Like it or not, money is at the root of all our work related to water, sanitation and hygiene (WASH). Yet many do not understand just how much money influences the policies, infrastructure and governance of our sector. What is clear is that without a fundamental understanding of WASH financing, particularly in low and middle income countries, we will not reach the Sustainable Development Goals.

To start, there are huge financial gaps in the sector, both in terms of covering operations and maintenance of existing services, as well as meeting existing and projected infrastructure needs. In 2016 the World Bank estimated that annually some $114 billion in capital investment was needed to reach the goal of safely managed water and sanitation by 2030 [1]. Nowhere near this amount has been raised, and the financial gap is particularly severe in developing countries.

Financial resources can come into the sector through three main routes: (1) government or public sector investment (money typically raised through taxation), (2) payments from customers in the form of tariffs and user charges and (3) grants, transfers or concessional lending from aid agencies, usually referred to as Overseas Development Assistance (ODA). Another source is private sector investment, but it must ultimately be paid back using resources from the first two sources; that is, government or users.

Tariffs and user charges tend to be the largest source of financial resources for water and sanitation. WHO estimated in 2022, based on data from 44 countries, that household expenditures, through tariffs and out-of-pocket expenses, contributed to 61% of overall WASH spending [2]. This is followed by public sector contributions, funded through taxes, estimated by WHO to be 29% of expenditure. Yet for many service providers, these financial resources are often insufficient to cover maintenance of existing systems, much less expand service to growing populations through new infrastructure or support technological advances. And, unfortunately, private sector investment in the WASH sector in low and middle income countries is mostly absent.

Likewise, while ODA has played an important role in the water sector in developing countries, this funding has always been very modest. The World Bank estimates that annual ODA to the larger water sector (including irrigation, water transport, and hydropower as well as WASH) has been $11.4 billion, or 7% of total public spending [3]; this is now being reduced significantly. Regrettably, given other national and global priorities, the prognosis for more grant aid or highly concessional lending in the future is not good. This is further hindered by the fact that the leadership, influence, and institutional architecture in the sector is in flux, with some historic leaders such as the US, Dutch, Swedish, and British governments stepping back from their longstanding support for the sector, while new leaders have yet to emerge. Even the Gates Foundation, which has been a major supporter of the sanitation sector, is stepping back from their leadership role [4].

This situation stands in stark contrast to the energy sector where, in the 1970s, the international energy crisis spawned significant policy reform, transforming the sector and leading to improvements in access, affordability, technology and finance, including in emerging markets. Today, the energy sector benefits from ongoing and substantial public and private investment, with a strong emphasis on reaching the underserved, even in low and middle income countries [5].

In contrast, the focus in the water and sanitation sector has been on building infrastructure, rather than creating viable, well-organized and well-governed institutions, resulting in a sector that is inefficient and fragmented. Service providers, whether urban utilities, local governments or rural authorities, are not serving large portions of their population, and even when they are served, many providers do not collect sufficient revenue. Staff levels are often too high and can be based on nepotism and politics, rather than service requirements. Through physical leaks, theft, and poor administration, water service providers are losing their most valuable asset - clean, treated water. These problems are further compounded by the very valid objective of delivering subsidies to those who are most in need. However, subsidies are often poorly targeted and inadequately funded.

These inefficiencies and the resulting poor delivery service mean that governments are shying away from adequately funding the gap between tariffs and full operating costs and capital expenditures. A recent World Bank study of public expenditure reviews in 68 countries found that annual budgets for WASH services for the period between 2009 and 2020 constituted only about 1.2% of total government spending. Instead, a large part of public expenditure was absorbed by the transport, energy, and human development sectors; the human development sector (education, health, social protection, and economic development) drew in more than 60% of government spending during the period [3]. Compounding this low investment, the water sector does not spend all the funding allocated to it. The 2024 World Bank study found that, during 2009–20, countries’ budget execution rate in the water sector averaged 72%, meaning that about 28% of all budgeted funds were not disbursed [3].

Given the poor performance of the sector and the risks entailed, the private sector is very reluctant to invest. Historically, the sector has never captured more than 5% of the total private investment in infrastructure in emerging markets, and the 2023 version of the World Bank’s Private Participation in Infrastructure report notes that “investment commitments in the water supply and sanitation sector decreased to $1.8 billion, falling to a third of the investment levels seen in 2022” [6].

So how does this all circle back to the urgent need to focus on the money in the water sector? In effect, there are really only two reliable revenue streams to cover the costs of WASH services: resources either need to be derived from tariffs or they need to be allocated from general tax revenues. These revenue streams must fund all the investments and support all the activities of the sector, whether the priority is new investment in technology, the rehabilitation of new or existing infrastructure, or the retraining of the workforce. If the sector is to reach its objectives and reassure private investors they can invest with confidence, there must be a secure, stable, and transparent combination of financial resources from tariffs and taxes. There is simply no other alternative.

Despite this rather grim landscape, the good news is that we know how to do this. Stakeholders in the WASH sector, including governments, development partners and civil society, need to: (1) ensure that service providers can deliver technically and financially efficient services; and (2) ensure that the administrative, institutional, governance, and regulatory regimes are in place and implemented with integrity. Ultimately, what is needed is a targeted, coordinated and well-financed effort to address what is sometimes referred to as “foundational issues”, or “systems strengthening”. This includes support for policy changes, capacity building, technical assistance and training that are essential to improve governance and institutions in the sector. And, in practical terms, this means service providers need to improve billing and collection, reduce non-revenue water, manage workforce size, and control energy costs. All of this needs to be done in the context of local control, better governance, improved leadership, clear and transparent environmental and economic regulation – and, essentially, strong political will.

While these challenges may appear daunting, the reality is that tens of thousands of service providers around the globe are able to achieve these standards and, as noted earlier, the energy sector has been able to overcome similar challenges. Finally, regardless of which sphere or sub-sector of the sector we focus on, all actors have an obligation to become better aware of financing issues – that is, to follow the money - so that providers can become viable, sustainable and ultimately reach the SDG targets.