Financing Options for the 2030 Water Agenda
Summary
The sector is in the process of repositioning itself toward the Sustainable Development Goals (SDGs). Under the Millennium Development Goals (MDGs) the international focus of the water sector was predominantly on increasing access to water supply and sanitation (WSS). With the advent of the SDGs the agenda is much broader covering all aspects of water (WSS, water resource management [WRM], and irrigation) and their sustainability.
The SDGs come with new and very significant financing needs. For WSS they have been estimated at US$1.7 trillion, or three times the amount historically invested in the sector (Hutton and Varughese 2016). For irrigation, the International Food and Agriculture Organization (FAO) estimates that some US$960 billion will be required between 2005/07 and 2050 to ensure water for agricultural production in 93 developing countries (Koohafkan, Salman, and Casarotto 2011). No WRM estimate is available but failure to address WRM could diminish national growth rates by as much as 6 percent of GDP by 2050. These amounts are all well above historic allocations.
The water sector is not well equipped to face these new financing challenges. The sector has historically relied on public financing to meet its investment needs—through domestic and development partner concessional funds and/or lending. Institutionally many parts of the sector are government departments where mobilizing private finance is almost non-existent. Even when they are established as corporate entities, such as some WSS providers, it is rare for them to borrow from commercial lenders due to weak incentives and/or poor creditworthiness.
Mobilizing additional concessional funds will help— but will not be sufficient. New sources of concessional finance might be tapped (e.g., climate finance) but the gap cannot be filled simply by increasing the volume of concessional funds and lending from governments or development partners.
A new sector financing paradigm is required based on four broad themes. The sector has to realign itself around actions that (a) improve sector governance and efficiency (i.e., improving creditworthiness), (b) crowd in or blend private finance (i.e., leveraging capital ), (c) allocate sector resources more effectively to deliver the maximum benefit for every dollar invested (i.e., targeting capital), and (d) improve sector capital planning to reduce unit capital costs (i.e., minimizing capital requirements).