Water investments are lumpy and costly: financing is essential to spread the costs of these investments out over time. For water, development finance institutions still provide the bulk of such financing. It can no longer be the only one, however. The costs of extending universal access to safe water and sanitation has been estimated at US$ 114bn per year, which is a substantial increase compared to what was invested to reach the Millenium Development Goals. In contrast, in 2014 total official development finance for water, including grants and loans with varying degrees of concessionality, reached a mere US$18 bn per year, three times more than in 2003 but still woefully insufficient to meet all investment needs.
To meet the Sustainable Development Goals, governments will need to better target their investments and leverage more financing from private sources, including from households that can afford it (via more realistic and fair tariff policies and incentives to invest in things like toilets) and from commercial finance providers, including microfinance institutions, commercial banks, bond investors or venture capitalists.
Last week, on April 20th, Matt Damon, co-founder of Water.org, addressed ministers of finance, water, and sanitation from across the world at the Sanitation and Water for All (SWA) Finance Ministers’ High Level Meeting at the 2017 World Bank-IMF Spring Meetings. The meeting focused on finding ways to fill the enormous financing gap via innovative financial solutions. Mr. Damon urged ministers to consider the full breadth of financing options to achieve the goal of providing safe, affordable, and sustainable water and sanitation for all.
One of the biggest hurdles is the lack of sufficient sources of finance. Financing the SDG sub-targets for water supply and sanitation alone will cost triple historic financing levels - an estimated $114 billion per year between now and 2030. The shortfall for financing irrigation and water resource management sub-targets will likely be as large, if not larger.
Although Results-Based Financing (RBF), an approach that allocates public funds based on the achievement of specified results, has had some practical successes in the health and education sectors, its use in the sanitation sector has been limited. Identifying the Potential for Results-Based Financing for Sanitation by Sophie Trémolet looks at the potential for application.