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

1. 5th World Water ForumIstanbul, March 16 – 22, 2009 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

2. 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…

3. 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

4. Financial crisis in emerging markets: spreads increasing sharply Source : World Bank, P= projected

5. The financial crisis is now becoming an economic crisis Economic Growth of Developing Countries % Source: ILO, Trends Econometric Models, December 2008 Source: World Bank

6. 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?

7. Food, Water, Energy, Finance, and Climate: The Perfect Storm? CLIMATE CHANGE FOOD CRISIS MORE POVERTY LOWER GROWTH Water Crisis ENERGY CRISIS FINANCIAL CRISIS

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

9. 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 2007 2008

10. Infrastructure Green Infrastructure Other Measures 51.4 12.0Germany 100.4 1.0 Italy 143.7 239.9 197.6 China 1.1 26.5 2.1 UK 11.6 18.7 2.6 France 464 2.2 9.5 Japan 4.8 2.0 India 685.1 0.9 14.0 USA 210 8.0 35.5 EU 1.3 11.2 1.4 Spain 11.8 26.3 South Korea The water sector is not sufficiently present in stimulus packages 100% 75% 50% 25% 0%

11. 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?

12. 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)

13. 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

14. 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)

15. Thank you