74742 Water Papers Water Papers June 2012 GUIDANCE NOTE Public Expenditure Review from the Perspective of the Water and Sanitation Sector Seema Manghee and Caroline van den Berg Contents ACRONYMS AND ABBREVIATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v ACKNOWLEDGMENTS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii CONTACT INFORMATION.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . viii EXECUTIVE SUMMARY.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix CHAPTER 1. PURPOSE AND PRACTICE OF PUBLIC EXPENDITURE REVIEWS. . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Objective. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Why Public Expenditure Analysis in Water Supply and Sanitation is Important. . . . . . . . . . . . . . . . . . . . . . . . . 1 Purpose of a Public Expenditure Review. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Characteristics of Public Expenditure in the Water Supply and Sanitation Sector. . . . . . . . . . . . . . . . . . . . . . 4 Institutional Features of the Water and Sanitation Sector.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 CHAPTER 2. GUIDANCE FOR CONDUCTING PUBLIC EXPENDITURE REVIEWS. . . . . . . . . . . . . . . . . . . . . . . . . 7 Identification and Preparation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Contents and Minimum Coverage of a PER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Guidance on How a PER Analysis Can Focus on Results and Measurement. . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Dissemination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Follow-up and Monitoring. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 CHAPTER 3: METHODOLOGICAL FACTORS AND DATA ISSUES IN WATER PUBLIC EXPENDITURE REVIEWS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Typologies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Data Issues.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Data Analysis.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Data Problems. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Data and Methodological Issues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 CHAPTER 4: HOW PER FINDINGS IMPACT ON SECTOR POLICY AND REFORMS. . . . . . . . . . . . . . . . . . . . . . 25 PER and Sector Policy Dialogue.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 PER and Decentralization Policy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 PER and Policy Implementation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 PER and Improving Sectoral Budget Allocation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Policy Implications and Links with a Broader National Development Strategy. . . . . . . . . . . . . . . . . . . . . . . . . 27 Water Policy.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Using the PER Findings to Structure Follow-up Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 CHAPTER 5: EXAMPLES FROM CASE STUDIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Example One: ROMANIA—Monitoring Sector Capacity to Absorb Investment Funding. . . . . . . . . . . . . . 33 Example Two: NEPAL—Monitoring the Evidence of Insufficient Sector Financing. . . . . . . . . . . . . . . . . . . . . 33 Example Three: IRAN—The Loss of Efficiency from Protracted Implementation. . . . . . . . . . . . . . . . . . . . . . 35 Example Four: TURKEY—Differences in Investment Efficiency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 iv GUIDANCE NOTE: PUBLIC EXPENDITURE REVIEW FROM THE PERSPECTIVE OF THE WATER AND SANITATION SECTOR ANNEX 1: LIST OF PUBLIC EXPENDITURE REVIEWS FROM 2003–2010. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 ANNEX 2: DATA AND METHODOLOGICAL FACTORS IN WATER PUBLIC EXPENDITURE REVIEWS. . . . 39 ANNEX 3: FINANCING THE WATER AND SANITATION SECTOR GLOSSARY OF TERMS. . . . . . . . . . . . . . . 47 ANNEX 4A: SAMPLE TORS FOR WATER-RELATED PUBLIC EXPENDITURE REVIEWS. . . . . . . . . . . . . . . . . . . 49 ANNEX 4B: SAMPLE TOR FOR RURAL WATER—AND SANITATION-RELATED PUBLIC EXPENDITURE REVIEWS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 ANNEX 4C: STANDARD OUTLINE OF A PUBLIC EXPENDITURE REVIEW—RURAL WATER SUPPLY AND SANITATION SECTOR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 ANNEX 4D: CHECKLIST FOR ASSESSING PUBLIC EXPENDITURE REVIEW OF THE WATER SUPPLY AND SANITATION SECTOR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 ANNEX 5: WATER AND SANITATION SECTOR PUBLIC EXPENDITURE REVIEWS—SELECTED CASE STUDIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 REFERENCES.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 EXHIBITS Exhibit 1: Public Expenditure Reviews by Type. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Exhibit 2: Public Expenditure Reviews Completed By Region. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Exhibit 3: Example of Flow of Funds in the Water Sector in Tanzania. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Exhibit 4: Romania—The Absorptive Capacity of the Water Supply and Wastewater Sector. . . . . . . . . . . . . . 34 Exhibit 5: Nepal—Evidence of Mismatch between Started and Completed Projects.. . . . . . . . . . . . . . . . . . . . . 34 Exhibit 6: Effect on Economic Returns from Protracted Project Completion (US$ millions). . . . . . . . . . . . . . . . 35 BOXES Box 1. Objectives of a Public Expenditure Review in Water Supply and Sanitation. . . . . . . . . . . . . . . . . . . . . . . . . 3 Box 2. Possible Policy Goals to Be Considered When Reviewing Public Expenditure in Water and Sanitation .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Box 3. Limited Integration of Policy-Making, Planning and Execution in Lebanon . . . . . . . . . . . . . . . . . . . . . . . . . 6 Box 4. Differences in Budgeted and Actual Expenditure is the Water Supply and Sanitation Sector.. . . . . . . 6 Box 5. An Indicative Contents Page of a WSS Chapter of a Public Expenditure Review. . . . . . . . . . . . . . . . . . . . 9 Box 6. Indicative Steps to Follow When Undertaking a PER in WSS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 ACRONYMS AND ABBREVIATIONS v Acronyms and Abbreviations AAA Analytical Advisory Assistance AFR Africa BIA Benefit Incidence Analysis CAPEX Capital Expenditures CBO Community Based Organizations CEM Country Economic Memorandum COFOG United Nations Classicization of the Functions of Government DFID Department for International Development (of the United Kingdom) DP Development Partners EAP East Asia and Pacific ECA Europe and Central Asia ESW Economic Sector Work GDP Gross Domestic Product IBNET International Benchmarking Network for Water and Sanitation Utilities IWA International Water Association JMP Joint Monitoring Program of the WHO and UNICEF LAC Latin America and Caribbean MDG Millennium Development Goals MNA Middle East and North Africa MWRMD Ministry for Water Resource Management Development NGO Non-Governmental Organization NRW Non Revenue Water NWCPC National Water Conservation and Pipeline Corporation ODA Overseas Development Assistance OPEX Operating Expenditure PCN Project Concept Note PEFA Public Expenditure and Financial Accountability PER Public Expenditure Review PETS Public Expenditure Tracking Survey PFM Performance Measurement Framework PFM Public Financial Management PREM Poverty Reduction and Economic Management Department PRSP Poverty Reduction Strategy Paper PSIA Poverty and Social Impact Analysis (of the World Bank) PSSP Private Small Service Providers QSDS Quantitative Service Delivery Survey RWSS Rural Water Supply & Sanitation SAR South Asia Region SSA Sub Saharan Africa TMP Task Management Plan TOR Terms of Reference UN United Nations UNICEF United Nations Children’s Fund WB World Bank WHO World Health Organization WSD Water Supply Department WSP Water and Sanitation Program WSS Water Supply Sanitation ACKNOWLEDGMENTS vii Acknowledgments The report was prepared by a team led by Seema Narin Hunbanit provided research and data sup- Manghee and Caroline van den Berg, with valuable port. Cece Modupe Fadope assisted with design and contribution from Junaid Ahmad, Alex Bakalian, publication. Julia Bucknall, Alexander V. Danilenko, Vivien Foster, Meike van Ginneken, Michael Jacobsen, Yoonhee Linda Walker Adigwe provided administrative and Kim, William Kingdom, Elizabeth L. Kleemeier, Alain processing support. R. Locussol, David Michaud, Soma Ghosh Moulik, Amitabha Mukherjee, Dominick Revell de Waal, John Channon and David Hoole from Oxford Policy Susanne Scheierling, Klas B. Ringskog, Gustavo Management