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Making the case for water and sanitation investments: How national plans and financing strategies can attract increased funding to the water sector

30 July 2018
Joana Bento, Goufrane Mansour, Didier Allély
Wash Workshop Kigali Group Photo 2

While the benefits of water and sanitation investments are well known among sector experts, economic analysis is confronted with the realities of governments’ competing priorities and limited budgets. Making the case for water and sanitation investments from national budgets allocation and external funding therefore remains a concern for line ministries in many developing countries where sector needs are vast.

What constitutes a strong case for water and sanitation investments? What would national budget offices expect from sector ministries? What could be put in place to attract more funding from other sources, including donors, the private sector and households?

These questions were at the heart of a peer review workshop held by CABRI in Kigali between June 20th and June 22nd 2018. The event gathered representatives from ministries of finance and line ministries of water, sanitation and health from seven francophone African countries: Burkina Faso, Central African Republic (CAR), Côte d’Ivoire, the Democratic Republic of Congo (DRC), Guinea, Mali and Rwanda. Following-up from a first dialogue held in Accra early this year, the workshop provided the opportunity for finance and sector ministries to exchange on how to build the case for and facilitate increased funding for water and sanitation services.

Comprehensive sector plans for WASH

A key finding from the Kigali event is that a stronger case for water and sanitation investments is made by ensuring that sector plans reflect national development plans and countries’ commitments to the SDG 6. While all countries attending the workshop have initiated the review of sector plans based on the SDG 6, only Burkina Faso and Rwanda had finalized them. However, planning remains focused on basic drinking water, while the SDG service levels requirement in terms of water quality, continuity and access on premises, have yet to be fully embedded within the planning process.

In addition, sector plans make a better investment case when they detail the specific activities that are planned in order to achieve national objectives, whether infrastructure delivery, institutional support or outreach activities to increase users’ awareness, etc. Critically, as with any good investment plan – and a bankable project – sector plans must be costed and should take into account all costs, including those related to capital investments as well as operational costs (such as maintenance) and support / institutional costs. Plans must also be supported by appropriate financing strategies that establish how these costs will be covered and by which actor, whether households, the national government or external grants. A sector plan that includes all costs and is accompanied by a financing strategy, identifying the different sources of funding including contributions by the Government, development partners, private sector and users stands a stronger chance to get finance ministries’ and partners’ buy-in.

Data to support the case for increased financing

Anchoring sector plans in greater knowledge and understanding of financial flows to the sector is critical when developing effective financing strategies. Participants in Kigali highlighted the importance of tracking financing amounts allocated to water and sanitation, as well as financing sources and where funding is going to. The tracking of financial flows, which is generally conducted by governments for their own funds and development partners’ funds channelled through their systems, should be extended to all actors of the sector. In Mali and Burkina Faso, two countries that have established WASH accounts, users are among the largest contributors to financing water and sanitation services, whether for investments or recurrent costs. In addition, development partners’ interventions (including through NGOs) are often funded outside government’s systems. As a result, funding amounts (and sometimes activities) are not well known and cannot be integrated in national sector plans implementation and monitoring. Tracking current financials can be a critical tool to identify financing gaps as well as geographical areas and sub-sectors lagging behind and therefore better inform national sector plans and financing strategies. In Burkina Faso, WASH accounts highlighted that sector financing needed a threefold increase to reach the SDG 6. The need to explore different financing options is therefore an important consideration.

Participants discussed at length the pressing need to leverage additional funds for the sector, especially from national governments and external funders, but also to make the use of public funds more effective. In a sector starved from critical infrastructure, public funds are likely to be bear a significant chunk of water sector funding needs. However, mechanisms to increase coordination among funders, especially development partners supporting the sector, should be set-up. Participants reflected on Rwanda’s experience with the setting-up of a Sector-Wide Approach (SWAp) aimed at coordinating investments towards national objectives through the implementation of a common action-plan among funders. Rwanda has also set-up strict conditions for donors (and NGOs)’ involvement in the sector to ensure alignment with national policies and coordination platforms.

Financial sustainability in WASH

Increasing services with financial sustainability should also be a core component of any financing strategy. However, all countries represented at the workshop did not have adequate tariff regulation, across all sub-sectors. In Cote d’Ivoire, where the urban water asset holding company ONEP holds a lease-affermage contract with a private company in a service area of nearly 1,100 localities, tariffs have not been reviewed since 2004. With regards to sanitation, apart from the case of Burkina Faso, where the national utility ONEA provides onsite services in addition to sewerage services, no country had set-up regulatory mechanisms for any segment of onsite sanitation services. Acknowledging the complexity of tariff reforms, mainly due to political implications, participants discussed at lengths mechanisms to balance water service providers’ budgets in the context of limited scope for tariff increase. Developing households water connections (and increasing daily consumption) in peri-urban areas, for example through the provision of subsidized connections, was identified as a potential to increase revenues and consequently could also yield attractive financial gains. The clustering of rural water service areas is also a potential solution to increase access to services while reducing tariffs that are often higher than in urban settings through cross subsidy mechanisms and, if adequately designed and implemented, to increase revenues. However, the balance between costs and revenues must be properly modelled and monitored to adapt tariffs and services extension.

Other financing instruments discussed during the workshop as potential mechanisms to increase water sector financing include the setting-up of national water funds (potentially sourcing funds from water abstraction and pollution fees when these are set-up), multi-stakeholders funds, microfinance for sanitation and cross-subsidies between sectors, particularly between the energy and water sectors.

Bringing together WASH and finance officials

Overall, participants stressed the need to foster greater involvement from national budget offices in the development, implementation and review of water sector budgets. This collaboration between line and finance ministries would strengthen the case for water and sanitation, with finance ministries providing “reality checks” and further review of costed plans, while sector ministries would have the opportunity to present – and defend – their plans. CABRI has therefore initiated an important dialogue, which should continue beyond the event. As bridges are being built between water sector ministries and finance ministries, it is up to line ministries, and water sector organizations, to harness these opportunities to turn financing for the sector into a palpable reality.

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