Why invest in water and sanitation?
When we invest in water and sanitation, it can lead to numerous benefits to individuals, society and the economy (Sanitation and Water for All (SWA), 2020), including the following:
- Being an investment with a huge return; “every dollar invested in water and sanitation brings a four-fold return” (pp.1, SWA, 2020)
- Economic gains: for instance, reduction in loss of work productivity due to water and sanitation -related illnesses
- The catalytic effect of positive impact in other sectors, when investment to assure universal access to water and sanitation supports public health
- Prevention of premature death and illness related to malnutrition and water-borne diseases in childhood
- Improved health and lifespan in adults
- Increased school attendance, greater privacy and safety, and a greater sense of dignity for all
Existing sources of funds
Funds for water and sanitation typically come from three major sources (UN-Water, n.d.):
- Taxes from individuals and businesses
- Transfers which include overseas aid, remittances, or market interest rate lending
- Tariffs paid by households, businesses and governments
Effectively planning how these funds are raised, in what proportions, and how they are implemented is key for assuring the provision of good services (UN-Water, n.d.)
The need for better financing options
The United Nations Sustainable Development Goals (SDGs) brought with them numerous changes to the water and sanitation sector. They have broadened the international focus from predominantly increasing access to water supply and sanitation, to also cover additional aspects such as water resource management and irrigation (Kolker, Kingdom, & Trémolet, 2016).
The SDGs have also resulted in new financial needs (Kolker et al., 2016), and a significant increase in investment in the water and sanitation sector is required to meet these goals (Kolker et al., 2016; UN-Water, n.d.). The reality, however, is that the current levels of water, sanitation and hygiene (WASH) financing is insufficient to meet the targets of SDG6; i.e., universal access to safe and affordable drinking water, adequate sanitation and hygiene (UN-Water, n.d.).
The following are some challenges and opportunities that have been identified with regards to financing to achieve universal access to WASH (UN-Water, n.d.):
- Significant financing, policy and governance gaps between aspiration and current reality
- The slow growth of national WASH budgets, with 80% of countries reporting insufficient financing to meet their national WASH targets let alone the higher levels of service that are the focus of SDG6
- Insufficient investment in WASH infrastructure, with more than 50% of countries stating that household tariffs are insufficient to recover operation and maintenance costs, leading to an increase in disrepair and service failure
- Decline in foreign aid commitments for WASH, despite an increase in international aid spending on WASH
- Imperfect use of data for deciding how and where to allocate funds, with only 1/3 countries having defined, agreed and consistently allowed financial plans
- Vulnerable groups continuing to be left behind; despite 70% of countries having specific plans to reach low-income communities with WASH, only an estimated 25% of WASH aid was spent on basic systems for unserved people, particularly those in rural areas
Hence, under-investment, coupled with poor performance records, continue to influence each other and ultimately cause challenges that hinder the WASH sector from reaching its SDG targets (SWA, 2020). Additionally, the lack of money is not the only root cause of the problems within the sector. Hence, seeking new sources of funding and improving how existing sources are used and empowering political leadership to inspire change and put new plans into action is necessary to assure the achievement of SDG6 (SWA, 2020; UN-Water, n.d.).
The Solution: What can we do to ensure we meet our SDG goals?
The importance of multi-stakeholder collaboration
To achieve the new WASH financing needs and SDG goals, active collaboration and participation amongst all stakeholders are key, with each stakeholder having a role to play (Kolker et al., 2016).
|Governments||Facilitating mobilisation of domestic finance Mobilising additional volumes of funding into the sector and targeting those funds to the most productive uses Encouraging capital efficiency in the sector|
|Development partners||Orienting support towards improving efficiency and creditworthiness and mobilising domestic finance Increasing use of guarantees and other instruments to crowd commercial finance into the sector|
|Private sector||Partnering with the public sector toward improving capital and operating efficiency Reaching out to the public sector to explore potential financing relationships and transactions|
|Civil society organisations (CSOs)||Active participation to ensure that governments make informed decisions. This participation should be encouraged, and CSOs given opportunities.|
Areas of intervention to mobilise more resources to the sector
In their recently published handbook for Finance Ministers, SWA (2020) highlighted the following critical intervention areas that can potentially mobilise increased resources to the WASH sector. They suggested that Finance Ministers can improve water and sanitation by supporting policies that:
- Improve overall performance within the existing public funding and financing constraints (e.g., linking funding to results, encouraging assurance of cost-effectiveness and maintenance of existing assets, improving subsidy targeting to expand coverage to low-income households and services where there is low willingness to pay, and enhancing effectivity and efficiency of the sector to reduce costs)
- Expand the funding base by mobilising more funding (e.g., through adequate cost recovery policies, tariff reforms that assure affordability across communities and income areas, increasing allocation of taxes to water and sanitation focusing on the rights of the most vulnerable and marginalised, use of earmarked taxes directing specific tax returns to the WASH sector, and establishing options for cross-subsidisation)
- Increase repayable domestic finance to avoid foreign exchange risk and reduce dependency on foreign aid (e.g., using guarantees to de-risk and mobilise private domestic finance, assessment of service providers’ creditworthiness, working with private sponsors, using sector revolving funds to strengthen financial markets, and supporting the next generation of micro-finance approaches)
- Encourage innovation and least-explored new approaches to fill the financing gap that will be needed in the coming years (e.g., climate funds, social impact bonds)
Hence, while there is a financing gap within the reality and the achievement of SDG6, it is still possible to meet the targets of this goal and assure sustainable water and sanitation for all by 2030. Finance Ministers have a significant role to play in mobilising resources to the sector. Nevertheless, this cannot be achieved without the active participation of and collaboration amongst multi-stakeholders.
Kolker, J., Kingdom, W., & Trémolet, S. (2016, November). Financing options for the 2030 water agenda. Retrieved from https://www.publicfinanceforwash.org/sites/default/files/uploads/WB-2016-water%20financing.pdf
Sanitation and Water for All (SWA). (2020, May). Water & sanitation: How to make public investment work. A handbook for finance ministers. Retrieved from https://www.sanitationandwaterforall.org/sites/default/files/2020-12/Financial%20Handbook_EN.pdf
UN-Water. (n.d.). Financing water and sanitation. UN-Water. https://www.unwater.org/water-facts/financing/