Tuesday, February 9, 2010

Financing Water for All

There are glaring global inequalities in the supply of water infrastructure and services. In 2000, an estimated 1.1 billion people lacked access to a safe water supply, and 2.4 billion to proper sanitation. The UN Millennium Development Goals set a target of halving by 2015 the number of people who lack access to safe water. To even take a stab at tackling this lofty goal, collaboration across all sectors will be required at a global level. In the past, players have shifted responsibility to each other. This problem can only be solved if all parties accept the need to change their approach. These parties include governments at national, regional, and local levels, NGOs, communities, public utilities, companies, multilateral lenders, and civil society to name a few.

According to a report by the World Water Council, financing flows need to at least double before we can even think about providing a sustainable water supply to the masses that lack it. These will have to come from all sectors: financial markets, water authorities through tariffs, from multilateral finance institutions, from governments and from public development aid in the form of grants.

There is a general consensus that inherent problems to the water sector arise from weaknesses in governance. Sector institutions are badly in need of reform if they are to aptly utilize new funding. Governments must also prioritize water. Because the water sector tends to be decentralized, policies and action plans must be implemented at community and regional levels, as well as bolstered on national and international scales. To ensure sustainable cost recovery from the generation of interal funds, a stable framework for future revenue transfers will be essential as well.

On the private side, international loans and equity investment in water have been declining. Banks and companies are aware of the risk-reward scenarios associated with water and the market for water infrastructure development remains illiquid in many economies. The sovereign risk on projects, including foreign exchange risk, is a major disincentive that must be addressed if water projects in emerging markets are to attract international loans and equity. Local businesses are crucial if water services are to be improved. These enterprises need the resources, innovation and training to do so. Service NGOs may be useful for support in these cases. Export credit agencies should also be urged to set targets for their water sector business to lengthen the maturities for water loans and to increase the proportion available for local costs.

Both public and private water providers should be able to borrow more of their capital locally, reducing the foreign exchange risk. Government and central banks should encourage the growth of local capital markets and attract more local savings from pension funds, mutual funds, and other institutional investors into efficient local channels. To support these efforts, multilateral financial insitutions must also make greater use of guarantees and other instruments to encourage more long-term local lending and shore up resources in local currency markets. Only if these steps are done collaboratively, may we actually make visible progress toward securing water access for all.

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