Funding a Water Secure Future

A World Bank Assessment of Global Spending in the Sector

17 May 2024 by The Water Diplomat

Water Secure Future

A new World Bank report released on the 6th of May presents a global overview of spending in the water sector, noting that there is a significant gap between spending needs and actual spending. According to the World Bank, this study represents the first attempt to create a 360° overview of spending in the entire water sector the sector, with the objective of understanding existing funding gaps in comparison to the goals that have been set, and to provide guidance on the ways in which these gaps can be closed.  Nine years into the implementation of the Sustainable Development Goals, the data shows us that budgetary spending on water supply and sanitation (which is one element of broader water sector spending) as well as on sanitation and hygiene is too low for countries to achieve the 2030 goals. In fact, as UNICEF and the WHO have pointed out, achieving universal coverage for safely managed drinking water and sanitation by 2030 would require a quadrupling of current rates of progress. Similarly, investments in irrigation and other complementary agricultural support activities have not kept pace with population growth, and therefore achieving SDG 2 (Zero Hunger) is also proving difficult. Unfortunately, food availability per capita has declined, and vulnerability to food insecurity has increased in many developing countries.

The report provides a clear global overview of existing investments, as compared to the needs. Across the board, annual spending on water is U.S. $164.6 billion, of which 85.5% is public spending, 6,9% is Official Development Assistance (ODA), 5,9% is through state-owned enterprises and the remaining 1,7% is private investment.  At 6,9%, ODA is a significant contributor in the water sector. This is an average statistic and the picture differs from region to region, as for instance, for Sub-Saharan Africa, ODA represents 25% of spending. However, within ODA itself, the picture is entirely different, as water only represents 5% of all official development assistance: ODA expenditure on water is U.S. $ 12,6 billion within a total average ODA expenditure of U.S. $ 234 billion.

Public spending on water amounts to some U.S. $ 140,7 billion globally, amounting to 0,5% of Gross Domestic Product on average but varying significantly between regions. An important point made in the report is that low investments in the sector do not appear to be for lack of public funds: in fact, public spending in water is dwarfed by spending in other sectors: spending on transport and energy for instance is four to five times greater, and overall, only 1,2 % of public spending is devoted to the water sector. Spending on human development sectors such as education and health care is a full fifty times higher than spending in the water sector.

The choices made within public sector spending are equally interesting: globally, 76% of public spending is allocated to water supply and sanitation services. Water transport accounts for a further 16% of spending, and irrigation – which is central to food security – comes in at third place at only 8%.  Finally, hydropower accounts for only 2% of global public spending.  

Of course, the statistics mentioned above cover the overall volumes of investment and do not illustrate the quality of the spending itself. There are major improvements to be made in the effectiveness of spending in the sector.  For one thing, the existence of a budget for the water sector does not mean that this money is actually channeled into effective uses: sector’s budget execution rates average about 72 percent, meaning that 28% of public resources allocated to the sector go unspent. This points to a lack of ‘absorptive capacity’ : questions of institutional strength, staff capacity, project management skills all need to be optimized to ensure a smooth flow of capital to areas where it is needed.

Finally, as important as it is to attract capital into the sector, it is also vital to spend these funds equitably. Ensuring that investments are designed to target and benefit disadvantaged communities, including those who live in difficult-to-reach areas such as dense urban districts and remote rural regions, is a fundamental factor in the effectiveness public spending in the sector.