provided external support. Saltiel, Michael Webster, and Guillermo Yepes. viii GUIDANCE NOTE: PUBLIC EXPENDITURE REVIEW FROM THE PERSPECTIVE OF THE WATER AND SANITATION SECTOR Contact Information This paper is available online at http://www.worldbank.org/water. Authors may also be contacted through the Water Help Desk at whelpdesk@worldbank.org. Disclaimer This volume is a product of the staff of the International Bank for Reconstruction and Development/ The World Bank. The findings, interpretations, and conclusions expressed in this paper do not neces- sarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judg- ment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The International Bank for Reconstruc- tion and Development/The World Bank encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly For permission to photocopy or reprint any part of this work, please send a request with complete information to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, USA, telephone 978-750-8400, fax 978-750-4470, http:// www.copy-right.com/. All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA, fax 202-522-2422, e-mail pubrights@worldbank.org ix Executive Summary EXECUTIVE SUMMARY INTRODUCTION analysis. Most of them focus on urban water supply and sanitation. A few focus on rural water supply An understanding of the processes that drive public and sanitation (primarily in Africa) and some include expenditure allocations, and an assessment of the water resource management and irrigation. Annex 2 efficiency of such expenditures are critical to ensuring provides additional details. equitable and sustainable WSS services. Fifteen of the PERs were subject to a separate The objective of this Guidance Note: Public Expen- World Bank analysis from which this paper draws.1 diture Review from the Perspective of the Water Sup- These covered 15 countries in Sub-Saharan Africa. ply and Sanitation Sector is to provide World Bank That study noted the difficulties of standardizing the staff with a body of knowledge and good practice methodology for PERs in water and sanitation and guidelines to help them evaluate the allocation of recommended that the Bank develop a set of tools and public resources to water and sanitation services in resources to help future PERs in water and sanitation a consistent manner and to increase their knowledge to learn from the considerable body of experience and of public expenditure issues in the sector. to be completed as effectively as possible. This Guidance Note discusses the challenges that The World Bank’s Independent Evaluation Group are specific to public expenditure management in water (IEG) recently reviewed ten years of Bank support and sanitation and the difficulties often involved in for water (IEG Evaluation of World Bank Support, identifying sector expenditures. The challenges par- 1997–2007, Water and Development 2010) and con- ticular to this sector stem from three factors. First, cluded that Bank projects had a low success rate in countries define water and sanitation differently (e.g., achieving their cost-recovery targets. Only 15% of the drainage may or may not be included, rural services water supply and sanitation projects that attempted full may be considered separately). Second, responsibili- cost recovery actually achieved this goal. The report ties for water and sanitation policy are often divided stated that the question of who pays for uncovered horizontally across government ministries and agen- costs remains unanswered, raising concerns about the cies, vertically between national and local govern- sustainability of water supply and sanitation projects.2 ments and functionally among the public, private, The Bank has proactively examined ways to and non-governmental sectors. Third, the roles of address the question of who pays for uncovered these multiple actors may be unclear or overlapping. costs. This Guidance Note (along with other analytical This Guidance Note has benefited from analysing work such as Cost Recovery in the Water Practice and the existing coverage, quality and results of the 42 the Political Economy and Governance of Urban Water Public Expenditure Reviews (PERs) covering water Supply and Sanitation) identifies ways to increase the and sanitation undertaken from 2002–2010. Most effectiveness, efficiency and predictability of water of the PERs reviewed discuss water and sanitation sector-specific public spending. along other sectors, with varying scope and depth of 1 More, Better, or Different Spending? Trends in Public Expenditure on Water and Sanitation in Sub-Saharan Africa. Meike van Ginneken, Ulrik Netterstrom and Anthony Bennett, World Bank, 2011. 2 IEG, p. Xv. x GUIDANCE NOTE: PUBLIC EXPENDITURE REVIEW FROM THE PERSPECTIVE OF THE WATER AND SANITATION SECTOR CHARACTERISTICS OF PUBLIC EXPENDITURE GOALS OF THIS REPORT IN THE WATER SUPPLY AND SANITATION SECTOR The Guidance Note has five goals: • To provide basic guidance on the analytical com- Water and sanitation services are ultimately paid for ponents and purpose of a PER. While individual by a combination of tariffs from water users, subsi- reviews should be shaped to the specific context, dies (from taxes) from national taxpayers or grants sector policy and/or public expenditure manage- (transfers) from external sources. The main public ment issues, this paper gives basic guidelines agencies involved in the WSS sector are the ministry which will provide practical support and the basis of finance, the ministry responsible for local govern- for comparison with other reviews. ment, ministries dealing with water resources, public • To introduce the reader to standard budget reports, works, environment and health, municipalities, utility on which the PER is likely to be based, and sources companies (parastatal agencies, usually focused on of further information on the quality of the public urban areas) and in some cases agencies charged expenditure management system to help assess with implementing specific programmes or projects. the quality and usefulness of such reports. In rural areas, the main agencies are usually local government, community-based organizations (CBOs) • To give a basic understanding of the WSS sector and non-governmental organizations (NGOs). Cen- in terms of its institutional and organizational tral governments typically channel finance (grants, make-up. This understanding can help in plan- loans, proceeds of bond issues) for capital spending ning and managing the review for those unfamil- on water and sanitation to local authorities or public iar with the sector. utilities. Central governments may provide finance • To illustrate the type of findings likely to emerge to local governments to fund locally managed water from the initial analysis and help the readers supply and sanitation (WSS) sector investments evaluate the findings and focus the remainder of may provide guarantees to sub-national agencies to the analysis. assist their financing. Tariff revenue from the provi- • To give guidance on standard analysis and sector sion of WSS services may be retained by the local data presentations and references to additional water undertaking or may be returned to the central data sources that allows benchmarking of the government treasury. country’s performance. This Guidance Note draws on a number of case studies to highlight the analysis, findings and rec- ommendations made in WSS PERs across a range of contexts and national income levels. 