Posted on 22/02/2019 by Stuart Kempster
Last month, the OECD released its annual update on Official Development Assistance (ODA). ODA is the official measure of development finance, which includes grants or concessional loans made to developing countries that have the aim of promoting economic development and welfare. Analysing the data on WASH ODA reveals a number of concerning trends.
WASH ODA decreases for the first time in six years
For the first time since 2011, total disbursements for WASH have declined. At just over $4.9 billion, disbursements in 2017 were 6% lower than in 2016.
Figure 1: Global trends in WASH ODA
Given the financial shortfall for WASH globally, this decrease in ODA is extremely concerning. We know that approximately 80% of countries in the global south have insufficient finance to meet their national WASH targets (see 2017 GLAAS report). Notably, these targets often don’t meet the ambitions of either the Sustainable Development Goals or the Human Rights to Water and Sanitation, indicating that an even bigger financing gap exists if the world is to meet global targets. In this context, the decrease in ODA is a further sign that many development partners are failing to honour the global WASH commitments they have signed up to.
The decrease in total ODA for WASH was driven by large drops in disbursements from three leading multilateral agencies – World Bank, EU, and Asian Development Bank.
Figure 2: WASH ODA from largest multilateral agencies
The picture is more mixed when looking at the largest bilateral WASH agencies. Japan, France, and the UK all recorded decreased disbursements in 2017, while there were increases from the US and Germany.
Figure 3: WASH ODA from largest bilateral agencies
Development partners are not meeting commitments on aid effectiveness
In addition to the quantity of ODA, development partners must be judged on the quality of finance provided. Principles of aid effectiveness are central to this, codified in the WASH sector by the Sanitation and Water for All Collaborative Behaviours.
In signing up to the Collaborative Behaviours, development partners committed to enhance government leadership and strengthen country systems. This means moving away from traditional ‘projectised’ approaches, where development partners retain exclusive control of funds. It is therefore worrying that over 90% of all WASH ODA is still provided in the form of “project-type interventions”. Even more worryingly, this percentage rose in 2017 to its highest level this decade.
Figure 4: Percentage of WASH ODA by type of aid
It is interesting to note that WASH is one of the worst-performing social sectors in this regard. For instance, project-type interventions represent only 50% of ODA for education and 79% for health.
Figure 5: Proportion of ODA spent as 'project-type interventions' across social sectors
Development partners need to urgently address the question of why ODA for WASH remains so projectised.
A small number of bilateral agencies are bucking the trend by committing a greater percentage of ODA in the form of “core contributions or pooled programmes and funds”. Under this type of finance, development partners relinquish exclusive control of funds by sharing responsibility with other stakeholders, bringing greater alignment with the Collaborative Behaviours. As such, this ODA is likely to be more effective in the long run.
Yet despite progress by some, seven of the ten largest bilateral WASH agencies in 2017 continued to provide at least 80% of their WASH ODA in the form of project-type interventions.
Figure 6: Percentage of WASH ODA by type of aid for largest bilateral agencies, 2017
When looking at the largest multilateral WASH agencies, the picture is even more bleak. Almost all multilateral WASH ODA is through project-type interventions. This reflects a broader trend in multilateral ODA across sectors, but the WASH sector performs particularly badly, yet again. Across all social sectors, 85% of ODA was in the form of project-type interventions in 2017. For WASH, this figure was 99.6%.
Figure 7: Percentage of WASH ODA by type of aid for largest multilateral agencies, 2017
WASH ODA continues to be dominated by loans despite increasing risks around national debt
Since 2014, the majority of WASH ODA has been provided in the form of repayable loans. Loans peaked at 60% of total WASH ODA in 2016, falling slightly to 59% in 2017.
Figure 8: Percentage of WASH ODA by flow
The terms of ODA loans must be ‘concessional’, as per OECD definitions. Yet the debt burden from WASH finance – however concessional - must be seen in a wider macroeconomic context in which the risks surrounding national debt are increasing. Developing country debt payments increased by 60% between 2014 and 2017 (see Jubilee Debt Campaign), and 40% of countries in Sub-Saharan Africa are at high risk of debt distress — double the proportion of five years ago.
The increased prevalence of loans within WASH ODA is being driven primarily by the multilateral development banks. The World Bank, which is by far the largest multilateral WASH agency, provided 93% of its WASH ODA as loans in 2017.
Figure 9: WASH ODA by flow for largest multilateral agencies, 2017
In addition to the multilaterals, three of the largest bilateral WASH agencies - Japan, France, and Germany – provide a significant proportion of support through loans. In 2017, 86% of WASH ODA from France was delivered in the form of loans, with 81% from Japan and 60% from Germany. Conversely, the U.K., Sweden, Switzerland, the Netherlands, and the U.S. provide almost all of their WASH ODA as grants.
Figure 10: WASH ODA by flow for largest bilateral agencies, 2017
ODA loans are an important part of the global financing landscape. But care must be taken to ensure that they are targeted at countries with the capacity to repay them. The data show a certain degree of rationality in this respect. Upper-middle income countries receive the highest proportion of WASH ODA as loans and low-income countries receive the lowest proportion – as you would expect.
Yet while the share of loans has been rising for all economic regions since 2012, it is alarming that the most rapid increase has been amongst the low-income group. This indicates that the targeting of loans is becoming less linked to the capacity of countries to repay.
Figure 11: Percentage of WASH ODA in the form of loans, by World Bank income groupings
What needs to change?
To achieve SDGs 6.1 and 6.2, the World Bank has estimated that $114 billion of investment is needed each year just to cover the capital costs of new infrastructure. Given the scale of this financial challenge, there is an urgent need for development partners to not only reverse the recent decline in ODA, but to significantly increase commitments to WASH.
Going beyond questions of quantity, development partners need to improve the quality of development finance. Commitments on aid effectiveness must be adhered to, with a reduction in the proportion of ODA disbursed as project-type interventions. Furthermore, there is a need to increase the proportion of ODA delivered as grants, and ensure that loans are targeted only at those countries which have the capacity to repay.
Note: On WASHwatch, and in this blog, “WASH ODA” is calculated using gross disbursements at constant prices (USD, 2016), and includes the following OECD CRS purpose codes: 14020, 14021, 14022, 14030, 14031, 14032, and 14081. These codes align with the global norm for reporting WASH finance, set by the UN-Water Global Analysis and Assessment of Sanitation and Drinking-Water (GLAAS).
Stuart Kempster is Policy Analyst for Montoring and Accountability at WaterAid. He tweets as @s_kempster.