Julián Suárez (CAF): "Water finance and governance have a bi-directional relationship"

It should be noted that CAF, as a member of the Board of Governors of the Council, leads the Finance Task-Force, and in this line also actively participates in the co-organization of the Media and Tools priority, which includes cross-cutting issues, such as finance, governance, and technology, to promote innovative models in favor of a water security agenda.

431 million people in the region still lack safe access to sanitation

One of the main expectations of this conference is to gather the regional challenges in terms of water, sanitation, irrigation, and management of water-related extremes (droughts and floods), as well as the plans and actions designed to achieve the Sustainable Development Goal 6 (SDG 6). The results of this conference will be systematized and presented at the World Forum, collecting an integrated and representative message of Latin America and the Caribbean vision. 

We know that in LAC there are still significant challenges to be addressed to achieve universal access to water and sanitation services. What is the role of finance in the actions that must be carried out in this matter? What are the reasons why it is essential to address the problem based on this aspect?

Indeed, official data indicate that, despite all the efforts made in the last two decades, 161 million Latin Americans and Caribbeans still do not have access to safe water, and 17 million of them do not even have basic access to a tap with drinking water or an improved water source. Concerning sanitation, there are 431 million people in the region who still do not have safe access, including 72 million who do not possess basic access - discharging into latrines or precarious pits, with the aggravating factor that 10 million people still defecate in the open, exposing themselves to health and safety problems.

In this context, and if the current investment trend continues, CAF estimates that several of the targets of SDG 6 would be achieved between 2045 and 2050, far from the 2030 target. Therefore, it is necessary to increase the flow of investment significantly.

The decision to allocate increased investment resources must be accompanied by a set of criteria to do so in an intelligent and efficient manner

The good news is that there is a consensus to boost the pace of investments substantially. For this, public and private financing flows must increase throughout the entire cycle of infrastructure projects in the sector. That is, from the conceptualization and pre-investment studies to the implementation and subsequent actions necessary to guarantee its sustainability.

But the decision to allocate greater investment resources, which never cease to be scarce, must be accompanied by a set of criteria that allow it to be done intelligently and efficiently, focusing public financing on those areas where it is not possible to establish attractive conditions for the private sector.

For this, it is essential to incorporate instruments that facilitate the combination of public and private financing, such as Results-Based Contracts. These will allow for the improvement of specific aspects in the provision of services and in parallel developing capacities of the provider's technical staff through the transfer of knowledge and know-how by the private sector. Additionally, the costs of implementing this type of contract are financed from the results or benefits obtained.

Another alternative, although more incipient but with a growing presence, is blended finance, which implies using development finance to catalyze commercial banking resources, allowing to amplify the funds of multilateral to meet the financing needs of a greater number of projects.

All these considerations will be treated in greater depth and detail in the finance block of the conference, where we will have a keynote speech and three high-level analysis panels to address the issue.  

While the availability of financial resources is essential for the implementation of investments to reduce the gaps that still exist, so is Governance. What are the challenges ahead and what is CAF's vision in this regard?

It is well known that financing requires enabling conditions for its development. Water governance, which establishes the dynamic, sometimes sensitive, balance between the growing demands for water use and the responsiveness of decision-makers, requires adequate institutionalisation of basin systems, including corporate governance in decision-making, regulatory and service delivery bodies, as well as effective and legitimate management tools to achieve integrated water resource management.

Indeed, as we anticipated in a recent paper, water finance and sectoral governance have a bidirectional relationship. Increased financial flows require a favourable legal environment and strengthened institutional capacities in the different territorial spaces. For its part, any reform of the water sector, as well as capacity building, must incorporate the financial dimension.

At CAF, we are aware of the challenge of working on governance issues, given that  their treatment implies addressing several aspects; starting with institutional arrangements for proper watershed management that include actions to protect and improve the quality of water resources, the conservation of biodiversity and ecosystems, and the resilience of communities and infrastructure; passing through water and sanitation services, whose provision is characterized by the existence of multiple urban and rural operators, and which demands a differentiated and effective regulation.

These challenges become more complex under the context of the health and climate crisis since Latin America and the Caribbean has been one of the most affected region by the pandemic and it is highly vulnerable to extreme events, exacerbated by climate change.

You have brought up climate change, a problem that is very present these days due to the COP26 in Glasgow and where CAF has actively participated. What additional considerations should be taken into account in the areas of finance and water governance?

Although climate change affects transversally and at all levels, the impact on the water sector is clear, reflected in the modification of hydrometeorological patterns, which alter the intensity and frequency of rainfall, varying the availability of water, causing the forecast of resources for new infrastructures to become obsolete, and the need to include new variables in decision-making and prioritization of projects.

Any reform of the water sector, as well as capacity building, must incorporate the financial dimension

This new context poses the challenge of taking the integrated management of water resources towards a necessary regional climate resilience agenda, forcing us to change some paradigms in the preparation of projects, being fundamental the incorporation of the green component from its initial stages, and where to include measures of adaptation and mitigation to climate change, in addition to contributing to sustainability, they become essential for their viability.

In addition to this, the challenge of finding a solution to the problem of water finance and governance becomes more complex, since greater resources are required than the existing ones, these being already scarce, and institutional weaknesses are increased by the appearance of new variables to be considered in decision-making, whose knowledge is null or, at best, incomplete.

For this reason, CAF, with the firm conviction to become the "green bank" of the region and convinced that it is necessary that all actors make an additional effort to the one made, has endorsed, in the framework of COP26, its commitment to allocate 40% of its financing to the environment and climate in 2026, aiming it to be 50% by 2030. To meet this objective, over the next five years, it will make available up to USD 25,000 million of financing in favor of global biodiversity goals, in addition to the fact that the institution will serve as a platform for USD 1,500 million of financing, on concessional terms, in environmental and climate mechanisms of the United Nations (UN).

All this adds up to environmental and climate facilities with non-reimbursable financing resources, strengthening its capacity to manage climate issues and develop a medium-term agenda, consistent with the Paris Agreement.