The World Bank is warning that the world is experiencing an annual spending shortfall of between US$131.4 TO $140.8 billion needed to achieve the UN’s Sustainable Development Goal (SDG) targets for universal access to safe water and sanitation.

The warning comes in the World Bank's groundbreaking new report, "Funding a Water-Secure Future: An Assessment of Public Spending," which quantifies for the first time how much governments spend on water and the size of the financing and funding gaps that must close to meet people's needs.

Annual spending on water is $164.6 billion in developing countries, which amounts to roughly 0.5 percent of their GDP. While roughly 91 percent of the annual spending on water above comes from the public sector, including public spending by the government and the SOEs; only less than 2 percent comes from the private sector. Countries need to increase their spending in the WSS subsector by US$131.4 to US$140.8 billion annually—almost tripling current expenditure levels.

The report says that nine years into the SDG era, the world is still not on track to achieve its goals for water - budgetary spending data on water supply and sanitation reveal that most countries are not spending enough to achieve these two vital targets by 2030.

“In fact, to achieve universal coverage for safely managed drinking water and sanitation by 2030, it would require at least a quadrupling of current rates of progress,” the report says.

Sub-Saharan Africa and South Asia face largest spending gaps

According to the Bank, the global average masks the stark range of variations across different regions and country groups, with sub-Saharan Africa and South Asia facing the largest spending gaps.

The study is a first-ever attempt to gain a 360° panoramic view of spending in the entire global water sector to better understand the financing and funding gaps in relation to sector goals, and consequently guide thinking on alternative ways to close them.

It estimates total water expenditure at various levels of disaggregation, and at the global and regional scales, using several data sources, including budget data and national accounts data, and the updated versions of all available databases on infrastructure spending from various sources, including private and foreign funding.

The report identifies critical weaknesses in the sector, such as low budget execution rates and inefficiencies. To bridge these gaps and attract private investment, the report emphasizes the necessity for governments to enhance spending efficiency, catalyzing long term financing, and reforming the water sector towards achieving Sustainable Development Goals for water access by 2030.

Key highlights in the report include:

• To achieve the SDG targets for universal access to safe water and sanitation, the world is experiencing an annual spending shortfall of between US$131.4 billion and US$140.8 billion.
• Overall, annual spending in the water sector for developing countries is about US$164.6 billion, which is just about 0.5% of the total GDP.
• Despite large spending gaps, the water sector is not able to spend all the allocated budget. The annual budget execution gap is about 72%.

Spending gaps in WSS and irrigation

The study’s findings demonstrate that two of the main subsectors, the water supply and sanitation subsector (WSS) and the irrigation subsector, face significant spending gaps to achieve their respective targets

Primacy of the public sector

The public sector—the government and state-owned enterprises (SOEs)—remains the primary source of both financing and funding for the water sector. About 91.4 percent of total spending in the sector comes from the public sector. Over the last decade, private sector investments have been relatively marginal—only 1.7 percent of the total annual spending in the water sector. That apportioning of financing/funding responsibilities is not likely to change soon.

Poor budget execution rates.

Given the fiscal challenges countries currently face, stepping up public financing will not be easy. Despite this, water sectors in most countries are not fully spending the budget allocations made to them at the start of the fiscal year. The sector’s budget execution rates average about 72 percent during 2009-20, meaning that some 28 percent of allocated funds go unspent.

Declining productivity and efficiency

Another avenue for bridging the sector’s spending gap is to improve the productivity of public spending and reduce the inefficiencies of water service providers. Over the ten-year span- from 2009 to 2020 and longer—water sector public spending has faced declining total factor productivity (5–6 percent) mainly because of efficiency losses.

Equity challenges

Attracting more funds into the sector needs to be coupled with a commitment to spending the funds equitably. Water supply and sanitation and irrigation services are marked by significant subsidies from the government which need to be targeted smartly to benefit the disadvantaged communities, including those who live in difficult-to-reach areas such as dense urban districts and remote rural regions. However, analysis of public spending in the provision of WASH services in several countries clearly demonstrate a bias towards the non-poor segments and urban populations.

To overcome all these deficits, Funding a Water-Secure Future underscores the importance of governments spending more and better. These and other measures outlined in the report will go a long way toward achieving a more water-secure future that the world needs. Key recommendations include:

• Increase budget execution rates through enhancing the sector’s absorptive capacity by reforming public investment management and public financial management.
• Raise the productivity of public spending in the sector by improving efficiency at various levels.
• Reduce the inefficiencies of water service providers by prioritizing cost-effective utility operations and improving investment planning for infrastructure development and technology upgrades.
• Minimize disparities in access to water services by targeting investments and water subsidies to poorer and rural communities.
• Catalyze the flow of long-term private and international finance by using risk-pooling arrangements, public sector guarantees, and catalytic capital to invest more, and more often, in water resources.
• Implement reforms including improving cost recovery and demand management; developing government capacity and human capital; and strengthening data access, transparency, and communications.

Click here to download the full report Funding a Water-Secure Future - an Assessment of Global Public Spending