1 CHAPTER 1. PURPOSE AND PRACTICE OF SUMMARY EXECUTIVECHAPTER 1 Purpose and Practice of Public Expenditure Reviews OBJECTIVE relationship between levels of funding and levels of access. It found that public spending did not over- The objective of this Guidance Note: Public Expenditure come market failures or reduce inequity. It also found Review from the Perspective of the Water Supply and that more than one third of public funds allocated Sanitation Sector is to provide World Bank staff with to water and sanitation was on average not spent.5 a body of knowledge and good practice guidelines to A search of more than 12,000 observations on the help them evaluate the allocation of public resources to water utility benchmarking website, the International water and sanitation services in a consistent manner, Benchmarking Network for Water and Sanitation Utili- and to increase their knowledge of public expenditure ties (IBNET), indicates that 37% of water utilities in issues in the sector. the developing world do not even cover operations and maintenance costs from their internal revenue.6 WHY PUBLIC EXPENDITURE ANALYSIS The remainder either comes from public funds or is IN WATER SUPPLY AND SANITATION IS deferred maintenance. IMPORTANT Third, poverty analysis shows that in many coun- tries, public funds spent on water and sanitation flow Public expenditure analysis in water is becoming disproportionately to the non-poor, often in contrast increasingly important for a number of reasons. First, to government intention and stated policy.7 major public investment is needed to improve access This analysis therefore aims to help develop diag- to safe water services and basic sanitation. The price nostics that will improve the efficiency of public tag for reaching the MDGs for both water and sani- spending. It draws on a database of 42 PERs that tation in Sub-Saharan Africa alone is an estimated include analyses of the water and sanitation sectors, USD 22.6 billion per year, or 3.5% of these countries’ and which were undertaken by the World Bank (see GDP.3 And public finance continues to be important Annex 2). Most of these PERs discuss the water sec- for investment. Experience of the past two decades tor alongside other sectors, with varying scope and indicates that private finance will not meet the needs depth of analysis of WSS sector issues. Most focus for investment in water systems.4 on urban water supply services and sanitation. A few Second, public spending is not as efficient as it could be. The review of public expenditure water and 5 More, Better, or Different Spending? Trends in Public Expenditure on sanitation supply in 15 countries in Africa found no Water and Sanitation in Sub-Saharan Africa. Meike van Ginneken, Ulrik Netterstrom and Anthony Bennett, World Bank, 2011. 3 OECD, Meeting the Challenge of Financing Water and Sanitation, 6 www.IBNet.org. Accessed July 2, 2012 October 2010. 7 Banerjee, Sudeshna; Skilling, Heather; Foster, Vivien; Briceno-Garmen- 4 Marin, Philippe. Public-Private Partnerships for Urban Water Utilities : dia, Cecilia; Morella, Elvira; Chfadi, Tarik. Africa—Ebbing Water, Surging A Review of Experiences in Developing Countries. World Bank. 2009 Deficits : Urban Water Supply in Sub-Saharan Africa. World Bank. 2008 2 GUIDANCE NOTE: PUBLIC EXPENDITURE REVIEW FROM THE PERSPECTIVE OF THE WATER AND SANITATION SECTOR EXHIBIT 1: Public Expenditure Reviews by Type The objectives of water PERs vary depending on the context. In Tanzania, the PER aims to gain insight into 12% how budgeted allocations for the water sector translate into actual water and sanitation service delivery and to understand what impacts the links between the 21% two. In Mexico, the report examines water supply and sanitation, irrigation and drainage, as well as the 67% overall water resource and fiscal management issues for the sector. In Lebanon, despite the relatively high coverage rate in the water sector (78%), continuity of supply is low, so the PER aims to see whether public National PERs with chapter/volume on water spending could be better allocated and managed to Rural Water Supply & Sanitation PERs improve the situation. In Egypt, the PER assesses the trends of public expenditures in water, covering Standalone Water PERs irrigation and WSS. It investigates sources of fiscal Source: Public Expenditure Reviews 2002–2010. stress, and explores efficiency and equity implications of the current arrangements. In Mozambique, the PER investigates whether public spending on water sup- EXHIBIT 2: Public Expenditure Reviews ply and sanitation is commensurate with the public Completed By Region health costs of current levels of service. PERs can cover the following different sets of 2% 7% circumstances: • Analysis of expenditures of the sector or of dedi- 12% cated WSS ministry(ies). • Analysis of the spending of a larger sector or ministry that has water and sanitation as part of 7% 48% its portfolio. 12% • Review of water and sanitation as part of a cross- sectoral PER. • Assessment of multi-sector spending, such as AFR MNA infrastructure, where water was included but not ECA EAP disaggregated. LAC SAR PURPOSE OF A PUBLIC EXPENDITURE Source: Public Expenditure Reviews 2002–2010. REVIEW The purpose of a PER is to analyze the allocation of focus on rural water supply and sanitation and some public resources and provide an objective assessment include water resource management and irrigation. of the efficiency and effectiveness of public spend- The report also makes reference to additional water ing. A PER will review the level and composition of and sanitation PERs, financed by other organisations. public expenditures, structures of governance and Out of the 42 PERs, 20 are from Africa, eight are the functioning of public institutions in order to: (i) from Latin America, five are from Middle East and consider how budget allocations fit strategic devel- North Africa, five are from Europe and Central Asia, opment requirements; (ii) track whether and how three are from East Asia and the Pacific and one is allocations reach their intended destinations; and (iii) from South Asia. Twenty-eight of the 42 PERs are analyze whether expenditures favour efficient, effec- national with a section on water. Fourteen of them tive, equitable and sustainable services. Therefore, the are stand-alone water PERs, of which nine are from PER can analyse the extent to which policy priorities the Africa region and primarily focused on WSS in are effectively implemented in practice and diagnose rural areas. (See Exhibits 1 and 2). ways to improve the effectiveness and efficiency of CHAPTER 1. PURPOSE AND PRACTICE OF PUBLIC EXPENDITURE REVIEWS 3 B O X 1. O B J E C T I V E S O F A P U B L I C E X P E N D I T U R E R E V I E W I N WAT E R S U P P LY A N D S A N I TAT I O N Objectives of the PER in Water and Sanitation ensure an integrated analysis of both recurrent i. To analyse expenditure allocation, disbursement and the development budget and comment on and execution. How are allocations linked to GoR efficiency and effectiveness of public financing policies and reflected in budgets? How well does in the sector. the actual spent match allocation priorities and iv. To provide an independent assessment of the approved budgets? adequacy, appropriateness and effectiveness of ii. To assess the robustness of the public financial sector spending. management systems and institutions in the sec- tor; for example MTEF, budget control processes, (Commissioned by the Government of Rwanda, budget execution, reporting and accountability through the Ministry of Economy and Finance, in processes. 2008.) Source: www.grandslacs.net/doc/4140.pdf. iii. To provide a framework for a rational consid- eration of public financing in these sectors to public spending. Box 1 provides an example of the expenditure management system. Lessons learned objectives stated for a PER in water and sanitation, from the PER can inform strategic planning and commissioned by the Government of Rwanda, through budget preparation by identifying ways to improve the Ministry of Economy and Finance in 2008. budget allocation to achieve faster progress towards PERs look at both recurrent and development a sector’s policy objectives. expenditures, and attempt to review the joint impact Most PERs consider public expenditures within of both types of spending on budgetary outcomes the broader context of economic growth, poverty including economic growth, poverty reduction, and reduction and other strategic goals. Increasingly, PERs asset maintenance. A PER may also contain an insti- have moved beyond a review of budgetary issues and tutional assessment and analyse the whole public sector policies to examine the institutional aspects of BOX 2. POSSIBLE POLICY GOAL S TO BE CONSIDERED WHEN R E V I E W I N G P U B L I C E X P E N D I T U R E I N WAT E R A N D S A N I TAT I O N i. Contribution of expenditures to poverty reduction. vi. Contribution to reduction of recurrent costs, such ii. Expenditures targeted at those activities that the as non-wage funds with regard to water supply private sector cannot undertake. or alternatively expenditures on activities that are labour-intensive. iii. Expenditures targeted at those activities with high socio-economic impact, as measured by rates of vii. Expenditures targeted at those activities that can return or other quantitative criteria. affordably be extended to the whole relevant target population, rather than those which could iv. Expenditures targeted at activities that com- be delivered to only a few. munities have identified as important to them. viii. Activities that favour disadvantaged groups, v. Expenditures directed to well-planned activi- including activities that address gender or age- ties for which realistic and modest unit costs based inequities and protect the rights of children, have been identified and where there is a well- and activities that reduce economic inequality. developed expenditure proposal. Source: Authors’ analysis. 