House of Commons - International Development

Select Committee on International Development Sixth Report

3 FINANCING AND AID INSTRUMENTS FOR SANITATION AND WATER

46. The financing gap for achieving the sanitation and water MDG target is huge: an annual average of $7 billion per annum.[80] The weaknesses in the international aid architecture for the sectors—insufficient donor co-ordination, poor targeting of aid and a multiplicity of actors and structures—compound the financial shortfall. DFID admits that: "The [water and sanitation] system as a whole, from local to international level, is beset by institutional and market failures."[81]

47. This combined financial and aid architecture deficit has prompted DFID into a double-pronged response which pledges more aid for the sector—a doubling of support in Africa to £95 million a year by 2008 and a re-doubling to £200 million a year by 2011—and more effective aid, through improved accountability, sharper focus on the inequalities that inhibit access, scaled-up political will and improved governance.

DFID's proposed Global Action Plan

48. In November 2006, DFID proposed a Global Action Plan that would help ensure more, and more effective aid, for the sanitation and water sectors. The Plan has three basic aims: to increase global funding (especially for "donor orphans"[82] within the sectors); to ensure that money is spent effectively and fairly (longer-term, more predictable and co-ordinated funding and capacity-building at local and regional levels) and to put the right structures in place to make progress. Towards this third objective, DFID has proposed "the Five Ones": one annual UN monitoring report; one high-level global meeting; one national water and sanitation plan per country; one water and sanitation co-ordinating group per country; and one lead UN body for water and sanitation.[83]

49. DFID has followed its proposal of the Plan with the publication of an update to its Water Action Plan and other awareness-raising materials including a survey of UK attitudes to water usage on World Water Day 2007 (22 March). We welcome these publications and hope our inquiry has helped spur this renewed activity in relation to sanitation and water.

50. When we asked the Secretary of State in February 2007 about progress in securing international agreement to the proposed Global Action Plan, he was cautiously optimistic, saying the Plan had, "struck a bit of a chord [...] I think it is as good a time as we have had for some years to make progress." He reported that: a side event on the Plan was scheduled for the annual International Monetary Fund and World Bank Spring Meetings to be held in Washington in April 2007; discussions with UN Water about the production of an annual report had elicited "some interest"; and discussions were ongoing with UNICEF about a lead UN body for each country and with national governments about national plans and co-ordinating groups.[84]

51. However, the scale of the proposed Plan requires urgent action on DFID's part. To ensure the "Five Ones" are implemented in time for them to have a significant impact on progress towards the MDG deadlines in 2015, DFID should aim to secure agreement and launch the Plan by the end of 2007. DFID deserves credit for the leadership it has demonstrated through its proposed Global Action Plan for water and sanitation. We were pleased to hear that some progress has been made on securing international agreement to the Plan. We exhort DFID to continue with urgency its high-level engagement on the Plan to ensure that the five objectives are agreed and launched by the end of 2007, to ensure sufficient progress is made towards meeting the MDG targets by 2015.

Aid predictability and budget support

52. Whilst pursuing global progress on the effectiveness of financing for sanitation and water, DFID must at the same time ensure that its own house is in order when it comes to providing long-term, predictable and co-ordinated financing to the sectors. Predictability of financing is particularly important for the water sector, where a reliable source of funds is needed to build and maintain infrastructure.[85] Yet DFID was criticised by WaterAid and Nepal Water for Health (NEWAH) for suddenly and substantially cutting back its water and sanitation programme in Nepal during 2006.[86] DFID's expenditure on rural sanitation and water in Nepal has been cut from around £4 million in 2003/4 to £1.9 million in 2007/8.[87] DFID attributes the cutback to "the difficult operating environment [...] the takeover by the King in February 2005, autocratic rule and the intensification of conflict" which seriously constrained its objectives.[88] The Department believes that the Peace Accord signed in Nepal in November 2006 provides a "new window of opportunity" for scaling programmes back up.[89] However, the unpredictable nature of DFID's aid has already taken its toll: NEWAH told us that they were prevented from reaching 10,000 poor people with water supplies in 2006 due to DFID's cut-back.[90]

