Water Service Action Plans to enhance access to finance for local governments
For water sector finance to reach its potential both national governments, especially those with PRSPs, and local governments give in their planning investments in water services for all the proper priority. This needs to be accompanied by the necessary reforms and capacity building to establish the required enabling environment.
National governments and Local Governments need to develop action plans to facilitate an increase of the levels of investments in water services at municipal and district levels. Quantitative and qualitative targets need to be set on water services goals, associated financial expenditure and cost recovery mechanisms (fees and subsidies). They need to ensure in their strategies the appropriate budget subsidies, cross-subsidies between users and subsidies targeting the poor. The Task Force believes that without such plans and their determined implementation the efficient management of the world’s most crucial natural resource, its access to all and its benefits for the poor will remain mere rhetoric.
All governments must examine and take steps to increase the ﬂow of budgeted allocations for water, focussing in particular on blockages in the ﬂow of funds to local entities responsible for extending water services. More responsibility and ﬁnancing should be devolved to local government authorities and municipalities to enable local ﬁnancing, improved service delivery and direct links with customers and access to local capital markets.
Ministries of ﬁnance should allow local governments and service providers better access to local capital markets as part of their empowerment process, there-by reducing their reliance on foreign currency loans and the inherent exchange risk.
Bilateral and multilateral ﬁnancing agencies coordinate aid to stimulate development of local capital markets making local currency loans possible and more attractive. Leveraging capital in these countries allows donors to provide more resources to those countries where ﬁnancial markets are weak or non-existent to invest in their water infrastructure. Concertation of efforts of IFIs and bilateral donors in this direction will enhance the effective use of the limited resources available.
Aid donors commit themselves to taking urgent action to increase the share of water in ODA and to increase the level of disbursement to the water sector. In particular, international aid donors pledge themselves to overcoming impediments to increased spending in the water sector.
Donor commitments and monitoring should be focussed on outputs like people provided with access to safe water and sanitation instead of dollars spent. Local and National Governments need to open monitoring processes to civil society and development partners to ensure that expenditure is effective and proportional to needs.
Governments, donors and IFIs to make sure that poorer groups are beneﬁting from their action and use ﬁnancing mechanisms that facilitate this like output based aid, micro-ﬁnance and decentralised funding.
Regional Development Banks to gather information about pooling mechanisms, credit-enhancement frameworks and interest-rates available to medium-size local authorities/operators in the countries of their region.
Financing Water for Agriculture
Water institutions will need to make a strong effort for capacity development, including participation, empowerment, technical assistance and organisational development. The re-education and training of staff is an important part of this.
Staff exchanges, benchmarking, “south-south” cooperation, twinning, and other kinds of technical assistance all have a potential role to play.
The trend to give Water User Associations more delegated responsibilities needs to be accompanied by sufﬁcient delegation of powers (“voice and choice”) to enable them to function effectively in this new environment.
Future spending by national governments should be more functional in order to support necessary reforms. Departments should examine the reasons for any under-spending that occurs and take action to remove administrative blockages.
External aid will continue to be needed in this sector, though on a more selective basis than in the past. Donors should be more receptive to new roles for aid, with the keynotes being facilitation, leverage and capacity building.
For Africa however, support to water and infrastructure development should be considered as part of public funding along with the reforms institution building and facilitation.
In order to secure ﬁnance for essential major infrastructure from IFIs and commercial lenders, working arrangements are required, which take account of the key elements of the World Commission on Dams report. However, these should avoid unnecessary delays and complex procedures, which deter both, ﬁnanciers and borrowers. There should be a speciﬁc study of the experience of dams and other major hydraulic projects concluded since 2000 with IFI involvement.
Water charges to users are a grossly under-tapped source of ﬁnance with great potential, and the only sustainable source of ﬁnance for recurrent operations. However, service agencies will need to be more customer-oriented and provide a better service if this potential is to be realised. Further study is desirable of cases where irrigation tariff reform has been successfully introduced, and their lessons for implementation.
The key to involving a wider range of ﬁnancial sources is to identify the speciﬁc risks of this sector to investors and lenders, and to address these risks through ﬁnancing structures. Co-ﬁnancing from various sources is feasible, with each funder assuming appropriate parts of the risk. Further study is recommended of recent cases of PSP in this sub-sector.
Governments, donors, and IFIs, with the support of international networks and other stakeholders, should develop appropriate fora (e.g.Round Tables) involving local ﬁnancial service providers to identify ways of promoting microﬁnance in water for agriculture. Governments should also review the impact of existing credit and capital market controls on the potential development of a microﬁnance market for this purpose.