Since the beginning of the 90’s, despite strong political commitments made by donor countries for the water sector (one of the main recommendations of the Camdessus Panel is that financing to the water sector is expected to double if the water-related MDGs are to be met), the amounts of ODA for water have risen only slightly from 2.8 billion dollars in 1992 to 3.8 billion in 2002.

After a worrying decrease in commitments between 1999 and 2002, it seems that the downward trend has now been reversed as a large rise in commitments can be observed in the year 2004, with annual ODA amount reaching 4.8 billion dollars. But the large increase observed in 2004 is largely due to the important amounts of ODA for water provided to Iraq, which received 887 million dollars in 2004, that is 18% of the total amount.

In real terms, however, and when excluding Iraq, the current level of ODA for water is lower than in 1996 (3958 million 2004 dollars vs 4176 in 1996). This situation is particularly worrying as in other priority sectors, such as education or health, the level of ODA has doubled in the same period. There is thus a large aid deficit in the water sector relative to the financing that would be required to meet the water-related MDGs. Increasing aid flows to the water sector should be an immediate priority for donors.

The figure below also illustrates the large variability of ODA for water from one year to another, which leads to the unpredictability of aid flows in the water sector (Confirmed by the recipient-side analysis in the WMA Country Profiles).

A worrying trend is the evolution of the share of ODA for water in total ODA and in total sector allocable ODA.

Total sector allocable ODA is used to better reflect the sector focus of donor’s programmes. It concerns all ODA flows aimed at fostering a peculiar sector in the recipient country (examples of sectors are: agriculture, education, health, water supply and sanitation, government and civil society, transport and storage, etc.) and thus excludes all the contributions that are not susceptible to allocation by sector (e.g. balance-of-payments support, actions relating to debt, emergency assistance, and internal transactions in the donor country). About 65-70% of DAC members’ bilateral ODA is sector allocable.

Since the mid-90’s, ODA for water as a share of total ODA and of total sector allocable ODA has fallen, respectively from 8.7 to 6.5% and from 5.5 to 3.7% (data for 1996 and 2002, 5-year moving averages), as exhibited in the figure below.

A positive shift towards multilateral donors and grant financing

A positive recent evolution, however, is the slight increase of the share of ODA for water provided in the form of grants. Indeed, since the beginning of the 90s, bilateral and multilateral grants have been rising steadily and the share of ODA for water provided in the form of loans decreased from 60% in 1993 to 50% since the beginning of the 2000s.

Moreover, the share of ODA for water provided by multilateral donors is increasing and represents currently more than one third of overall ODA for water. This rise is mainly due to the World Bank’s International Development Association (IDA) and to the European Union. It seems indeed that bilateral donors are increasingly channeling their ODA through multilateral donors, in order to reduce their transaction costs, but also in order to improve aid efficiency.

That’s also a positive shift since multilateral donors are more poverty-focused than bilateral donors (See “Does ODA for water reach those who need it most”). From this evolution, we can thus expect ODA for water to become better targeted to the poorest and most in need countries in the coming years.