53. We asked the Secretary of State whether the current political instability in Bangladesh might compromise DFID's support to sanitation and water in that country. He told us that, as far as he is aware, it would not: "The situation is difficult there but we are getting on with the business notwithstanding."[91]

54. During our visit to Ethiopia, we saw how DFID's aid predictability had been affected by the decision to withdraw Poverty Reduction Budget Support (PRBS), first by the UK and then by other donors, in January 2006 in response to concerns about political governance and human rights abuses following the 2005 elections. Ethiopia, unlike Nepal, did not see its programme cut back as a result, but funds were re-channelled through the replacement for PRBS, the £94 million Protection of Basic Services Grant, which seeks to maintain and expand primary schooling, basic health care, water supply and sanitation and agricultural extension. In practice, the Grant is simply another form of budget support. Funds are not earmarked for specific sectors: it is left to the discretion of regions and woredas (districts) to allocate funds from the federal block grant for the different sectors based on need. We were told during our visit that, whilst funds disbursed under the Grant have almost reached the level provided under budget support, the Ethiopian Government lost $1.5 billion in 2006 because the planned scaling-up in donor aid scheduled for the year did not happen.

55. Clearly, the UK Government saw changes to UK aid as a way of communicating an important political message to the governments of Ethiopia and Nepal. But DFID's Draft Ethiopia Country Assistance Plan for 2006-10 admits that mistakes were made in the way in which donors suddenly withdrew PRBS: "The implications of the donors' decision to suspend direct budget support were not made sufficiently explicit when the decision was first announced, and since donors had not planned for this contingency new instruments had to be created under intense time and political pressure."[92]

56. In our report on DFID's Departmental Report 2006, we recommended that DFID examine the long-term viability of budgetary support before it is introduced in order to reduce the likelihood of withdrawal. We recommended that in case, as a last resort, it is necessary to withdraw budget support, DFID should put contingency plans in place prior to PRBS being withdrawn.[93] In the Government Response to our report, DFID said it would ensure that when it assesses the expected benefits that budget support may deliver, the likelihood of delivering predictable resources will be taken into account.[94] Furthermore, where decisions to withdraw planned aid are made, DFID needs to ensure it is accountable to poor people by being fully transparent about decisions and by publicly announcing to parliamentarians and civil society the reasons for changes in policy and the planned remedial course of action. We recommend that DFID ensure that its aid to sanitation and water is predictable. Any rapid scaling-back of aid should be a last resort, but where it is unavoidable—for example following political events that are beyond its control—DFID should publicly communicate changes to its policies to civil society and parliamentarians to ensure proper accountability. We reiterate the recommendation we made in our report on DFID's Departmental Report 2006 that DFID should examine the long-term viability of Poverty Reduction Budget Support before it is introduced and put contingency plans in place prior to PRBS being withdrawn.

57. The arguments in support of budget support are well-rehearsed: it assists the strengthening of national plans and budgets, and facilitates a high-level policy dialogue with partner governments.[95] However, concern has also been expressed about the potentially negative implications of budget support generally, and specifically for sanitation and water. Firstly, because responsibility is often spread across different ministries, the sanitation and water sectors can have a weaker voice in claiming their share of budget support compared to other sectors with clearer institutional homes such as health, education and transport.[96]

58. Secondly, capacity on sanitation and water is often very weak at local government level. In countries with decentralised governments, decisions on spending on sanitation and water are taken at the regional, rather than federal, level. This system applies in Ethiopia, where regional and woreda (district) level capacity is a major concern, with limited planning and design capacity, inadequate staffing levels and poor facilities and equipment.[97] Given that Ethiopia's Protection of Basic Services Grant is, in practical terms, simply an alternative form of budget support, the lack of capacity at regional and local level risks national priorities failing to translate at local level, due to misunderstandings and competing priorities. WaterAid found that, despite a doubling of spending by the Ethiopian Government between 1999 and 2004, regional spending only increased by 50% in the same period.[98]

