As the world turns its attention to the implementation of the Global Goals for Sustainable Development, making good, early progress towards Sustainable Development Goal 6 — achieving universal access to water and sanitation — will be essential for all developing countries. This requires ensuring the necessary resources are put in place, and the 2015 Addis Ababa Action Agenda provides an important platform for this, but a recent report released by WaterAid, based on analysis by Development Initiatives, suggests that current financing volumes and trends are not adequate to reach this goal for many countries, and that aid will continue to play a vital role in the implementation of Agenda 2030.
Recent decline in share of aid to the sector
Aid flows to water and sanitation reached US$6.6 billion in 2013, a 10-year high in 2013, following steady growth from 2007. This aid has played an important role in financing improved access to water and sanitation and allowing the world to meet the MDG water target. But the UN Water Global Analysis and Assessment of Sanitation and Drinking-Water (GLAAS) 2014 survey of 94 developing countries found that a majority (80%) of developing countries had insufficient current finance to meet MDG targets for drinking water and sanitation.
Despite the increase in aid in 2013, there are some troubling underlying trends. Between 2011 and 2013 aid to water and sanitation grew by only 2.5%, falling behind the pace of overall aid, which grew by 10.7%. In line with these trends, the share of aid going to water and sanitation decreased between 2012 and 2013. In 2013, the share of aid to the sector dropped to only 3.9% of overall aid, falling below 4% for the first time since 2009. To achieve universal access to water and sanitation, countries that lack financing to meet MDG targets will experience an even greater gap. External financing from aid donors has a vital role to play to support countries’ progress to universal access, particularly for countries with low levels of domestic revenue.
Aid to water and sanitation is increasingly delivered as concessional loans
International aid is composed of both grants and loans. During the ten year period between 2003 and 2013, aid loans to water and sanitation increased steadily from US$1.1 billion in 2003 to US$3.3 billion in 2013. This is an increase of 205%, compared with a 123% increase for grants over the same period. Thus, the increasing total volume of aid to water and sanitation is driven by aid loans.
The share of loans in aid to the sector has increased, from less than a third in 2005 to over half of aid since 2011. In 2013, 50.2% of aid to the water and sanitation sector came as loans. Compared with other social sectors, this is a very large share. The health sector receives only 6% of aid as loans, and the education sector receives 14%.
Within the water and sanitation sector, aid loans go mainly to large system projects. Between 2011 and 2013 large systems projects received on average two-thirds (64%) of all aid loans. This increase in aid loans to the sector, although helping to address financing gaps, nevertheless reduces already constrained fiscal space in low-income countries and contributes to risks around debt sustainability.
Most aid in the sector goes to water projects
Since 2010, data on aid flows to the water and sanitation sector can be broken down into aid to water-only projects and sanitation-only projects. For both water and sanitation, aid to basic supply and aid to large systems can be tracked. A total of US$1.9 billion of aid to water and sanitation could be disaggregated between water and sanitation spending in 2013. Of this, aid to water received two thirds (65%). A large share went to large water systems (43%), while basic water received just over a fifth (22%).
Aid to sanitation represented just a third of aid to the sector that can be disaggregated (35%). Basic sanitation received the least at 7%, while aid to large sanitation systems was 28%. Given that the MDG sanitation target was not met, accelerating investments in sanitation are required.
Small but increasing levels of foundation grants
According to data from Foundation Center, foundation funding for water and sanitation has increased in recent years, reaching US$181 million in 2012, delivered through 340 projects. The largest donor was the Bill & Melinda Gates Foundation (US$119 million), followed by the Coca Cola Foundation, the Stone Family Foundation and the PepsiCo Foundation. While the objectives of funds are to be lauded, the volume of their financial contribution matched against the scale of the challenge of achieving universal access suggests the need for careful selectivity, with choices based on maximising impact beyond those immediately reached.
Key recommendations from WaterAid:
- A credible Sustainable Development Goal for universal access to water and sanitation will require increased aid to the most vulnerable and under-resourced countries, with a strong focus on equity, sustainability and strengthening systems.
- Aid to water, sanitation and hygiene should at least double from current levels by 2020, with an emphasis on grant financing, effective targeting and addressing the neglect of sanitation and hygiene. A reassessment of progress and financing gaps should take place in 2020.
- National governments and donors—including private foundations—should act decisively to improve aid effectiveness and strengthen country systems: through increased transparency, pooling of resources, more technical assistance, and aligning and harmonising all stakeholder inputs behind national processes.
 All figures on financial flows are in 2012 prices. Data refers to gross disbursements from all donors. Unlike net ODA, gross ODA disbursements do not take into account ODA loan repayments from recipient countries. Disbursements correspond to the release of funds or the purchase of goods or services for a recipient. All figures based on OECD DAC Creditor Reporting System, data accessed May 2015.
 ‘Large systems’ is a sub-sector of aid the water and sanitation sector. ‘Water supply – large systems’ includes: potable water treatment plants; intake works; storage; water supply pumping stations; and large scale transmission/conveyance and distribution systems. ‘Sanitation – large systems’ includes: large scale sewerage including trunk sewers and sewage pumping stations; domestic and industrial waste water treatment plants. Other sub-sectors are: waste management and disposal; basic drinking and sanitation; systems support. For more information, see www.oecd.org/investment/stats/water-relatedaid.htm
 This presents some challenges, in particular that improved donor reporting under these purpose codes may skew trends analysis. The ability of donors to disaggregate reporting using these purpose codes depends on their internal management information and reporting systems.