Mobilising financing to achieve universal access to basic water and sanitation services for SDG 6

Financing needs

At the UN Water Conference in March 2023, world leaders and international agencies called for a four-fold increase in investment in basic water and sanitation services to achieve SDG 6. It has been estimated that an investment of around $114 billion per year is required by 2030 to achieve universal basic services. The greatest investment needs remain in basic sanitation services, which, according to UNICEF, would require 60 per cent of the total funds. At the recent meeting of October 2023 of the international partnership Sanitation and Water for All (SWA), UNICEF and the African Ministers' Council on Water (AMCOW), in which 40 African Ministers participated, it was suggested that an additional $30 billion per year needs to be mobilised for Africa alone. They estimate that the lack of basic services is costing 5% of GDP, which should be a compelling argument for Finance Ministers when allocating public funds.

And the problem is not only that there is not enough funding for the necessary investments, but that this does not always reach the most vulnerable because most of the subsidies go to investments that benefit the top 20%.  In addition, lack of maintenance means that 30% of water, sanitation and hygiene (WASH) investments in Africa are not functioning as soon as one year after construction, according to the World Bank. It is important to counteract the build-do not maintain-build again cycle. UNICEF has estimated that between 10 and 40 per cent of WASH facilities that have been built in schools in Africa are not functioning.

The reality is that not only more funding is needed, but the available funding does not reach those that need it most. In relation to this, donors and funding agencies are arguing that they cannot find good projects and, on the other hand, those who need them do not have access to them. The reality is that it is difficult for the communities most in need to prepare good projects, starting with the fact that they do not have the means to connect and discuss access with the ones that decide the allocation of funds. What are then the barriers to financing basic water and sanitation services, and how are they being addressed so that they reach those who need them most?

Funding barriers and solutions

Different causes have been pointed out at the Financing Roundtable organised by the OECD in January 2023, in preparation for the UN SDG6 Conference, and by other organisations such as UNICEF, SWA or AMCOW.

Multilateral aid linked to prioritisation by national governments

WASH investments are primarily local and are small in nature. Funds from international funding agencies are given to national governments and agreed with them. They are the ones who prioritise actions in accordance with the Bretton Woods agreements and are the ones who guarantee the repayment of loans. However, governments have typically prioritised large populations, major infrastructure and formal rather than informal settlements.

At the UN Water Conference, world leaders called for a four-fold increase in investment in basic water and sanitation services

Agencies such as the World Bank are trying to overcome this barrier through grants or loans "conditioned" on specific local results that can be tested to improve how funds are decided. On the other hand, the OECD's Financing Roundtable has proposed that formulas for direct funding from international agencies to households, local authorities, small businesses and community organisations should be made available.  But this is still not a reality at the scale needed.

The need to invest in creating the conditions for investment to take place and for finance to flow

Bilateral cooperation has the same problems as multilateral banks and, in addition, different donor countries have different priorities for the use of funds, so there are in some cases contradictory actions and overlaps. Part of the solution that has been articulated is coordination at the national or even local level, and this is often organised by the countries themselves.  For this purpose, there are donor coordination tables in the different countries.

Bilateral aid is also helping to develop some innovative instruments such as the "Catalytic" funds which serve to finance the improvement of the recipients' capacities to obtain and manage financing, to improve local financing organisations and other necessary reforms such as the establishment of tariffs that at least ensure the maintenance of infrastructures, taking into account the ability of the most vulnerable to pay.  Other instruments such as the Australian Government's "Water for Women Fund" are innovative in the way they operate because they not only serve to fund but have developed mechanisms to support project managers in preparing funding applications and then managing them, changing funding conditions as necessary during project implementation.

Lack of capacity to repay debt

Most of the world's needs for investment in basic water and sanitation services are found in the poorest countries which, on the other hand, have already acquired a significant debt and/or cannot repay it. Therefore, the solution proposed at the OECD Financing Roundtable is for international funds to prioritise these countries for funds that are non-repayable grants.

The greatest investment needs remain in basic sanitation services which, UNICEF says, would require 60 per cent of the total funds

In addition, it has been argued that while national governments may not be able to borrow or repay loans, this need not necessarily be the case for sub-national governments or other actors. It has been proposed that formulas should be put in place to lend to municipalities, water companies, and community organisations, which could "pay back loans" and do so in collaboration with local banks that should be helped to strengthen.  This would ensure that further over-indebtedness is avoided in vulnerable contexts, especially when it comes to the provision of basic services to the population, such as water and sanitation.