59. Ensuring that aid delivery mechanisms enhance the capacity of local government, which bears the responsibility for service delivery, is a key concern for the sanitation and water sectors.[99] In parallel, it is crucial that parliamentarians and civil society are able to track spending, scrutinise national and local budgets and effectively articulate demand for sanitation and water. Only with sufficient transparency and the political space for civil society to enter a dialogue with government will accountability mechanisms function.[100] DFID has included such a strategy within its Protection of Basic Services Grant in Ethiopia: Component 4 of the Grant pledges to provide funds directly to civil society groups to help them to hold local officials to account for the delivery of basic services. However, we were told informally by NGOs in Ethiopia that there had been little progress in implementing this Component.

60. For budget support to work effectively as an aid mechanism for the sanitation and water sectors, DFID needs to assist the 'voice' of the sectors by helping to strengthen the 'institutional homes' for sanitation and water and support the building of capacity at local government level. This is especially true for countries with decentralised government where spending decisions are made by regional and local officials. We recommend that DFID support a complementary strategy to strengthen the role of parliamentarians and civil society in scrutinising budgets and policies and articulating demand for sanitation and water services effectively.

The human right to water

61. On the same day that DFID proposed its Global Action Plan (9 November 2006), the UK announced that it had decided to recognise the human right to water, a statement that UK campaigning groups had been demanding for a number of years.[101] Whilst the UK's recognition of water as a basic human right sets a good example and underlines the UK's commitment to the sector internationally, ascertaining what recognition of the right means in practical terms for the 90 countries that have recognised it is quite difficult. As Kevin Watkins, Director of the UNDP's Human Development Report, told us, "Just calling something 'human rights', just putting it in the constitution without any operational vehicle or financing mechanisms for the realisation of that right, does not really help anybody."[102] In many countries, the right to water already exists in law, but this is not public knowledge. DFID could thus pursue a complementary strategy of increasing demand for water services by helping to raise public knowledge of existing entitlements, as well as shortcomings in legislation and provision.

62. Kevin Watkins of UNDP gave the example of South Africa which has made recognition of the right to water meaningful by quantifying and legislating for the right: each citizen is entitled to 25 litres per day. This obliges the water provider to meet that right, which in South Africa has resulted in people taking utilities to court. Successfully legislating for water in this way is rare, however, and Kevin Watkins believes it relies upon countries having the necessary political structures through which people can claim their entitlement.[103] What countries also need is the financial and technical ability to deliver this, as well as there simply being enough water to go round. Without this, the 'right' to water could be considered a somewhat meaningless aspiration.

63. A rights framework by no means solves the conundrum of how to ensure universal access to water, but it does serve as a powerful moral claim and a trigger for poor people to mobilise around their entitlements.[104] The UK's recognition of the human right to water is a positive first step. However, DFID should encourage developing countries to go beyond recognition to quantify and legislate for the right to water. Only then can citizens hold their providers accountable for their entitlement to water. This should include a complementary strategy of increasing demand for water services by helping to raise public knowledge of existing entitlements, as well as of gaps in legislation and policies.

Multilateral institutions and sanitation and water

64. DFID is increasingly channelling sanitation and water financing through multilateral institutions, particularly the World Bank and the Regional Development Banks, including the Asian and African Development Banks. The Secretary of State told us it was not possible to specify at the current stage what proportion of DFID's expanded funding for sanitation and water would go through multilateral channels.[105] Currently, the overall proportion of DFID funds channelled through multilateral institutions is 39%.[106] Given DFID's plans to increase sector expenditure on the one hand and pressures to reduce staffing levels on the other, it is likely that the proportion and level of financing channelled through multilateral institutions will continue to increase.[107]