4 GUIDANCE NOTE: PUBLIC EXPENDITURE REVIEW FROM THE PERSPECTIVE OF THE WATER AND SANITATION SECTOR budget making and public expenditure management. sector performance (e.g., unpredictable releases Individual PERs vary in their scope, depending on of the approved budget) and the extent to which the objective, but most try to identify: institutions, politics and incentives bear on budget • The most pressing sector policy issues; allocations and expenditure outcomes. • The current and recent status of the sector in CHARACTERISTICS OF PUBLIC EXPENDITURE terms of performance and impact; IN THE WATER SUPPLY AND SANITATION • Recent levels of public expenditure in the sector, SECTOR the main sector policy issues and any current or planned measures to improve performance; and The water practice sector spans a wide range of • Most PERs will also make recommendations to structures, services and functions that are closely improve the quality and coverage of expenditure interrelated. It includes water services, household and performance information relating to the sector. water and sanitation, household sewerage and waste- water treatment, irrigation, catchment management, When reviewing public expenditure, a number of environmental protection and water quality and criteria need to be selected for assessing how expen- pollution control. Public sector involvement in the diture is allocated. The following example provides water sector covers a range of functions including an indication of how this may work. (Box 2.) policy, strategy and fixing of priorities, resource The analytical framework for most PERs includes allocation and budgeting, systems analysis, funding the following elements: and management, research and data collection. This • An overview of the macroeconomic and fiscal can involve a number of different activities including context, the structure of public finance and recent consultation, regulation, monitoring and enforcement, trends in economic and fiscal outcomes. Most public awareness/information and conflict resolution PERs include a discussion of the economic com- and arbitration. position of public expenditure and the functional Water and sanitation services are ultimately paid breakdown of the sectors under review (for the for by a combination of tariffs from water users, sub- water sector, this may include urban and rural sidies (from taxes) from national taxpayers or grants water supply, urban and rural sanitation services, (transfers) from external sources. The main public irrigation and water resource management); agencies involved in the WSS sector are the ministry • An overview of the national policy agenda and of finance, the ministry responsible for local govern- sector strategy and the main expenditure alloca- ment, ministries dealing with water resources, public tions and projections; works, environment and health, utility companies (parastatal agencies, usually focused on urban areas) • Analysis of the efficiency of expenditure. This and in some cases agencies charged with implement- generally involves a discussion of the appropriate ing specific programs or projects. role of government in the financing and delivery of In rural water supply and sanitation, local gov- goods and services in the sector, after the rationale ernments, community-based organizations (CBOs) for public intervention—market failure (efficiency) and non-governmental organizations (NGOs) play and redistribution (equity)—has been identified; a more prominent role than they do in urban areas. • Another common comparison is to look at ‘bud- Central governments typically channel finance (grants, get efficiency’—the difference between budgeted loans, proceeds of bond issues) for capital spending and actual expenditures, followed by a detailed on water and sanitation to local authorities or public analysis of actual public expenditures by region, utilities. Central governments may provide finance urban and rural sub-sectors, looking at capital ver- to local governments to fund locally managed WSS sus recurrent expenditure, sources of funding and sector investments and may provide guarantees to expenditure by income group with a focus on the sub-national agencies to assist their financing. Tariff access to key public programs by the poor; and revenue from the provision of WSS services may be • A review of the institutional aspects of public retained by the local water undertaking or may be expenditure management and budget decision- returned to the central government treasury. making. This review will cover the extent to Common features of the organizational framework which system-wide performance issues affect for the sector are the following: CHAPTER 1. PURPOSE AND PRACTICE OF PUBLIC EXPENDITURE REVIEWS 5 EXHIBIT 3: Example of Flow of Funds in the Water Sector in Tanzania MOFEA Donors Other Ministries Basin Water PMO-RALG MOWI MOWI (incl MoH) Of�ce Regional Government Regional Government Catchment Water Committees District Local Government Government Water of�ce in DG Water Supply and Community Based Water User Sewerage Authorities/Utilities Systems/NGOs Associations Households • Shared responsibilities between central government funds by different channels and sources of finance. ministries to achieve sector goals and implement (Exhibit 3.) sector strategies, with responsibility for sanitation in particular being shared with health and envi- INSTITUTIONAL FEATURES OF THE WATER ronmental ministries. AND SANITATION SECTOR • Primary responsibility for the implementation of water and sanitation schemes often lies with local Absorptive capacity constraints (measured by budget government and with the local offices of sector execution performance) vary depending on the type of agencies. In many countries, decentralization of expenditure involved (e.g. staff costs, capital expen- this responsibility to local governments is recent diture, subventions to service providers, transfers to and has not been fully matched by sufficient quali- other levels of government) and the source of financ- fied technical staff and funding. ing (e.g., domestically financed, externally sourced finance, whether from private or public sources). • Community organizations often play an important In general, capacity to spend budgeted resources is local level role in the implementation of water and likely to be lower in sectors where: sanitation strategies, especially in rural areas. Data on the financing and impact of such schemes, par- • A relatively low proportion of total sector spending ticularly in rural areas, are often scarce. is accounted for by staff costs relative to capital expenditure; A key part of the PER is, therefore, to identify • Spending depends on successfully managing com- the institutions involved in the sector and provide a plex procurement processes, especially at local summary of the roles and responsibilities of the major level for which specific administrative skills are institutional players. It can facilitate and streamline required; and data collection, identify expenditure allocations, and conduct the analysis of the issues that govern • There is a requirement for technical skills to allow sector performance if a WSS PER can ‘map’ sector investments and maintenance to take place. institutions. Sector financing arrangements can then There are therefore some prima facie reasons for be clarified by assessing the relative contribution of expecting the WSS sector to face particular problems 6 GUIDANCE NOTE: PUBLIC EXPENDITURE REVIEW FROM THE PERSPECTIVE OF THE WATER AND SANITATION SECTOR B O X 3 . L I M I T E D I N T E G R AT I O N O F P O L I C Y- M A K I N G , P L A N N I N G A N D EXECUTION IN LEBANON The sector’s investment absorptive capacity is low. accompanied by limited interagency coordination. Under the current institutional framework, there Capital expenditure has been consistently below is limited integration between policy-making and planned and approved capital outlays. Only 55% investment planning and execution in the WSS sector. of planned