The gap between allocation and spending.
Published on: 08/06/2026
There is a question that haunts water, sanitation, and hygiene professionals across the globe: why, despite years of advocacy, policy reforms, and international and domestic funding, do so many communities still lack access to clean water and functional sanitation? The answer, increasingly, lies not in the absence of money — but in how that money moves, or fails to move, from national treasuries to the taps and toilets that people can actually use.
This was the central tension explored at the latest Finance Connect session. Two case studies took centre stage: Malawi, presented by Phaniso Kalua and Kate Harawa from Water For People, and India, presented by Ruchika Shiva, Shiny Saha and Paresh Chhajed-Picha from IRC Asia. Though separated by geography and context, both cases pointed to a shared problem — the mechanics of public finance are failing the sector.
Malawi's story begins with numbers that show a precarious fiscal situation. Over the past five years, the economy grew at an average of just 2.3%, far short of the projected 6.4%. Inflation has remained above 28%, while public debt service consumes approximately 43 cents of every dollar of domestic revenue collected. Of the projected national budget for 2026–27, nearly 79% is consumed by statutory obligations — wages, loan repayments, and other fixed commitments — leaving little for development priorities like water infrastructure.
Against this backdrop, the water and sanitation share of the national budget has hovered between 3.3% and 3.5% in recent years — and has actually dropped in the most recent approved budget to just 1.2%. When inflation is factored in, the sector's real allocation has been declining. At the district level, where most rural Malawians live, the sector receives only 2.5% of local government allocations, compared to 19% for health and 18% for agriculture. Of that meagre 2.5%, nearly all goes towards new infrastructure — of which 1% is allocated to the operation and maintenance of existing systems.
The result is a sector that builds but cannot sustain itself. Boreholes are drilled, pipes are laid, and handpumps are installed — only to fall into disrepair because there are no arrangements to keep them running. This is not a uniquely Malawian problem.
In theory, earmarking funds for specific purposes prevents money intended for water and sanitation from being absorbed by other priorities. In practice, the story is less straightforward.
Malawi has had some success with its Borehole Fund — a dedicated budget line transferred from national government to district councils, ring-fenced exclusively for rural water infrastructure and maintenance. Its specificity has been its strength: because the funds can only be used for water and sanitation, they have demonstrably increased district-level expenditure in the sector. The model has been praised for its simplicity and its resistance to absorption by competing needs at local level.
India's experience with the Fifteenth Finance Commission offers a contrasting lesson. The Commission recommended that 60% of funds devolved to rural local bodies be allocated to drinking water and sanitation. The operative word, however, is "recommended." Without a binding mechanism, States have interpreted and applied this guidance variably, and in practice, funds earmarked for water and sanitation have frequently been reallocated to other sectors considered higher priorities by the rural local officials. The overall utilisation of the national grant in the sector is 50% on average, but still shows a wide range from 0 to 94% across States.
Maharashtra's implementation of Faecal Sludge Treatment Plants (FSTPs) illustrates what happens when funding flows without local ownership. Approximately 450 million rupees were invested in building FSTPs across 200 cities — a significant commitment. But the directive that channelled this investment gave local governments no autonomy to adapt plant designs to local conditions, bypassing the very institutions that would need to operate these facilities. The result: most FSTPs are running at less than 20% utilisation. Local governments, who felt no stake in infrastructure imposed on them, have continued pursuing conventional sewerage systems. Compliance with the State directive was achieved only on paper, while improvements in sanitation services were far beyond the target.
The lesson, as Paresh put it plainly, is that imposed infrastructure without local buy-in generates rankings, not results. Cities improved their scores in national rankings by building FSTPs they had no intention of actually operating.
In Malawi, a landmark moment came in April 2026 when the President signed the Presidential Commitment on Water, Sanitation and Hygiene — a high-level commitment to raise the water sector share of the national budget to 5%, and mandating that 5% of the Constituency Development Fund is ring-fenced and invested annually in community water and sanitation projects. As a result, the Constituency Development Fund (CDF) increased significantly to MWK 1.1 trillion, providing opportunities for local prioritisation. The Presidential Commitment also includes commitments on hygiene, the establishment of an independent water and sanitation regulator, and targets tied to annual review in the Joint Sector Review process.
Kate Harawa was clear about what this means and what it doesn't. Five percent will not be enough to close Malawi's water sector financing gap. But it creates a credible political reference point around which NGOs, development partners, and government actors can align. Perhaps more importantly, it shifts the conversation from whether water and sanitation is a priority to how that priority will be honoured. With the compact linked to annual performance reviews, there is at least a mechanism for accountability — even if the history of such commitments in the sector warrants cautious expectations.
The compact also speaks to regulation in a way that could open the door to private sector participation and more systematic tariff collection. Malawi currently has no independent water and sanitation regulator, and the target for establishing one by the end of fiscal year 2026–27 is ambitious. If achieved, it would create an enabling environment for service delivery models that are less dependent on government capital expenditure and more oriented towards recovering some of the costs through user tariffs.
On the maintenance question — arguably the most chronic and least-addressed challenge in the sector — participants reached the same conclusion that professionalisation of community-based management models is probably the most viable near-term solution. Across many countries, maintenance of water and sanitation assets has historically been expected to be covered by user fees, and most regulatory frameworks codify this assumption. The uncomfortable truth, as one participant observed, is that user fees can cover routine maintenance but rarely the larger rehabilitation and replacement costs that determine whether infrastructure survives beyond its first decade. Results-based financing mechanisms that reward preventive maintenance — rather than waiting for breakdown — were identified as a promising direction, with some early experiments in Malawi cited as encouraging.
The deepest insight of the session, perhaps, came from Ruchika's reflection on capacity. Across Nepal, Bangladesh, and India, a familiar pattern repeats: funds reach local governments that lack the institutional capacity to plan for, procure, and account for water and sanitation expenditure. Capacity-building institutions exist but are themselves chronically underfunded. By the time training reaches local officials, electoral cycles have replaced the very people who received it. Money that is available goes unspent not because governments are indifferent, but because the machinery of local government has not been equipped to spend it well. Financing and institutional strengthening must be pursued together — and international development banks, which continue to prioritise capital expenditure over technical assistance and capacity investments, are part of the problem.
What unites Malawi and India in this conversation is as much the scale of their water and sanitation challenges as their nature. First a chronic shortage of money that is actually spent on services and then a lack of the enabling conditions that allow existing funds to translate into water and sanitation services. Political will matters, but it must be backed by ring-fenced mechanisms, local government capacity, ownership at the point of delivery, and accountability frameworks that outlast political cycles.
As donor aid declines globally and the pressure grows on governments to step up, understanding how to turn allocations into expenditure and expenditure into outcomes will be critical in the remaining years to reach the Sustainable Development Goals.
The next session will look at blended finance mechanisms — a conversation that grows more urgent as traditional funding landscapes shift.
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About Finance Connect:
As part of an ongoing effort to deepen expertise and elevate the global conversation around WASH Finance, Water For People and IRC through the One For All Alliance have developed a series called Finance Connect. It brings together a range of perspectives and experiences and creates a space where WASH professionals present and discuss targeted topics to do with how water, sanitation, and hygiene work is funded. Each session produces a blog with insights from the discussion, which we hope can serve as a resource for the entire sector to learn and, ultimately, channel more resources and attention to the critical topic of universal and sustainable water, sanitation, and hygiene services for the billions of people whose needs are not currently being met.
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.
