Working Paper.2009

The Global Financial and Economic Crisis and the Water Sector

This report examines the impact of the financial crisis since 2007 and relates this to the impact of the food price crisis beginning one year earlier. It examines the status and trends in the financing of water in Africa and assesses the deficiencies of the current model that has created inadequate financial flows. Suggestions for Sida to consider in framing its response to the immediate financial troubles are presented, and 'looking beyond these' the underlying needs of Africa's water resources management, services and governance through levers of change are also addressed.

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This Report examines the financial status and needs of the global water sector in the light of the current international economic and financial crisis. Its main messages are:

1. Financial crisis and food crisis set back growth and poverty gains.

2. Persistent underinvestment in water. These twin crises are overlaid on a more fundamental crisis for water in many countries that has been made even worse by recent events.

3. Deteriorating and deficient infrastructure have stalled MDG progress.

4. Financial vulnerability of water services

5. Developing countries have been affected by the economic crisis through seven principal impacts: financial, trade, commodity prices, foreign direct investment, remittances, aid disbursements, and exchange rate movements.

6. Long-term problems aggravated by the economic crisis

7. Deficient financial flows in Africa

8. Rise of new disbursement instruments

9. Opportunity to trigger reforms

10. Policy response opportunities available to Sida

11. Implementing policy change at Sida to promote water related livelihood outcomes

  • Policy response options to consider

    Countering impacts of the economic and food crises

    a) National economic stimulus packages
    b) Food price crisis response
    c) Mobilising NGOs and civil society for local operations
    d) Risk sharing instruments
    e) Blending grant and loan finance
    f) Urgent housekeeping and efficiency measures to strengthen finances of water services

    Levers of change

    g) Supporting African regional organizations and promoting regional integration
    h) Building the pipeline of ‘bankable’ projects
    i) Co-financing with multilateral agencies
    j) Leveraging commercial and private finance
    k) Pioneering Strategic Financial Planning
    l) Transition of emergency water support to sustainable water management in fragile States

Winpenny J. Bullock A. Granit J. and Löfgren R. SIWI Reference: 17-122, 2009