65. WaterAid emphasised that DFID must ensure it has adequate oversight and influence over the multilateral institutions to which it gives funds, and which may not always share the same objectives as DFID. Stephen Turner, Deputy Director of WaterAid, told us that the impact of Asian Development Bank lending policies on India, Bangladesh and Nepal had been shown to exclude the poor from connecting to water services, an obviously divergent outcome to that which DFID would seek from its funding of the Bank.[108] Given that DFID is increasing its funding of the African Development Bank (see paragraphs 78-79), it is important to ensure common objectives. WaterAid suggested that DFID should push pro-poor objectives during multilateral organisations' planning and design stages and during replenishment rounds.[109]

66. The following four sub-sections will look at specific multilateral efforts within the sanitation and water sectors, and explore how DFID can seek to exert influence and oversight and maximise its investments, as WaterAid recommends.

THE WORLD BANK AND THE UNITED NATIONS

67. The International Financial Institutions (IFIs) are key players in the sanitation and water sectors. The World Bank is the leading financier for the sectors: the Bank's contribution has increased rapidly from $600 million in 2001 to a projected $2 billion for the current financial year.[110] DFID is currently making its largest ever contribution to the World Bank following its record £1.43 billion replenishment of the International Development Association, the Bank's concessional lending arm. DFID is a leading donor to the Water and Sanitation Programme (WSP), a multi-donor partnership closely associated with the World Bank. DFID has made total pledges of $33 million over the last five years.[111] In its written evidence, the Bank stated that a valued aspect of DFID's involvement in the WSP is "the coordinated and effective approach between the Policy Division and country programmes that intersect with WSP."[112]

68. Mark Lowcock, DFID's Director General for Policy and International, highlighted that an area of concern for DFID was the Bank's spending bias towards sanitation and water in urban, rather than rural, areas.[113] About 85% of the Bank's spending on sanitation and water is focused on urban settlements.[114] DFID also pointed out in its written evidence that over half of the World Bank's investments in sanitation and water are focused on middle-income countries.[115]

69. The UN is not a major provider of financial resources for sanitation and water and it has a fragmented and un-coordinated approach to the sanitation and water sectors.[116] 23 separate UN bodies work on sanitation and water, with no assigned lead agency. UN-Water was established in 2003 to improve co-ordination between this assortment of agencies but no lead agency has yet been identified, nor were sufficient resources allotted to the initiative.[117] DFID contributes core funding to UN-Water.[118] The Secretary of State recognises the need for reform of the UN's fragmented approach: he told us that "the UN [...] needs to get their act together" on sanitation and water.[119]

FINANCING WATER-SUPPORTING INFRASTRUCTURE

70. DFID contributes to international multi-donor infrastructure facilities, which aim to help finance the large infrastructure investments—piping, bridges, dams, roads—that are vital for the water sector. DFID contributed about £35 million in 2005-06 to infrastructure facilities, although only around £5 million of this went to specific sanitation and water projects, and these are largely focused on advisory or technical assistance. They include the World Bank Water and Sanitation Programme (WSP), Water and Sanitation for the Urban Poor (WSUP) and the Public Private Infrastructure Advisory Facility (PPIAF).[120]

71. The World Development Movement has criticised DFID for funding PPIAF, an initiative they believe pushes the water privatisation agenda in developing countries.[121] But the aim of leveraging in appropriate levels of private sector finance is a legitimate one: the nature of the current infrastructure challenge overwhelmingly concerns financial resources. The Commission for Africa recommended that, in order to address the full scale of services needed in Africa, a doubling of infrastructure spending is required—expenditure of US$10 billion a year up to 2010 and, subject to review, a further increase to US$20 billion a year in the following five years.[122] DFID needs to engage with other donors to ensure that the Commission for Africa's recommended donor spending on infrastructure of US$10 billion a year up to 2010 (and, subject to review, a further increase to US$20 billion a year in the following five years) is secured.

