; and c) reforming the water sector for more and better public spending through (i) cost recovery and demand management; (ii) developing state capacity and human capital; and (iii) improving data access, transparency, and communication.

Area of further research

“Funding a Water Secure Future Report” also identifies several areas where critical knowledge gaps exist. Considering the looming debt crisis and fiscal squeeze many developing countries face, it is important to recognize the need to bridge the spending gaps by improving the efficiency and productivity of public spending and attracting private funds into the sector. There is a need to better understand unique constraints that inhibit the water sector’s ability to utilize the available resources in a timely and effective manner. Positive experiences from various contexts must be understood so that others can learn and adapt to their circumstances. Though rich literature exists on private sector participation in the water sector across various contexts, it is imperative to systematically document the experiences of successes and failures. This will help to better articulate how the public sector and private sector could capitalize on their comparative strengths and work towards a coherent solution to the issues of financing and funding. In the near future, PLOS Water, as a leading journal dealing with water issues, will make a dedicated effort through commentaries, debates, and topical collections to address these knowledge gaps.


References

[i] Kuzma, S., Saccoccia, L., & Chertock, M. (2023, August 16). 25 countries, housing one-quarter of the population, face extremely high water stress. World Resources Institute. Retrieved from https://www.wri.org/insights/highest-water-stressed-countries

[ii] FAO, IFAD, UNICEF, WFP and WHO. (2023). The State of Food Security and Nutrition in the World 2023. Urbanization, agrifood systems transformation and healthy diets across the rural-urban continuum. Rome, FAO. https://doi.org/10.4060/cc3017en

[iii] Neo, G. H., & Jha, S. K. (2023, October 10). Why water security is our most urgent challenge today. World Economic Forum. Retrieved from https://www.weforum.org/agenda/2023/10/why-water-security-is-our-most-urgent-challenge-today/

[iv]Wolf, J., Johnston, R. B., Ambelu, A., Arnold, B. F., Bain, R., Brauer, M., … & Cumming, O. (2023). Burden of disease attributable to unsafe drinking water, sanitation, and hygiene in domestic settings: a global analysis for selected adverse health outcomes. The Lancet, 401(10393), 2060-2071. https://doi.org/10.1016/S0140-6736(23)00458-0

[v] World Health Organization & United Nations Children’s Fund. (2023). Progress on household drinking water, sanitation and hygiene 2000-2022: special focus on gender. WHO/UNICEF Joint Monitoring Programme for Water Supply, Sanitation and Hygiene (JMP). Retrieved from https://washdata.org/reports/progress-on-household-drinking-water-sanitation-and-hygiene-2000-2022-special-focus-on-gender.

[vi] United Nations. (2023, March 24). Stressing risk of more suffering, death, speakers say financing, infrastructure, policy changes crucial to end global water crisis, as conference concludes. UN Press. Retrieved from https://press.un.org/en/2023/envdev2057.doc.html

[vii] Taliercio O’Brien, R., & Jha, S. K. (2024, February 20). Too much, too little, too polluted—but not too late for transformative partnerships on water. The Water Blog. World Bank. Retrieved from https://blogs.worldbank.org/en/water/too-much-too-little-too-polluted-not-too-late-transformative-partnerships-water.

[viii] Joseph, G., Hoo, Y. R., Wang, Q., Bahuguna, A., & Andres, L. A. (2024). Funding a water-secure future: An assessment of global public spending (English). Washington, D.C.: World Bank Group. Retrieved from http://documents.worldbank.org/curated/en/099050624154572979/P172944100adb1042188ab1d289e7f2f00b

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