Insights from One For All discussions
Published on: 18/02/2025
In this reflection blog, Catarina Fonseca delves into the key discussions and findings on finance for water supply and sanitation, highlighting significant reports, evolving narratives, and future opportunities for connecting finance and water.
Over the past year I’ve been leading a semi-structured set of conversations about finance within the One For All alliance. Within that space, we have talked about what’s new and evolving in the discussions around finance for water supply and sanitation (WASH), and in the larger water sector which encompasses water used for all purposes (water – as it will be referred to in the rest of the blog).
We’ve published a series of blogs from these conversations. Here, we pull together what we found most interesting and noteworthy in 2024. It was a prolific year for writing about the large finance gap for water and sanitation. The latest estimates point to an annual spending shortfall to reach Sustainable Development Goal 6 between US$141 billion (World Bank, 2024) and US$500 billion per year in additional investments in low and middle-income countries (UNCTAD, 2023).
There were some important flagship reports published with relevant new data. Here, we take stock of key ideas and opportunities that will need continued attention in 2025.
We would argue that there are actually no ‘new’ narratives. Most of the areas discussed below were already featured in either the 1990’s Integrated Water Resources Management (IWRM) discussions, part of the 1992 Dublin Statement or more extensively in the 2003 Camdessus Report. Yet, we recognise that a lot of these concepts brought together hard finance data with updated views on broad needs for water use. Some of the more compelling reports generated attention in the mainstream press and others have made progress by putting existing conceptual ideas into practice.
Govern the water cycle as a global common good
In October 2024, the Global Commission on the Economics of Water published their report “The Economics of Water. Valuing the Hydrological Cycle as a Global Common Good”. The red thread of the report is a call to govern the water cycle as a global common good, recognising its interconnectedness with climate change, biodiversity, and all Sustainable Development Goals.
From a finance perspective this means having difficult discussions on the uses and pricing of water in agriculture, food production, mining and other industries – and not only at national level but also considering the transboundary implications. These are the sectors that use most water and many of the industries invest millions of dollars in guaranteeing the resilience of their own water supplies – which can be an additional source of finance to benefit communities. They are also the sectors that most pollute and consume groundwater in water scarce areas, and that usually pay little or no tariffs or taxes for consumption or for discharges.
One key finance message: Environmentally unsound and inefficient subsidies in agriculture and water and sanitation are estimated to be at least US$700 billion per year. Enough to cover the highest financial gap estimates mentioned above.
The report provides concrete examples of ex ante and ex post governance measures that can influence finance for the sector. For example, instead of taxing water used by semiconductor manufacturers in dry areas, governments can determine where semiconductor manufacturers can produce, so that they do not have to solve (or subsidise) the water scarcity problem later.
Climate finance and climate justice beyond climate funds
In this blog, we described the many sources of climate finance: public and corporate instruments and households’ own investments. While there is a lot of attention on climate funds as a new and potentially growing source of finance for the sector, at present, the largest sources of water-related climate finance are in fact more traditional bonds and household investments, followed by concessional and commercial finance from finance institutions.
There are also genuine concerns about tying countries to complicated new financing mechanisms which increase debt loads. We recommended concentrating our efforts into understanding the constraints of access to existing, cheaper, climate finance such as national development banks and their local currency instruments.
Realistic finance strategies that take into account country bottlenecks
A finance strategy is a strategic document showing the finance gap in a country and providing options to guide decisions about investments and reforms needed in the water and sanitation sector. It aims to ensure the financial sustainability of services and recommends policy measures to close the finance gap. This is done through a process of stakeholder engagement, usually taking a year or so.
Many countries have developed water and sanitation finance strategies following the UNICEF guidelines "How to develop a water, sanitation and hygiene finance strategy in 2022. (Available in English, French and Spanish). This IRC blog described what has worked well and not so well. From our experience, strategies have led to higher budget allocations and to additional funding and initiatives in some of the countries, and the options laid out in them provide scope for different stakeholders working in different areas of the sector. The big opportunity moving forward is to replicate this process at more localised levels. See also this interview with the IRC Asia regional team on their experience developing the Cambodia sanitation finance strategy.
Efficiency measures can raise a significant amount of funds
Increased efficiency is a major potential source of additional funding for the sector. As finance mechanisms are increasingly tied to the performance of service providers, these measures also reduce the real and perceived risk to financiers.