MAXIMISING BENEFITS FROM THE EU WATER INITIATIVE

72. The EU Water Initiative (EUWI) was launched at the 2002 World Summit for Sustainable Development as a political rather than a financial initiative. It seeks to reinforce political commitments, improve co-ordination and target national water governance through Multi-Stakeholder Country Dialogues (see paragraphs 74-75). There has been much criticism of the EUWI and DFID is currently leading a review to create a more defined focus and to give greater priority towards delivery.[123] Tearfund and WaterAid perceive there to be a number of inherent problems within the EUWI, including: a lack of commitment by EU member states; an absence of accountability; the omission of developing country governments from dialogue, and an unfocused approach which fails sufficiently to target the most off-track countries. For example two of the EUWI's four working groups are focused on regions that are on-track for the sanitation and water targets.[124] Antonio Garcia-Fragio from the European Commission (EC) admitted that Africa, in particular, does not get the attention it should within the EUWI.[125] The EUWI's Africa Working Group is therefore a priority area of engagement for DFID so that gaps and overlaps in funding to sub-Saharan Africa can be identified and funding prioritised accordingly. We recommend that DFID prioritise engaging with the EU Water Initiative's Africa Working Group so that gaps and overlaps in funding for sanitation and water in Africa can be addressed.

73. The EUWI was created primarily to co-ordinate EU donors' support to sanitation and water.[126] Yet there is little evidence that co-ordination has improved because of the initiative. Mark Lowcock, DFID Director General for Policy and International, told us that "a big, big prize for us" would be for the EUWI to contribute more effectively to co-ordination.[127] A major factor in this poor co-ordination is insufficient engagement with the EUWI by EU member states. Antonio Garcia-Fragio from the EC identified engagement with inactive member states as the most helpful thing that DFID could do for the EUWI, because of its position as a leader within the Initiative, its large presence in Africa and its influential relationship with the World Bank, which could assist with tools for leveraging finance into African countries.[128] DFID has shown leadership on the EU Water Initiative from the outset. It now needs to use this position to seek more active participation from other donors so that improved co-ordination of EU member states' aid to sanitation and water can be facilitated.

74. Another primary objective of the EUWI is to improve national water governance through a lead EU donor and an individual government working together on political and financial strategies for reaching the sanitation and water targets (in what it calls a Multi-Stakeholder Country Dialogue). Ethiopia was selected to become one of ten pilot countries and its Dialogue was launched in November 2005. Country Dialogues have attracted criticism internationally and have failed to get off the ground in all but a few countries.[129] However, there is general agreement amongst sector experts that the Ethiopian Dialogue has been the most successful to date. This is attributed to commitment from the Government of Ethiopia, the support of donors and a strong financing strategy.[130]

75. Ethiopia's EUWI Taskforce brings together the four sector ministries, the main donors to sanitation and water and NGOs: a successful Multi-stakeholder Forum was held in October 2006 and a Financing Roundtable, funded by DFID, will take place in the first quarter of 2007. We were told in Ethiopia that DFID was playing "an essential role" in the Country Dialogue, and that the secondment of a DFID adviser into the Ministry of Water Resources under the Dialogue had been central to its success. EUWI Taskforce officials were hopeful that effective donor co-ordination would reassure donors and lever in scaled-up finance for sanitation and water in Ethiopia. DFID should work thorough the EUWI Africa Working Group to promote lessons from the Ethiopia Country Dialogue and to persuade other donors to strengthen their participation in Country Dialogues. DFID has played an essential role in the first successful EU Water Initiative (EUWI) Country Dialogue in Ethiopia. It should proactively share lessons learned with other pilot countries so that the effective factors within the Ethiopian Dialogue can be emulated elsewhere. The Department should encourage other donors within the EUWI Africa Working Group to increase their involvement in Country Dialogues.