The OECD Financing Roundtable has proposed that the IMF establish a country-independent financing quota for water, changing budget deficit requirements, and promoting financing of water projects by domestic public banks.

Countries' spending efficiency and prioritisation of investments in basic services

The allocation to water and sanitation investments by finance ministers in public budgets needs to be substantially increased. In Africa, $17.5 billion of the $30 billion gap is estimated to be additional country resources. Some $3.5 billion will come from public budgets and $11.5 billion will result from improved spending efficiency.

There is a commitment by African countries to dedicate at least 5% of investment budgets to the water and sanitation sector and 0.5% of GDP to sanitation and hygiene programmes. To ensure this is the case, the justification of the benefits of investing in basic water and sanitation services needs to be improved.

But the big challenge is to improve the efficiency of spending. To make progress, various instruments have been developed by the World Bank, UNICEF and Sanitation and Water for All, among others. There are instruments for the evaluation of public budgets (Public Expenditure Reviews), and for the monitoring of public expenditure, there are budget guides and tools for monitoring the Water and Sanitation Accounts (Wash Accounts Trackfin).  These tools include monitoring to ensure affordability of services, and to ensure that non-repayable funding is redirected to the most vulnerable.

Improving access to climate finance

The possibility of improving access to climate finance is one of the great hopes for improving investments in basic water and sanitation services.  In this regard, the Intergovernmental Panel on Climate Change (IPCC) underlines in its most recent report that basic social services, such as water and sanitation, are vital for improving people's well-being and supporting climate-resilient development.

However, current flows of climate finance to resilient water and sanitation services are negligible. According to a WaterAid report published in 2020, although the water sector accounts for 43% of climate finance in adaptation, this translates to only 3% of the overall climate finance pie.  Moreover, of the total climate finance in water, only 10% is for basic water supply and sanitation projects, and half of this has been dedicated to large infrastructure investments that in many cases benefit only urban populations, leaving climate investment for adaptation in rural services negligible. 

The Green Climate Fund (GCF) is the world's largest fund to help developing countries reduce their greenhouse gas emissions and improve their capacity to respond to climate change, in line with the Paris Agreement. The GCF has recently developed water security guidelines that emphasise adaptation projects to harness available water resources and to make water and sanitation infrastructure and services resilient.

The recent adoption at COP 28 in December 2023 of the Global Goal on Adaptation includes a specific target to work towards climate-resilient water supply and sanitation and access to safe and affordable drinking water for all by 2030. Having this target improves expectations and possibilities for climate finance for resilient water and sanitation services. However, not only is it important that the adaptation target has been approved, but countries must ensure that they incorporate basic water and sanitation services among their climate change adaptation priorities in National commitment documents and their National Adaptation Plans.

The OECD Financing Roundtable has developed some other proposals to improve sub-national financing.  These include establishing concessional loans at below market interest rates to local actors, although often in these countries the problem is that cost recovery is too limited to ensure repayment of loans, even if they are "cheap". In fact, tariff revenues are insufficient even to cover operation and maintenance costs. 

Some other formulas proposed to improve the subnational financial fabric include support from international organisations by providing guarantees or equity resources to local banks so that they can reach the direct recipients of the projects.  The idea is to use development aid as leverage to attract more funding resources.

Conclusion

Overcoming the financing barriers to the achievement of Goal 6 and achieving universal access to basic water and sanitation services means meeting a number of principles listed by Sanitation and Water for All.  These principles are as follows:

1. Prioritising the human rights to water and sanitation for the poorest and most marginalised communities, although today grants are not aligned with this priority;
2. There is a need to move from emergency and ad hoc investments to planned investments to ensure that they are maintained;
3. Ensuring that international funds support the mobilisation and better management of countries' financial resources, including tariff reforms to ensure sustainability and operation; accompanying tariff reform with tax protection systems for the most vulnerable to ensure affordability;
4. The lack of donor coordination must be avoided and international aid funds must be used to unlock national and local resources;
5. It is essential to facilitate the monitoring of financial flows to avoid corruption or inefficiencies in the use of public resources. To this end, it is vital to ensure accountability.