Water and Sanitation ProgramCouncil MeetingCouncil Meeting

Impact of the Financial Crisis on the Water Sector

Jamal SaghirDirector

Energy, Transport and WaterThe World BankThe World Bank

ViennaJune 9 2009June 9, 2009

Water – Key Development IssuesWater Key Development IssuesFacilitating Economic Growth

Food Crisis

Water Resources ManagementLivableCities

Economic Growth

ance

h Water Supply Climate

Water Security

CitiesWater ConflictsPeak Water

tion

e &

Fin

a

Gro

wth

pmen

t Water Supply and Sanitation

Change

Water SecurityLocal human services Urbanization and Rural Development

ntra

lizat

erna

nce

Dev

elop

Irrigation Energy and Hydropower Challenges

Water, Climate and EnvironmentTransboundary Water

Poverty Impact

Dec

en

Gov

e

Hum

an

Financial

Challenges

Transboundary Water H Financial Crisis

We are facing a global crisis of an d t d tunprecedented nature

A credit crunch with far reaching ripple effects in a globalized A credit crunch with far reaching ripple effects in a globalized economy

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

This is largely unchartered territory… This is largely unchartered territory…

Developing countries are seriously ff t daffected

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

An increased dependence on ODAAn increased dependence on ODA

The World Bank has been witnessing an increase in funding g grequests 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 Cli t Th P f t St ?Climate: The Perfect Storm?

FOOD CLIMATE FOOD CRISIS

CLIMATE CHANGE

MORE POVERTYLOWER GROWTHLOWER GROWTH

Water CrisisENERGY CRISIS

FINANCIAL CRISIS

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

The water sector is underfunded… and thi ld bthis could become worse

Public funding for infrastructure is expected to be constrained in many 200

250 Bond issuance

B k l diy

countries

The water sector has not a good track record of

150

200

ion

Bank lending

good track record of advocating its case with finance ministers 100in

$bi

lli

50

02007 2008

The water sector is not sufficiently t i ti l kpresent in stimulus packages

Infrastructure

143 71.1100%

Green Infrastructure

Other Measures

51.4 100.4 4.81.3

11 2

210 464 11.8 685.1143.7

239.926.5

11.6

18.7

75%

50%

25%

12.0Germany

1.0Italy

2.0India

11.2

1.4Spain

8.035.5EU

2.29.5

Japan26.3

SouthKorea

0.914.0USA

197.6China

2.1UK

2.6France

25%

0%

What about the private sector?p

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 significantwere 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?p y g p p p y

The financial viability of water utilities would be directly impacted byp y

– Increase in rate of non-payment– Delays in tariff adjustments (inflation)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

2.00

3.00

1.50

SOLD

2.00R

AD

J

0.50

1.00

OM

M3S

1.00

OCC

R

2000 2001 2002 2003 2004 2005 2006 2007

0.00

2000 2001 2002 2003 2004 2005 2006 2007

The crisis call for a renewed emphasis on ffi iefficiency

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 (l d MC )(leases and MCs)

Other Implications for the Water SectorOther Implications for the Water Sector

Irrigation agencies are equally affected by these Irrigation agencies are equally affected by these financial challenges, at a time when reform is even more urgenteven more urgent

Credit crunch from private and (often) public sources may put a brake on much needed longsources may put a brake on much needed long term investments in hydropower and agriculture

The global financial crisis comes when the water The global financial crisis comes when the water sector is already under-funded, and needs further investment to cope with new challenges!

Thank youy