Current problems and impacts on Finance

An overview of current problems and their impacts, some short term goals (intermediate outcomes), priority actions and ultimate vision.

2010: The problems

• Opaque sector budgets with fragmented knowledge on origins of finances (transfer, tax and tariffs), on destination (country, water/sanitation, poor/non poor, urban/rural) and what is covered (development, enhancement, rehabilitation, support)
• Multiplicity of funders and inadequate clarity who should pay for what: users to pay day-to-day or short term costs, governments the medium term costs and donors long term money. Nobody considers that if one fails, all the money is wasted.
• No proper risk analysis of financing policies and decisions from money providers: all risk are supported by end users (grant/loan end beneficiaries) who have to cope with risk of system failure and to complement what is not properly financed
• Horizontal coordination has moved towards harmonisation and coordination issues which have become crucial under decentralisation policies of WASH services and related financial transfers and management
• There is a trend towards not providing subsidies to sanitation, promoting hygiene approaches and expecting households to self- finance infrastructure. Demand creation, in a context where there is often much lower demand for sanitation than water, can be critical.

Impact of present situation

• Financing flows don’t aim at providing sustainable services, don’t target the poor, are not based on cost and cannot prove their cost-effectiveness
• No coordination at international sector level: as many financing reporting formats as there are donors
• Poor coordination of funding flows at country level and below
• Poor knowledge on cost effectiveness of financial transfer from national to more local governance level
• Bias to finance hardware (impact measured in terms of infrastructure) whereas there is a consensus on the necessity to develop capacity to support, operate, change the perception on water

Intermediate outcomes (5 years)

• Coordinated strategies of donors towards the water sector (same reporting format, shared performance indicators, sustainability-driven financing)
• Cost-based financing where amounts, mechanisms and beneficiaries are based on the cost to be covered by who at what scale and when.
• Monitoring of financing flows is based on service delivery indicators
• Governance levels that receive money endorse the risk of misused of funds under appropriate regulatory mechanisms
• Post construction support for water and sanitation to be covered at scale, including monitoring impact of hygiene approaches.

Priority actions

• Requesting unit costs per component, per service level and per capita when allocating funds
• Coordination of financial flows in order to cover all costs component in any specific area for a well defined population before starting to implement
• More flexibility in financing mechanisms to cope with risk mitigation strategies

Vision

• Governance levels/cost and financing units develop strategies aligned to the duration of the costs they finance
• Money receivers are accountable to money providers based on the service delivered to users and the match-funding mechanisms to cover the other cost of WASH services
• Decision makers develop services according to the secure funding available (adequation between financing flows and service level) to mitigate the risk of being short in fund to cover small but crucial costs (O&M).