Technical Experts Panel on the Impact of the Financial Crisis on the Water Sector Jamal Saghir...

Technical Experts Panel on the Impact of the Financial Crisis on the Water Sector

Jamal Saghir

Director

Energy, Transport and Water

The World Bank

Istanbul

March 17, 2009

5th World Water ForumIstanbul, March 16 – 22, 2009

We are facing a global crisis of an unprecedented nature A credit crunch with far reaching ripple effects in a globalized

economy

A crisis of major proportion: Industrial production down 15%, largest world trade decline in 80 years

This is largely unchartered territory…

Developing countries will be seriously affected

Although the crisis was originated in rich countries, the effect in developing countries will be profound

Large public debt issuances by rich countries for stimulus packages are crowding out developing countries borrowers – both public and private

Financial crisis in emerging markets: spreads increasing sharply

EMBIG over US Treasuries(January 1, 2006 - February 5, 2009)

0

100

200

300

400

500

600

700

800

900

1000

Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09

bp

s

Source :

World Bank, P=

projected

The financial crisis is now becoming an economic crisis

Source: World Bank

0

1

2

3

4

5

6

7

8

9

2007 2008 2009

%

Source:

ILO,

Trends

Eco

nometric M

odels, D

ecem

ber

2008

%

Economic Growth

o

f Developing

Countries

An increased dependence on ODA

The World Bank has been witnessing an increase in funding requests from the most advanced MICs: not a good news!

For many developing countries, IFIs are becoming the main source of funding

Will rich country maintain ODA flows in a time of budget crisis?

Food, Water, Energy, Finance, and Climate: The Perfect Storm?

FOOD CRISIS

CLIMATE CHANGE

ENERGY CRISIS

FINANCIAL CRISIS

MORE POVERTYLOWER GROWTH

Water Crisis

What will be the specific impact(s) on the water sector?

The water sector is underfunded… and this could become worse

Public funding for infrastructure is expected to be constrained in many countries

The water sector has not a good track record of advocating its case with finance ministers

0

50

100

150

200

250

in $ b

illion

Bond issuance

Bank lending2007 2008

51.4

12.0Germany

100.4

1.0Italy

4.8

2.0India

1.3

11.2

1.4Spain

210

8.0

35.5

EU

464

2.2 9.5

Japan

11.8

26.3

SouthKorea

685.1

0.914.0USA

143.7

239.9

197.6

China

1.1

26.5

2.1

UK

11.6

18.7

2.6France

100%

75%

50%

25%

0%

Infrastructure

Green Infrastructure

Other Measures

The water sector is not sufficiently present in stimulus packages

What about the private sector?

The situation with private investment flows is even worse.

Risk of new projects being cancelled, and current projects coming under stress

Water was never a significant portion of private infrastructure investment, but amount raised via BOTs (for bulk facilities in MICs) were still significant

An increasing role for improving efficiency?

The financial viability of water utilities could be seriously affected

What will be the impact of the recession on the capacity/willingness of populations to pay their water bills?

The financial viability of water utilities would be directly impacted by

– Increase in rate of non-payment

– Delays in tariff adjustments (inflation)

Degradation of financial situation would be major set back for reforms

Increased poverty will reduce capacity to pay of households: collection rates and revenues will come under pressure

Return of “vicious circle” of poor service, low willingness to pay, low investment… Upward pressure on operating costs (energy,…) Could set us back a decade of reforming services providers to foster long term

financial sustainability

2000 2001 2002 2003 2004 2005 2006 2007

YEAR

0.00

0.50

1.00

1.50

2.00

OM

M3S

OL

D

2000 2001 2002 2003 2004 2005 2006 2007

YEAR

1.00

2.00

3.00

The crisis call for a renewed emphasis on efficiency

Better efficiency in both investment and operation: we need to do more with the same (or less…)

This is the best way to make our case with finance ministers

Private sector has a role to play, not as direct financiers, but to help improve operational efficiency (leases and MCs)

Thank you