and approved capital expenditure has The Ministry of Electricity & Water is responsible for been executed over the period 1992–2006 in the setting the strategic direction of the sector; while water sector. There is also a lack of coordination in the Council of Development & Reconstruction is de the planning of maintenance and capital expenditure, facto leading the investment planning and execu- which negatively affects the sustainability of public tion, given that the bulk of the sector investment is investment in the water and wastewater sector. financed by donors. The loose alignment of policy- Source: Republic of Lebanon: Water Sector PER, World Bank, May making and investment planning and execution is 2010. of budget execution compared to other sectors, since are operating under cash budget constraints. Under the pattern of spending in the sector (compared cash budgeting, for example, spending agencies are to health and education, for example) tends to be able to incur budgeted expenditure only when the relatively capital intensive, to have a relatively low ministry of finance provides a specific release of funds proportion of staff costs, to be dependent on external to the sector. This effectively introduces a second contracting and to require technical skills particularly level of decision-making about resource allocation in engineering and local facilitation. (Box 3.) in addition to the budget, since ministries of finance Another factor that may lead to differential perfor- operating under cash budgeting tend in practice to mance among sectors is the priorities that governments favour particular forms of expenditure, rather than (and particularly ministries of finance) follow in the making a pro rata allocation of available funds in line release of funds in circumstances where governments with budget shares. (Box 4.) BOX 4. DIFFERENCES IN BUDGETED AND ACTUAL E XPENDITURE IS T H E W AT E R S U P P LY A N D S A N I TAT I O N S E C T O R High level of unspent budgets for water and sanitation administration, bureaucratic blockages in the system could signal insufficient absorptive capacity, for which or the presence of other, nonfinancial, constraints the reasons should be identified In a multi-country on higher spending. In such cases, finance may not survey; WaterAid found that actual disbursements be the most urgent problem to address as the first of water budgets were routinely only a fraction of priority. the allocated amounts. This may reflect a difference Source: Redhouse, D., et al., Getting to Boiling Point—Turning up in priorities between the central and local levels of the Heat on Water and Sanitation, WaterAid, 2005. 7 CHAPTER 2. GUIDANCE FOR CONDUCTING CHAPTER 2 EXPENDITURE REVIEWS Guidance for Conducting Public Expenditure Reviews IDENTIFICATION AND PREPARATION • The inclusion of groups not only helps to assure the access to data and analysis but also increases the Contextual Fit likelihood that recommendations will be consid- ered and carried out in a timely and effective way. Undertaking a PER arises from the particular context • Other development partners, especially active leading to the perceived need for a PER. It may be donors, should be included to not only avoid linked to larger reform issues, specific performance duplication but also to give access to supplemen- deficiencies, agitation from users, or the investment tal financial and human resources interests of leading sector donors. This linkage will • Civil society should also be considered as essen- be a significant determinant of what issues the PER tial, throughout the process e.g. impact analysis. is to answer, who should be partners, and by when it should be completed. The actual in-country context is equally important in terms of most of the other Complementarity considerations relative to preparation as well as to the entire PER process. Complementarity is in certain respects a sub-set of context and consultation, but it is significant enough Ownership: Consultation, Dialogue and to be considered specifically at an early stage in Collaboration preparation of PERs. • On the one hand it identifies what has been done, It is important that the PER be fully owned by the is being done, or will be done that relates to the stakeholders that are needed to carry it out and to concerns of the PER. Often this is not immedi- follow up on the conclusions and recommenda- ately determined during the initial consultation tions. Ownership comes most readily on the basis stage, and it may result once broader ownership of inclusion, arising from consultation, dialogue and is obtained. consultation. Cooperation can be readily reinforced • On the other hand it may be the result of chang- by linking expenditure analysis to good governance. es in the context, especially the identification of • Extensive involvement of stakeholders is help- modifications of the timing of other actions and ful in increasing the effectiveness of analysis but processes. it may also complicate the process and the time frame required. A balancing of the trade-off should be considered. 8 GUIDANCE NOTE: PUBLIC EXPENDITURE REVIEW FROM THE PERSPECTIVE OF THE WATER AND SANITATION SECTOR Methodology and Analysis different depending on whether it is a separate stand- alone sector PER (water and sanitation) or whether The general focus for the PER analysis is the budget it is a chapter (section) or chapters (sections) on the cycle itself. This starts with the sector objectives, sector within a country PER or a country development strategy, and policies. Consideration is next given to strategy or similar documents. the budgetary allocation process and budget execution, Clearly if the PER focuses entirely on the sector, the two core but related phases in public expendi- the review is devoted 100% to WSS. In cases where ture. Finally there should be an examination of the the sector is covered under a national PER or as part monitoring and evaluation processes. Additional of a Development Strategy, there would be a chapter discussions of the methodology and approaches that or section devoted to the WSS. can be taken are provided below. The preparation of the PER needs to carefully consider and specify the Sector PER options to be followed. Clearly, a sector PER that is purely sector focused will Documentation be more detailed—where sector programs and even sub-programs may be studied in some detail—than The preparation of documentation for the conduct of where the sector is reviewed as part of a national PER. a PER is essential to locking in place the results of The Contents of a standard PER would include the consultations and reviews that have taken place. the following and a more detailed Contents list is illustrated in Box 5: Budgeting and Scheduling • Introduction (a backwards look at public spending in order to inform preparation of future budgets Adequately budgeting for the PER process is a key and sector strategy), to include PER approach to the ultimate quality of the PER and its fit to the and methodology needs at hand. The budget is also tightly linked to the time frame that is required or can be a limit on the • Sector background, to include goals and priori- time frame that can be supported. Rapid PERs car- ties and institutional context (description of the ried out in two months can cost between US$50,000 sector, including public, private and community- and US$100,000. More comprehensive undertakings based facilities and inputs, recent policy devel- running two years or so can exceed several times opments, output and outcome indicator targets, this level. Assuring follow-up and recurrence are performance issues) additional expenditures to consider. • Sector performance • Description of expenditure on the sector, includ- CONTENTS AND MINIMUM COVERAGE OF A ing sources of finance, indicate the composi- PER tion of flow of funds (public—budgetary, invest- ment—private, central, sub-national), summarize Once it has been agreed to carry out a review of pub- the funding of the sector, and linkage to sector lic expenditure within the sector, decisions need to goals; expenditure management and fiscal disci- be taken as to what sort of PER can be undertaken. pline; allocation across budget categories; alloca- Maybe, for instance, data are insufficient to allow a tion across expense categories; division between full sector PER and it is only possible to conduct a recurrent and capital/development expenditure; sector PER as part of a larger national PER. Once there