Financing inequalities in the WASH sector: Why is it critical?

7 Aug, 2019 in Partner Perspective Categories

 

Finance is the key guiding principle of Sanitation and Water for All global partnership, and is integrated in both the Building Blocks (what the sector needs for it to be effective) and the Collaborative Behaviours (how the sector can achieve its goals), that form part of the SWA Framework 

 

The water, sanitation and hygiene (WASH) sector is capital intensive and funding (non-repayable money) usually comes from 3Ts: a) Tariffs from customers, including self-supply expenditure cost (i.e. development or improvement of water supplies by households largely or wholly on their own) or user charges such as connection fees, b) Government tax revenue from domestic taxpayers and c) Donor transfers. In contrast, financing is the provision of money that is repayable to the financers and is most commonly used when the high capital expenditure on new assets cannot be funded directly by revenues. The topic of finance is also crucial to the 2030 Sustainable Development Goals (SDGs) agenda and to the principle of ‘Leave No One Behind’.  

The 2019 WHO/UNICEF Joint Monitoring Program (JMP) for Water Supply, Sanitation and Hygiene, report progress on drinking water, sanitation and hygiene from 2000-2017 and for the first time assessed progress made at national, regional and global levels in reducing inequalities in WASH services. Between 2000-2017, the water coverage gap was reduced by 10% points. However, the gap in water coverage between the richest and the poorest has increased in more than half of the countries. 

Inequalities in the sector for basic water 2000-17: Gap between richest and poorest quintile (source: https://washdata.org)

 

 For sanitation, urban-rural coverage gap decreased by 26% points between 2000-17 on the other hand the gap between the richest and the poorest has reduced in 52 countries while increasing in 22 countries. 

Inequalities in the sector for basic sanitation 2000-17: Gap between richest and poorest quintile (source: https://washdata.org)

 

 According to the 2017 GLAAS report, over 80% (n= 70) of countries that participated in the survey reported insufficient financing (less than 75%) to meet their national WASH targets. 

 

The financing gap is daunting and therefore, there is a need for sector reforms to create an enabling environment and removing key bottlenecks in financial flow and management.  

On 24th and 25th July, SWA co-organised a webinar with six partners, on the theme, ‘Financing to eliminate inequalities: Is the sector putting its money where it matters most?. During the webinar, Catarina Fonseca (IRC WASH) and Lesley Pories (Water.org) discussed 5 key priorities for financing inequalities:  

1. Need for a consultative and inclusive Financing Strategy: A WASH financing strategy is a “time-bound plan for sustainable financing of capital investments, operations and maintenance costs in WASH.” (Source: UNICEF) The key questions for developing a WASH financing strategy include: (a)how much do we spend? (b)how much do we need? (c)what is the gap? (d)what are the options for filling the gap? Also, it is critical to identify how the strategy will be implemented. The assessment of 37 countries conducted by SWA in 2017, shows that only 52% of the countries were using sector Finance plans (mostly) focused on urban water, while 35% of the countries had no plan at all. 

Source: SWA 2017

The importance of an inclusive finance strategy was also highlighted by SWA high-level chair, Hon. Kevin Rudd in his statement for the 2019 SWA Sector Ministers’ Meeting, “By the time of the next SWA Finance Ministers’ Meeting in 2020, develop financing strategies for WASH for all, specifically for the people you have identified: reducing the financing gap; reforming tariffs; integrating the WASH programme into overall national plans and budgets; persuading the Minister of Finance and of Health that WASH is a good investment for them both, not an expense.”  

 

2. Defining who is being left behind and the reasons for lack of, or poor, services: To put it simply, we cannot target those who are not receiving services or those who receive poor services if we don’t know who they are, where they are, and how many they are. Some regulators (for example, WASREB Kenya) have started demanding this information from urban utilities to set targets. The reasons for lack of access will then inform the financing strategies and the sources of finance. 

 

3. Implement efficient mechanisms to reach those being left behind:Here, it’s important to talk about those who have access to services and those who don’t: 

a) Common affordability measures for those which have access to services: 

- Government subsidies for infrastructure and operation and maintenance to support affordable tariffs 

- Block tariff structures, with a highly subsidized first block (e.g. 0 to 7 cubic meters) to cover basic needs 

- Cross subsidisation between larger urban utilities and other service providers 

- Cross subsidisation between sub-sectors (water and sanitation) 

- Reduced tariffs for specific population groups (the most efficient, but least used of all mechanisms) 

 

b) For those without access:

-Capital infrastructure (i.e. construction) paid for mainly by taxes (and transfers) 

-Microfinance solutions for latrine construction or connection to mains 
 

4. Understanding opportunities with the most important sources of funds in the sector- tariffs and taxes:Reducing poverty and providing access to services requires public finance (through taxes and other local resources). The fiscal space, overall and specifically for WASH sector, is underdeveloped (amount of taxes collected and spent in the sector). Tariffs are the most important source of funding, if considered together with the investments made by the households. According 2018 TrackFin study, tariffs represent more than 60% expenditure in the sector in Ghana, Mali and Senegal. Few countries report that tariffs cover at least 80% of operation and  maintenance (GLAAS, 2017) Additionally, in many countries, non-revenue water (water lost due to leakages, etc. and thus not paid for) is higher than 40%, such losses have a high cost, thereby, reducing the availability of funds for maintenance and further investments. Low tariffs and high losses means maintenance has to be covered by taxes, subsidizing those who already have services. This leads to unequal and unfair use of public funds and creates huge funding gap. 
 

5. Ensuring the foundations for increasing funds for the sector: Water.org, IRC and the World Bank have identified 10 foundational issues concerning the Government, Service providers and supply of finance to create enabling environment in the sector to attract additional funding. These issues could also serve as a useful checklist for stakeholders who are working on the ground at the intersection of finance and WASH. 

Source: water.org, IRC, World Bank

 

For additional resources on WASH financing, see the list below: 

  • Water.org, IRC and World Bank paper onMobilising finance for WASH and getting the foundations right (will be available in SP and FR in August) 
  • CABRI policy brief focused on how to optimise public investments in WASH services, while improving efficiency in the use of public funds 
  • IRC and water.org position paper for the Sanitation and Water for All Finance Ministers Meeting 2017: How to increase funds for the sector, while reducing inequalities 
  • SWA Tools portal a compilation of tools on sector financing