THE EU WATER FACILITY

76. The EU Water Facility (EUWF) is a challenge fund set up in 2004 with a €500m contribution from EU member states. EUWF funding, for which countries bid on a competitive basis, has since funded 97 water and sanitation projects, which will bring access to water to an estimated 10 million people, and sanitation to about five million people over the next four years.[131] However, WaterAid and Tearfund suggest that the distortionary risks of the EUWF are so high that it should be scrapped once its present application round is completed so that resources and efforts can be redirected towards bilateral support for national budgets: "The EUWF has actually had a negative effect by distracting hard-pressed officials. They have focused on submitting proposals [...] rather than, for example, on lobbying their own Governments to prioritise the water and sanitation sector".[132]

77. DFID's proposed Action Plan for water and sanitation advocates that the Facility should be reformed and better linked to the EU Water Initiative.[133] The tenth round of the European Development Fund will be finalised in 2007 for the 2008-13 period, and provides a window of opportunity to reform the EUWF.[134] The EUWF's first bidding round was 15 times over-subscribed and the Secretary of State acknowledged that potentially the bidding process could act as a distraction to government time and capacity for in-country work on sanitation and water.[135] Greg Briffa, Head of DFID's Water, Sanitation, Energy & Transport Team, agreed and pointed out the importance of integrating financing into national planning.[136] We agree with DFID's view that the EU Water Facility should be reformed and better linked to the EU Water Initiative so that it is more strongly integrated into national and local planning. The tenth round of the European Development Fund, to be finalised in 2007, provides a window of opportunity for DFID and other donors to seek the reform of the EU Water Facility.

THE AFRICAN DEVELOPMENT BANK'S RURAL WATER SUPPLY AND SANITATION INITIATIVE

78. DFID's engagement with and support for the African Development Bank (AfDB) has grown considerably over the past five years, particularly in Ethiopia, Ghana, Uganda and Mozambique. At the end of 2006, DFID committed £6 million to a technical assistance project which will support the AfDB's Rural Water Supply and Sanitation Initiative (RWSSI), the largest initiative of this kind. The RWSSI focuses on rural areas with a target of reaching 32 million rural dwellers by 2015 (an 80% access rate).[137] The total estimated cost of the RWSSI is huge, at around US$14 billion.

79. Sering Jallow, Acting Manager of the AfDB's Water and Sanitation Department, emphasised to us that local government capacity in rural areas is often:

138

Whilst the RWSSI does include an objective of capacity-building for decentralised government bodies, this is just one strand of a multi-pronged strategy which includes awareness-raising, mobilisation of funds, hygiene and health promotion and appropriate technology promotion, and the risk exists that the vital capacity-building objective will be subsumed within these other aims. A further concern relates to the AfDB's own capacity to disburse finance effectively at the scale required.[139] DFID needs to help support the Bank's own capacity to target and spend funds where they are needed most. DFID's support to the African Development Bank's Rural Water Supply and Sanitation Initiative (RWSSI) is important. In order to maximise this investment and the success of the RWSSI, we recommend that DFID engage with the Bank to ensure that capacity-building of rural local government bodies is a major priority for the Initiative, and does not become subsumed amongst the RWSSI's competing priorities. DFID should also support the Bank's own capacity to target and spend funds effectively.

80 The financing gap is the most recent estimate from the UN MDG Taskforce on Water and Sanitation of the total global cost of achieving the water and sanitation MDG targets; and Ev 89 [DFID]. Back

81 Ev 90 [DFID] Back

82 The term "donor orphans" refers to countries that currently receive too little donor funding, in this case for water and sanitation. Back

83 DFID, Why We Need a Global Action Plan on Water and Sanitation. Back

84 Q 234 [Hilary Benn] Back

85 Ev 92 [DFID] Back

86 Ev 194 [WaterAid] and Q 47 [Umesh Pandey] Back

87 2003/4 expenditure is actual, 2007/8 is planned. Ev 117 [DFID] Back

88 Ev 116 [DFID] Back

89 Ev 116 [DFID] Back

90 Q 47 [Umesh Pandey] Back

91 Q 256 [Hilary Benn] Back