Remarks by Angel Gurría, OECD Secretary-General, delivered at the 5th World Water Forum High Level Panel on Finance
Istanbul, 17 March 2009
Dear colleagues, friends, good afternoon.
I am pleased to participate in this Panel to discuss the current crisis and water financing. We are in a global downturn of a scale and reach we haven’t experienced since the great depression. It is bad, and might get even worse.
What does this mean for the mission to improve financing for water and sanitation for all?
The current crisis and the water sector
Here is one scenario. The credit crunch means that finance is harder to get for water utilities and municipalities. Public finance for infrastructure maintenance and upgrades is under strain. And as consumers face the fear of losing their jobs, it becomes politically difficult to raise water tariffs. The financial viability of the utilities is threatened; maintenance and rehabilitation work is postponed. The vicious circle of low tariff - poor service - low willingness to pay is perpetuated. This is the worst case.
But there is an alternative scenario. Crisis is the mother of bold innovations. Crisis provides an impetus to push forward difficult reforms. It opens a window of opportunity to drum up the political will needed to act. If the efficiency and governance of the water sector is improved, it could well attract funds from financial markets. Economically, it makes sense: the water sector provides a steady, stable rate of return that makes it attractive to risk-averse investors. Politically, it is inevitable: water has growing strategic importance especially as water scarcity is expected to get worse in the coming decades.
Governments are launching large fiscal stimulus packages. While much political attention in the stimulus packages is on environmental efficiency, we need to get the message across that water efficiency needs a higher profile. In fact, there are huge opportunities for job-creating and “shovel ready” investments in the water sector, particularly for water saving and the rehabilitation of networks, which require relatively short design and construction planning, compared to new roads, energy, or other types of infrastructure. Water represents the best example of “double dividend” spending that packages offer the opportunity to spend in. Better water management and infrastructure can be crucial to raise conditions for sustainable long term growth at global level.
Let me tell you how these opportunities could be captured.
OECD is working on solutions
The OECD has been working to address both the current crisis and better water management. The OECD’s Strategic Response to the Financial and Economic Crisis is making the case for fixing the failures of the financial markets, and embarking on policies for recovery and long-term growth towards a stronger, cleaner and fairer world economy. The Ministerial Meeting of the OECD on 24-25 June will discuss the impact of the fiscal stimulus packages and how best to promote green growth beyond the crisis.
While seeking solutions to the crisis, we are also keeping an eye on water management challenges. Just this morning I launched the latest OECD report Managing Water for All: An OECD Perspective on Pricing and Financing. This report culminates the OECD work over the past two years and takes into account the cross-cutting nature of the water challenges. It aims to help countries to better manage this vital resource, and to strengthen financing arrangements in both OECD and developing countries for improved water supply and sanitation services.
Let me illustrate the key lessons in the context of the current crisis.
1) The economic benefits of investment in water supply and sanitation services. Especially in developing countries, awareness among political leaders and citizens more generally of the positive social returns to investing in water and sanitation is still too limited. Yet we are talking about big numbers, between 4 and 12 times, in the forms of reduced health care costs and increased productivity. Efforts to spread the words deserve all our attention. There is still time for fiscal stimulus packages to allocate funds to the water sector. But we have to act quickly and persuasively.
2) The need to strengthen water sector reforms and improve the efficiency and creditworthiness of utilities. The water sector itself needs to become more credible. How to achieve this? Our recommendation to policy makers is that they must tackle water governance and water investment risks. Enhancing the operational efficiency of utilities requires reduced leakages. Resources from fiscal stimulus packages with a water investment component should be directed to improve the performance of utilities. The signalling effect of improved water governance is potentially enormous. In fact, it could act as a catalyser for increased and more stable private and public finance over the long term.
3) The leveraging role of fiscal transfers. Along with tariffs and taxes, fiscal transfers to local governments and municipalities can be one of the main sources of finance for water sector investments. But they could be designed better, particularly with a view to attract matching funds from municipalities, for example, or to serve as guarantee for private finance. Take the example of the United States’ State Revolving Funds: big moneys, USD 3.9 billion, which come on top of the 4 billion from the fiscal stimulus package. It will fund 1,700 local water and sanitation projects. The strong emphasis on co-financing arrangements means that the effective level of future water spending could be much higher.
4) The role of strategic financing plans. The current economic climate requires smarter financing plans for water infrastructure investments. Our report focuses on the “3Ts”: taxes, tariffs and transfers but it also stresses the importance to find a balance between these ingredients, and how they could leverage or guarantee other sources of finance. One example is the OECD’s FEASIBLE, a financial planning tool to help countries develop realistic financial strategies for water and sanitation. We are already working at several country pilot projects with Egypt, Kyrgyzstan, Lesotho and Georgia. The European Union Water Initiative and others promote wider use of the approach. Also, the World Bank has started using the FEASIBLE tool in Cambodia and may do so in other places in the future.
The financial crisis and the global economic downturn are having far-reaching effects, especially on developing countries. We all agree on the importance that the international community remains committed to its goals of fighting poverty and promoting economic development in poorer countries. This has also to include a strong commitment to meeting the water-related Millennium Development Goals. Governments in the OECD Development Assistance Committee and the recent Doha Conference on Financing for Development have pledged to maintain aid flows in line with earlier commitments. That gives us some ground for optimism.
I truly believe that the current crisis presents an unexpected opportunity for the water sector. But we must use it to push much-needed reforms. Only then will investments in the sector become more attractive for both governments and private investors.
A crisis is an opportunity that should not be wasted; but we have much work ahead of us.