Scaling up finance to ensure a water-secure future for all
Originally published on the World Bank Voices blog: https://blogs.worldbank.org/en/voices/scaling-up-finance-to-ensure-a-water-secure-future-for-all
Authors: JUERGEN VOEGELE, MOHAMED GOULED, & ETHIOPIS TAFARA | MARCH 19, 2024
Water is the planet’s lifeblood, a critical resource sustaining people, the environment, and entire economies. But water crises, ranging from too much to too little or too polluted, are on the rise.
More than 2 billion people lack access to safe drinking water. And almost half of the world’s population—3.6 billion people—lacks access to sanitation. This has severe implications for health, education, and quality of life.
Water’s undeniable link to climate change is only making the situation worse. Over the next decade, the top global risks are directly linked to water: failure to mitigate climate change, failure to adapt to climate change, natural disasters and extreme weather events, biodiversity loss, and ecosystem collapse. Addressing a challenge of this scale requires an unprecedented response. We need global action, innovation, and investment.
In response, the World Bank Group and partners—including our private sector arms, the International Finance Corporation (IFC) and the Multilateral Investment Guarantee Agency (MIGA), and the 2030 Water Resources Group, a public-private collaboration platform—have joined forces to create the Strategic Framework for Scaling Up Finance for Water. It focuses on four key areas to catalyze financing and innovation for the water sector: establishing enabling conditions for investment; bringing in private sector expertise; diversifying financing solutions; and advancing climate outcomes.
We need the right investment conditions: Creating an enabling environment
Large, coordinated flows of public, concessional, and private capital are necessary to compensate for decades of underinvestment in the water sector—and to meet present and future challenges. An estimated $6.7 trillion in water-related infrastructure will be needed by 2030, and this figure is expected to rise to $22.6 trillion by 2050.
Reaching this level of investment requires the right environment. Governments must establish enabling conditions and reforms to facilitate a greater flow of public and private finance for water sector investments. They should identify areas where private capital can help and develop a pipeline of bankable projects to attract this capital.
At the same time, international financial institutions and multilateral development banks must provide country-level support for solutions that enable private capital, blended finance, and credit enhancements to cover public sector risk.
We need the private sector’s expertise: Boosting participation to bridge the gap
Public and private sectors have chronically undervalued water. In most countries, the price of water does not reflect its actual economic value or even cover the cost of providing water services. When water is viewed as a global public good it can be taken for granted, which means it is often not sufficiently considered in investment, financial planning, and policy making.
The debate over whether water is a human right, or an economic commodity has inhibited investment, particularly from the private sector. However, with trillions of dollars of investment needed and the most governments having tight budgets, the public sector alone will not achieve Sustainable Development Goal (SDG) 6 targets on clean water and sanitation for all. Compared with other infrastructure sectors such as power, telecommunications, and transport, private sector participation in water has remained negligible, with about 85 percent of annual spending in the water sector still coming from the public sector.
The private sector is vital as an off-taker, financier, investor, and operator. Bringing in private sector participation can help countries bridge significant investment gaps to meet their SDG 6 targets by 2030. It can also help water service providers become more efficient and financially sustainable, enabling increased access to financing. Governments can mobilize private sector expertise through performance-based contracts and other contractual arrangements with the goal of improving the operational efficiency, technical capacity, and financial viability of service providers.
We need a range of solutions: Diversifying and expanding financing options
We need more investment in water, but it’s also essential to have more—and different—ways of financing the sector that are tailored to a country’s needs, context, and risks. The World Bank Group’s support and products can be used to ensure contractually balanced and financially sustainable projects. Already, we are seeing promising outcomes from several initiatives.
For example, in India, the government collaborated with the World Bank Group, including IFC and the 2030 Water Resources Group, on a public-private partnership to support wastewater treatment and reduce pollution in the river Ganga. Under this model, the government paid 40 percent of project costs to private developers on completion of construction, with the remaining 60 percent paid to private operators in annuities over 15 years, in addition to performance-based operation and maintenance payments. Replicated across many cities and towns in the Ganga basin, the project has enabled the government to decrease river pollution, restore biodiversity, enhance water quality, eradicate water-borne diseases, and improve the livelihoods of small local businesses through more tourism.
Other countries have also shown impactful private sector participation using innovative financing solutions. Brazil implemented a national framework that requires municipalities to carry out public tenders, allowing private operators to compete for concession contracts to deliver water and sanitation services. In the last three years, Brazil has mobilized $15 billion in private sector investments, which will help get it back on track to meet the SDGs by 2033. In Uganda, the National Water and Sewerage Corporation has become more efficient and financially sustainable by tapping local financiers to reduce their non-revenue water, expand water services, and cut energy costs.
We need to think about our future on a livable planet: Advancing climate outcomes
The World Bank Group is working with partners to identify the most realistic opportunities to mobilize investments in water security that are aligned with priority climate outcomes. Investing in energy efficiency and renewable energy is one way in which water supply and sanitation utilities and irrigation service providers can start targeting specific climate mitigation outcomes, while improving their financial outlook.
We’ve had such success in Jordan, which is one of the most water-scarce countries on the planet. An innovative blended financing package—consisting of grants, government funding, equity investments, commercial debt from the private sector, and MIGA non-commercial risk guarantees—supported an increase in Jordan’s wastewater treatment capacity while introducing renewable energy solutions. Today, thanks to the AS Samra Wastewater Treatment Project, the plant treats about 70 percent of the country’s wastewater, meeting the needs of 3.5 million people, and generates about 84 percent of the power required for its operations.
Scaling impact through the Global Challenge Program
The World Bank Group plans to implement these principles and tackle the issues posed by climate change on water through a new Global Challenge Program, ‘Fast Track Water Security and Climate Adaptation’. It will work across the world to increase access to safe water supply and sanitation, scale up irrigation services, and reduce flood and drought risks.
The global program recognizes the importance of both the public and private sectors in supporting the urgent transformation needed to combat the water crisis. The public sector plays a central role in providing funding for water investments, ensuring efficiency in the use of public resources to attract additional funding, improving sector governance and efficiency, and guiding water allocations, pricing, and capital planning. Meanwhile, the private sector can be critical in providing much-needed capital, operating expertise, and innovation to enhance efficiency, lower costs, increase revenues, and support climate resilience.
Great things are possible when we partner with speed, scale, and urgency. We are committed to bringing together development partners, governments, and financial institutions to fundamentally shift how the global water sector is financed, and ultimately how water is valued and managed to help build a livable planet for all.