The Telegraph
Since 1st March, 1999
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To fill part of the financing gap to meet the goals for water and sanitation, costs must be reduced and revenues from users increased. To reduce costs, local authorities have to improve management — for which there should be more donor support and exchanges among developing countries.

In terms of revenues, local authorities commonly do not include capital costs in their cost recovery policies — and only partly recover recurrent costs. It has been suggested that “for the water and sanitation sector, full cost recovery from users is the ideal long-term aim”. Under such a strategy, urban users would pay full costs for investments, while peri-urban and rural users would not contribute to capital costs. For operation and maintenance costs urban users would pay full costs, peri-urban users would do so where possible and rural users would pay partial recurrent costs.

But such an approach would be unfair. Since the social benefits of safe water and adequate sanitation far exceed the costs, there is a strong case for a pricing policy that reflects the wider benefits to all from, say, reducing the incidence of diarrhoea. This implies that those with direct household connections should be paying full cost. Today they are the ones paying below cost— and receiving the greatest subsidies. Charging them full cost would generate resources for the sector and make it possible to cross-subsidize those lacking improved water or sanitation or having a lower ability to pay. Such cross-subsidies would also be possible if higher rates were charged to industrial and agricultural users...

The problem facing many developing country governments is that large budget deficits have forced them to undertake macroeconomic stabilization and adjustment. But since the early Eighties, adjustment policies have focussed on reducing public spending — rather than mobilizing...Where poor people struggle to cover charges, they should be helped through credit schemes...

The total share devoted to basic social services (basic health, basic education and water and sanitation) has rarely surpassed 10 per cent, despite an increase in bilateral flows in the new decade. The multilateral contribution has accounted for a third of official development assistance, including United Nations agencies, the World Bank and regional banks. Official development assistance for small water and sanitation projects in rural areas and for basic education are insufficient.

Official development assistance for basic services must increase. Donors worried about the fungibility of recipient government resources should bear in mind that even if governments shift resources partially to other sectors, they still increase public spending.

Moving from project-oriented to sectorwide approaches is an important step forward. A sectorwide approach avoids the weaknesses of the project approach: weak links to other sectors, geographic isolation, lack of ownership and aid conditionality. It is also supposed to build an integrated programme that sets out policy objectives, a comprehensive policy framework, an investment plan, a spending plan and funding commitments for governments and donors.

The idea is that sectorwide programmes should become part of the overall policy environment — rather than bypassing national structures, as project funding does. They could also ensure clear financing commitments from donors, an improvement over unpredictable aid flows to particular projects. Though a complex exercise, because they presuppose homegrown and effective sector policies, at least they involve recipients.

The sectoral approach has had problems...If public spending is stagnant or falling, it is next to impossible politically for governments to shift funds to social services — particularly to basic social services — without incurring the wrath of those better off.

In addition, all the external agencies involved have linked their financial flows to specific programmes. Indeed, earmarking funds for specific elements of sectorwide approaches is widespread, often depending on donor perceptions of local political leadership and commitment in specific areas.

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