allocation to the ‘home’ institution (government is an agreed methodology and toolkit for undertaking ministry or agency); allocations to regions; role of such PERs, whether as part of a larger study—strategic local government; allocation across the country review—or as a separate sector study—there should be greater consistency between the reviews which • Analysis of spending on the sector (covering effec- allows for comparative exercises and more useful tiveness, efficiency, equity); is budget allocated to lessons to be learnt. priority programs (sub-programs etc.) as planned; Whichever PER is to be undertaken, it is important assessment of allocative efficiency (expenditures to provide clear guidance on what minimum scope based on prioritisation and effectiveness of pro- and coverage is expected of a PER. This will clearly be grams—i.e. strategic prioritisation)); assessment CHAPTER 2. GUIDANCE FOR CONDUCTING PUBLIC EXPENDITURE REVIEWS 9 B O X 5 . A N I N D I C AT I V E C O N T E N T S PA G E O F A W S S C H A P T E R O F A PUBLIC EXPENDITURE REVIEW Executive Summary Allocation across Expense Categories 1. Introduction Recurrent Expenditure Development Expenditures 2. Methodology Ministry of Water and Irrigation (or other ‘home’ 3. Sector Background (including institutional context) ministry for the sector) 4. Performance of Water Supply and Sanitation Regions Sector: Local Government Administration Access to Improved Water Sources; Performance Spatial Allocation of Water Supply and Sanitation Sector; Rural water Summarizing the allocation of public expenditure supply sector performance; Performance of the 7. How Efficient Is Spending? Rural Water Sector using International Bench- Allocative Efficiency marks; Functionality of Rural Water Points; Urban Technical Efficiency water and sanitation performance; Performance Budget Efficiency of the Urban Water Sector using International Investment planning Benchmarks; Sustainability of Urban Water Utili- Procurement processes ties; Sanitation Performance 8. Conclusions and Recommendations 5. What Is Being Spent On Water Supply and Conclusions of findings Sanitation? Recommendations on what is required for the Composition of Flow of Funds future (e.g. policy directions, financing, capacity Summarizing the funding of the sector issues) and next steps based on these findings 6. Is Spending Well Allocated? Allocation across budget categories of technical efficiency (effective use of budgeted in targeting specific groups (e.g. poor, families, resources—including capacity of line ministries women and children) and services provided by and other government agencies to use the allo- informal sector. cated resources, in a timely fashion, to ensure • Public Expenditure Management issues that impact efficient delivery of public services); recurrent on performance: predictability, budget cycle man- expenditure (wages & salaries; other operations agement at both national and sub-national levels & maintenance costs); capital expenditure and of government, budget preparation, classification; the development budget; allocation to local levels comprehensiveness, information systems, budget and sub-national contributions; overall assess- execution; sector forecasting—various funding ment of budget efficiency  (difference between scenarios, performance scenarios through pri- formulated budgeted and actual expenditures and oritisation and greater effectiveness, efficiency reasons for any variance); investment expendi- and equity). ture as against investment planned; efficiency of • This would be rounded off with some Conclusions, procurement process; efficiency and effective- Recommendations and the Next steps which need ness of service delivery  (the value-for-money to be taken, to address and mitigate the problems criterion)—the latter may also be carried out identified. in conjunction with other public expenditure tracking tools (such as PETS, QSDS, BIA etc.) which indicate service delivery problems, con- sumer perceptions of those services, effectiveness 10 GUIDANCE NOTE: PUBLIC EXPENDITURE REVIEW FROM THE PERSPECTIVE OF THE WATER AND SANITATION SECTOR A stand-alone PER devoted to the water and expenditure, education expenditure, higher education, sanitation sector plus an overview of total social sector spending). The broad focus of the chapter on water supply This Contents page may be further elaborated as and sanitation within the national PER is on: follows: • analyzing WSS targets as set out in policy and • An Introduction and an explanation of the PER strategy documents, methodology to be followed and then a section on • the expressed demand of the population (includ- sector background to put the study into context; ing Millenium Development Goals), • A detailed section on performance of the water • examining expenditure patterns in the sector to supply and sanitation sector, which relies very determine their consistency with policy objec- much on sector specialists; tives and priorities and their adequacy in terms • In institutional context of the water sector, based of meeting sector targets; on a National Water Policy, for instance, outlin- • preparing “development scenarios� for the sector ing the role of central government, where respon- for the next 20 years, sibilities will be de-centralized and to which • taking into consideration financial and other con- level(s), the responsibility for regulation will be straints on the government’s ability to meet the separated from financing and from performance targets; and monitoring; autonomous entities, if established, to manage water supply and sewerage services • suggesting options for removing constraints and in urban areas; community-based organizations improving sector performance. where they own and manage rural water supply In detail, the chapter contents cover the following: schemes; and water basin offices, where estab- lished, as autonomous bodies; 1. Introduction • Description of expenditure for water supply and 2. Analysis of existing pattern of expenditure: sanitation, whether the spending is well allocated a. Trends : decentralization; prioritization of (and how this is divided between recurrent and urban over rural water supply; future financ- development), the relevant responsible body (e.g. ing of urban water supply; sustainability of Ministry of Water & Irrigation), the regions, local urban water supply systems; future financing government, and the efficiency of the expendi- of rural water supply and improving sustain- ture; and ability; improving sanitation and hygiene; • Conclusions and Recommendations: how much capacity constraints; finance is needed and how will this investment be funded and questions such as the need to improve b. Composition of water supply spending: recur- capacity of government to use funds more effi- rent versus capital expenditure; national (or ciently. This section will also include next steps federal) budget; external assistance to national to be followed based on the findings of the PER. (or federal) budget; regional governments; rural water supply financing; municipal expenditure; water utilities; NGOs; sanitation; Chapter or Section within a National PER c. Effectiveness, efficiency, adequacy, appropri- ateness of spending on the sector: A good example of what is required when a national –– Effectiveness of spending on water supply PER includes a chapter on water and sanitation, can be and sanitation indicated by the increase in seen from the following example.8 This covers public coverage corresponding to spending, and spending in the social sectors where water supply and both quantitative and qualitative measures sanitation was one chapter among seven such sec- of the sustainability of systems installed; tors (the others being food security and safety nets, population and family planning and public health –– Efficiency of spending on water supply and sanitation indicated by the investment cost per capita, the on-going operating and main- 8 This example is taken from the Ethiopia PER, 2004. tenance costs (comment on whether systems CHAPTER 2. GUIDANCE FOR CONDUCTING PUBLIC EXPENDITURE REVIEWS 11 have deteriorated); operating efficiency and in such documents may be much less comprehensive. financial performance ratios of water utili- The document(s) may present spending scenarios for ties; urban water supply; rural water sup- rural sanitation and on-site urban sanitation, which ply; efficiency in utilisation of funds (raising in any event will be the responsibility of