In the water and sanitation sector, discussions on efficiency have mostly focused on reducing non-revenue water (NRW). NRW refers to water that is produced but not billed due to various reasons, including leakages, theft, or metering inaccuracies, and energy efficiency. While these are significant aspects of efficiency, this IRC blog highlighted that strategies towards operational efficiency need to be implemented alongside financial efficiency at sector level.
The 2024 World Bank Report “Funding a Water-Secure Future: An Assessment of Public Spending” focuses particularly on measures to reduce the inefficiencies of water service providers and increase the productivity of public spending. This discussion is important since we are spending too many public funds in the form of subsidies to reach wealthier populations while average budget execution rates stand at 72%.
Going forward, we need more metrics for efficiency measures in network and non-networked sanitation.
The increasing role of Public Development Banks in the sector
A research team at Peking University keeps track of all the PDBs in the world and their database is publicly available. In the 2024 third quarter update, they identified 536 PDBs with total assets of $22 trillion in 2022.
As described in this IRC blog, the main constraint for PDBs to invest in water has not been the availability of funds but a lack of demand from the water sector. Many governments, utilities, and service providers do not have PDBs on their “radar”, even if PDBs provide cheaper and long-term finance, free of currency risks.
To further unlock the potential of national PDBs in the water sector, there is a need to support utilities (as the ones who would ultimately take loans from PDBs) in project preparation. Utilities often lack the resources to conduct feasibility studies or prepare projects for funding, which is where technical assistance is essential.
For more details on PDBs investing in the water sector see the report from the Water Finance Coalition (report will be available soon). See also the report from Climate Policy Initiative “Public Development Bank’s Climate Commitments 2024” for trends in PDBs’ climate commitments and the relationship between key enabling factors and PDBs’ overall climate ambition.
Many organisations and individuals – including myself - have spent the past 20 years reporting on these same issues. They remain pertinent and are not being properly addressed.
The most data heavy report published in 2024 was The World Bank “Funding A Water Secure Future” report, which attempts to capture public spending – how much are governments and municipalities spending in the sector - which comes close to 141 billion dollars per year and needs to at least double to reach SDG 6.1 and 6.2. This spending represents somewhere between 0,2% and 0,6% of GDP actual spending in the sector by many countries. This gives us a good rule of thumb that if governments from least developed countries are spending less than 1% GDP of their budgets in the sector, they are unlikely to meet the country targets.
When financial data disaggregation is possible, we also see that most of the public spending goes to drinking water and not to sanitation. And we know that SDG 6.2 is off track in most low and middle-income countries.
The other key messages from the key finance-related reports published in 2024 are well known: the need for tariff reforms, getting asset management in place, and obtaining overall better financial data in the sector.
There are only five years till the 2030 Sustainable Development Goal targets expire. One conversation that we need to start is about what happens after? What are the goals for the World after 2030 that relate to water security and shape the vision and direction of overall country strategies?
The 2024 finance reports put too many “leaps of faith” in what I call the benevolence of macro planning and the roles of government and private sector alone. With benevolence I mean that the positive intentions, benefits, and goodwill inherent in large-scale planning efforts will likely be effective.
Even though the role of social movements in water governance is at the very end of the Economics of Water report, none of the reports does a good enough job covering the role of youth groups, indigenous communities, environmental NGOs. It does not address how they can be supported to operate in a context where civic space is closing in many contexts and democracy is weakening. Watchdog roles in the sector remain critical to track the performance of public and private bodies and tackling corruption, and civil society action to lead change at local government level is also necessary. See the 2024 Water Integrity Network's report “Integrity for water and sanitation finance: Water Integrity Global Outlook 3”.
This leads to the last area that is not being sufficiently discussed in finance which is the role of local governments both in the supply and demand of finance and ultimately the responsibility for providing universal safe water and sanitation services. Especially around climate finance discussions, local governments seem to be quite invisible. We would like to try and change that in 2025.
The One For All alliance finance group will continue to meet in 2025. Stay tuned for more blogs coming out of our monthly discussions.
At IRC we have strong opinions and we value honest and frank discussion, so you won't be surprised to hear that not all the opinions on this site represent our official policy.
