Funding a water-secure future: How governments can spend better to spend more on water

Four billion people live in water-scarce areas, and one in four cities face water insecurity.

Growing populations also means more water is needed to produce more food. But one in ten people go to bed hungry each night.

One child under age five dies roughly every 100 seconds from diarrhea-related diseases caused by poor water and sanitation. That’s 273,000 preventable child deaths every year.

These devastating struggles and losses for so many families stem from the reality that we live in a water insecure world. And, unless the global community steps up its efforts, climate change is likely to exacerbate these challenges.

Moreover, we are falling far short of meeting the world’s ambitions for achieving the Sustainable Development Goals (SDGs) of safely managed drinking water and safely managed sanitation and hygiene for all by 2030. Today, nearly 2.2 billion people—more than one of every four people—still lack access to safely managed water services while another 3.5 billion individuals live without safely managed sanitation services.

Today, nearly 2.2 billion people—more than one of every four people—still lack access to safely managed water services while another 3.5 billion individuals live without safely managed sanitation services.

This sluggish advancement toward the SDGs underscores the urgent need for increased investment in the water sector.  A new report by the World Bank, “Funding a Water Secure Future: A Global Assessment of Public Spending," quantifies for the first time how much governments spend on water and the size of the financing and funding gaps that must close to meet people’s needs and achieve the SDG goals. The report offers practical steps that countries can take to spend better so that they can spend more on water.

Our findings reveal that annual spending across various subsectors of the water sector—such as water supply and sanitation, irrigation, water transport, and hydropower—totals approximately US$164.6 billion (in 2017 prices). While this figure might seem substantial, it is a mere fraction of global spending on education and health. Also, while roughly 91 percent of the annual spending in water above comes from the public sector, including public spending by government and the SOEs, less than 2 percent comes from the private sector.

Over half of this amount is allocated to the water supply and sanitation (WSS) subsector. Yet, to meet the SDG targets, we estimate that the 113 developing countries included in our analysis need to increase their spending in the WSS subsector by US$131.4 to US$140.8 billion annually—almost tripling current expenditure levels.

This global average, however, masks the stark heterogeneity across different regions and countries. South Asia and Sub-Saharan Africa need to increase their spending to nine- and 17-times current levels, respectively.

The challenge is even more formidable for low-income countries and those in fragile contexts, requiring a spending increase of almost 30 and 40 times, respectively, to meet the SDG goals on water and sanitation. Realistically, achieving these targets without dramatically increasing international aid and development assistance is unlikely.

However, the report also reveals various kinds of leakages, which are often overlooked, in the sector.

It finds that despite considerable spending gaps, the water sector does not fully spend the funds allocated to it, with a striking 28 percent of water funds, on average, going unspent each year. By halving the budget execution gap in the WSS subsector, the annual spending gap could be reduced by $13 billion, nearly 10 percent of the required increase.

Another concern is the prevalence of widespread inefficiencies. Although often overlooked, inefficiencies among water service providers lead to substantial hidden losses. On average, a typical water utility experiences efficiency losses totaling approximately US$21 million annually, which represents about 16 percent of its operating costs. Considering that there are thousands of water service providers worldwide, the cumulative costs of these losses would amount to several hundreds of billions of dollars.

On average, a typical water utility experiences efficiency losses totaling approximately US$21 million annually, which represents about 16 percent of its operating costs.

Since public funding dominates the sector, concerns about equity and fairness rightfully occupy a significant place in policy discussions. Our analysis shows that consumption subsidies for safely managed water and sanitation services are disproportionately higher in urban and richer communities, and this inequality is particularly stark in Sub-Saharan Africa. Therefore, it is important to ensure equitable distribution of spending along with increased financial resources. Addressing these disparities will be crucial to achieving the SDG vision and goals on water and sanitation.

"Funding a Water-secure Future” offers a set of wide-ranging and comprehensive reforms to address the challenges. It urges governments, for example, to increase budget execution rates by reforming public investment management and public financial management and to reduce the inefficiencies of water service providers by prioritizing cost-effective utility operations and improving investment planning. It also provides key insights on how to catalyze increased long-term financing into the sector.

These and other measures outlined in the report will go a long way toward achieving the more water-secure future that the world so desperately needs.