households, questions such as—does data on utilization not the Government. Projections may also be provided of Government budget from larger regions for urban sewerage (though no projections may be shows that actual capital expenditures have provided for spending on sanitation promotion and been consistently below planned levels); hygiene education, which are likely to be included uneven performance across regions; how in health sector projections); check whether funding much did water supply coverage increase estimates are too ambitious compared to MDGs (e.g., over previous decade? Indications that spend- an intention to increase urban and rural water supply ing in the sector outpaced or only managed coverage up to a certain percentage within a desig- to keep pace with population growth? nated period) and whether financing, institutional and –– How adequate and appropriate has this staffing constraints fully taken into account; urban spending been? Have regions and the federal and rural sanitation. government, with donor assistance, spent 4. Policy implications and links with a broader more in recent years on urban water supply development strategy than on rural water supply and sanitation? –– Consider shift in spending, e.g. from large urban If government officials at all levels have to smaller towns and rural communities, while indicated they recognize the need to shift enforcing policies that cities cover their costs focus to development of water supply and from own revenues, or from water supply to sanitation in rural communities and smaller sanitation. towns, this will require increasing emphasis on capacity building to ensure sustainability. –– Assess feasibility of establishing an earmarked For urban water supply, capacity building fund to finance capital expansion, such as a will be needed for the local governments to Water Resources Development Fund. take up their new responsibilities for plan- –– Assess options for capacity building to help ning, governance and monitoring and evalu- any autonomous water boards improve service ation, and autonomous Water Boards will levels, efficiency, financial performance, finan- require strengthening in the areas of man- cial management and monitoring and evalua- agement and operation to improve coverage tion systems so that they can prove themselves and the levels of service provided, while creditworthy entities. at the same time improving cost recovery –– Invest in M&E systems especially to cover decen- and efficiency. Consistent with its policy of tralized agencies, full cost recovery for urban water supply, –– Consider mechanisms to link with other social Government grant funding to established sector spending. water utilities in the larger cities may be limited to capacity building for improved 5. Sustainable improvements in water and sanita- management and cost recovery and support tion conditions. with planning and preparation of business –– Make the argument that sustainable improve- plans to support financing for further devel- ments in water and sanitation conditions are opment through loans. essential to improve the quality of life of the poor through: (i) positive impacts on hygiene 3. Projections for future expenditure requirements and maternal and child health, (ii) reduced A key government document for the sector (e.g. ‘Water drudgery and time spent on collection of water, Sector Development Program’, ‘Water Master Plan’) especially for women, (iii) reduced cost of health should provide estimated funding requirements for services especially for water related diseases urban and rural water supply and sanitation for the such as diarrhoea, for both households and the next 15–20 years (with 5-year sub-periods), with asso- government (iv) increased productivity due to ciated coverage targets; for sanitation the data provided improved health (v) improvements in education 12 GUIDANCE NOTE: PUBLIC EXPENDITURE REVIEW FROM THE PERSPECTIVE OF THE WATER AND SANITATION SECTOR enrolment and attendance through better school need to be explained, probably due to different sanitation and reduced home duties for water definitions of access and coverage. collection or caring for siblings, especially for –– Likely to be agreement that the level of service girls and (vi) increased income from cattle that provided to those with access to improved water depend on water. supply is poor: on average less than the WHO –– The linkages between access to water and sani- minimum standard of 20 litres per capita per tation and poverty may rank among the top five day provided; is service intermittent in urban priorities in rural areas and sanitation is also areas, what proportion of systems in rural areas likely to rank high in urban areas. (compare with between 25–30% of such systems –– It should be possible to determine the level of according to other PERs) are non-functional at water supply coverage within the country (and any given time. compare with the region), as well as sanitation –– Check whether government has put in place a coverage, and whether water coverage increased good policy framework designed to provide an over, say, the previous decade and by what per- efficient and sustainable service and is com- centage (using WHO data). The relevant ministry mitted to tackling the problem, though this is (e.g. a Ministry of Water Resources) and regional an enormous challenge. water bodies (such as Regional Water Bureaus), To summarise the above, the following steps need may report higher coverage levels and greater to be followed in order to undertake a PER in WSS. gains in recent years and these differences will (See Box 6.) B O X 6 . I N D I C AT I V E S T E P S T O F O L L O W W H E N U N D E R TA K I N G A P E R IN WSS Indicative Steps to follow when undertaking a PER –– Team members to gather information accord- in WSS ing to their own allotted tasks. –– Team members to prepare drafts on their own Step 1. Decision to undertake a PER and specific sections. reasons why (this will determine what is expected from –– Sections reviewed by Team Leader and feed- PER and what are likely results); identify institution back to team members. consider stakeholders needs and expectations and –– Conduct interviews (if necessary) with rel- ensure ownership; decide on budget required and evant bodies in both PFM and in the sector funds available; organisation of team to conduct PER (at national and sub-national levels), to check Calibrate objectives to availability of suitable data. queries with regard to specific areas of uncer- tainty, including any data issues. Step 2. Preparations for undertaking PER: thorough guidance and preparation of team to conduct PER, –– Prepare draft PER and share findings, conclu- including assessment of data (and documentation) sions and recommendations with representa- required and its availability, accessibility, quantity tives of donors/stakeholders etc. at workshop and quality, as well as appreciation of potential or other meetings; and data problems; approach & methodology to follow –– Feedback from workshop and/or meetings Guidelines as set down in Guidance Note for either and preparation of final PER. sector PER or a chapter/section of a national PER (making clear objectives, contents, scope & cover- Step 4. Once the conclusions and recommendations age, results monitoring and follow-up). in a PER is accepted, need to implement recommen- dations based on findings, including any implications Step 3. Implementation for sector policy and reforms (including capacity –– Commence the PER process by drafting a and resource issues) and how results are measured. Report following Contents as set in Step 2. CHAPTER 2. GUIDANCE FOR CONDUCTING PUBLIC EXPENDITURE REVIEWS 13 GUIDANCE ON HOW A PER ANALYSIS CAN findings may be presented in a table, e.g. ‘Estimated FOCUS ON RESULTS AND MEASUREMENT Unit costs of Rural Water Supplies’ (Construction total; type of scheme cost per capita—hand dug well Whether the PER is devoted entirely to the WSS or is or spring (the cheapest); hand dug well and pump; a chapter/section on WSS within a larger review, the borehole with hand pump; to borehole with electric PER analysis will highlight problems with the flow or diesel pump (the most expensive). of funds but it also provides findings and results and A check can be made to see whether these figures proposes how we can measure these results. Thus are consistent with data obtained from other sources the results or outcome of a PER will focus on an (such as externally funded projects carried out in assessment of the effectiveness, efficiency, adequacy other regions), and the amounts budgeted per capita, and appropriateness of expenditure on the sector. including technical assistance and program running These results can be measured against the intended costs, for the next phase of the project. Such projects expectations and targets (e.g. coverage). may also provide examples of lower per capita con- The effectiveness of spending on water supply struction costs being achieved, especially for hand and sanitation is usually indicated by the increase dug wells and springs (and compare this, say, with in coverage corresponding to the amount spent, the regional average). using both quantitative and qualitative indicators to Investigation can also be made as to whether the measure the sustainability of the systems that have country rural water supply cost per capita is in line been installed. with other countries in the region (internally), though From the data available, it may not be possible regional experience may show that greater efficiency to correlate spending in the sector to a change in is possible if the volume of business increases and coverage levels, due to lack of an effective monitor- procurement packages are designed to permit econo- ing and evaluation system. However, if the level of mies of scale, while at the same time encouraging coverage, increased only marginally, this could be competition (such as, for instance, grouping lots of taken as an indicator that there may be a problem ten boreholes in a particular area, to reduce driller with the effectiveness of spending. There may also mobilization and supervision costs). be evidence that sustainability is an issue for both The results of the PER will also examine the effi- rural and urban systems; rural systems may not be ciency in the utilization of funds available to the functioning at any given time and urban water supply sector for urban and rural water supply and sanitation. tariffs might be insufficient to provide for adequate Data on the utilization of the government budget from, maintenance, notwithstanding the costs of renewal for instance, two or three larger regions may indicate and replacement or the expansion of facilities. the extent to which actual capital expenditures have The efficiency of spending on water supply and been consistently below planned levels and this can sanitation can be measured by the financing cost per be captured in a table showing: ‘Actual vs. Planned capita, that is, the on-going operating and mainte- Water Supply Spending’, including Regional Planned nance costs and the operating efficiency and financial Capital Actual and utilization. performance of water utilities. While the relative effi- Various reports can be used to check for uneven ciency may be measured by the per capita cost, it is performance across the geographic areas, where some important to investigate ways to reduce the cost per parts of the country might utilize their initial alloca- capita by providing incentives in the form of access to tions quickly while others are unable to do so within financing for the selection of the most cost-effective the first planning and financing phase. and affordable technology. External funding results are also important since, In addition, the results of financial performance as noted above, some donor-funded projects suffer should be checked. Many utilities may have been from actual disbursements lagging behind schedule receiving subsidies for operations, though tariffs throughout the project while under-utilization has may have increased in recent years to cover at least been noted as an issue in other such projects. Possible recurrent operating costs. reasons for under-utilization may include unrealistic For rural water supply it is important to find the plans and resource estimates, failure of donors or the best source of data on the average cost per capita of Treasury to deliver funding according to plan, flow of different types of schemes (e.g. maybe engaging local funds problems, absorption capacity and cumbersome engineering consultants to carry out a study) and the rules for accessing funds. 14 GUIDANCE NOTE: PUBLIC EXPENDITURE REVIEW FROM THE PERSPECTIVE OF THE WATER AND SANITATION SECTOR Adequacy of funding monitoring and evaluation, the autonomous Water Boards (if existing) require strengthening in the areas It is important to assess the increase in water supply of management and operation to improve coverage coverage over the previous decade since this will and the levels of service provided, while at the same indicate whether spending in the sector has managed time improving cost recovery and efficiency. Consistent to outpace, or merely keep pace with, population with its policy of full cost recovery for urban water growth and the extent to which systems may have supply, government grant funding to established deteriorated. This provides an indication as to what water utilities in the larger cities may be limited to needs to be done if targets are to be met, especially capacity building for improved management and for rural water supply and sanitation, where cover- cost recovery and support with planning and the age is probably worse and government spending has preparation of business plans, to support financing been low. Such results then lead to recommenda- for further development through loans. tions such as, for instance, where increases in block grants to regions may be needed so that budgets can DISSEMINATION be allocated for both capital and recurrent costs to support implementation of regional water supply and PERs need to be disseminated to the stakeholders as sanitation programs. (Projected funding requirements part of the PER cycle. This completes the reason for should be closely linked to targets). which they were undertaken. The only justification for PER is that it be analyzed in order to improve the Appropriateness of funding use of public expenditure. The dissemination could be through a workshop with broad participation (includ- The priorities of both the national and sub-national ing from civil society), or as part of the dialogue with governments, with donor assistance, are demonstrated the macroeconomic and sector authorities. through an analysis of the amounts spent on urban versus rural water supply and sanitation. Thus the FOLLOW-UP AND MONITORING results of the PER impact directly on government policy (as noted above). Government at all levels may Just as dissemination is often omitted from PER plan- recognise the need to shift the focus to the develop- ning and budgeting, too often little consideration is ment of water supply and sanitation in smaller towns given to how action planning and monitoring is to and rural communities although this will require an take place after dissemination. The key to this issue increasing emphasis on capacity building to ensure is to begin with a good contextual fit. If the PER is sustainability. undertaken within the context of other programmed In the case of rural water supply, this would include activities and if representatives of those programs capacity building at lower levels to develop water are included in the PER process, there is a good and sanitation programs, capacity building at the opportunity for such other programs to own the community level for management and maintenance follow-up and monitoring process. If major sector of systems and the building of partnerships with reform is involved, the sponsoring ministry or a lead the private sector, to provide maintenance support, donor might be designated as the chair of an inter- technical assistance and spare parts. ministerial coordinating group. Alternative solutions For urban water supply, capacity building will can be found in sponsorship by a national commission be needed for the local governments to assume their or a leading NGO. new responsibilities for planning, governance and 15 CHAPTER 3: METHODOLOGICAL FACTORS AND DATA ISS WATER PUBLIC EXPENDITURE REVIEWS CHAPTER 3 Methodological Factors and Data Issues in Water Public Expenditure Reviews TYPOLOGIES resources efficiently and those which lack such a strategy9); A number of typologies can be drawn up which show • financing problems; the considerable variation in the types of PERs that • a heavily subsidised WSS (where, for instance, may be undertaken that cover the water and sanita- there may be a single urban water and sanitation tion sectors. These typologies can be considered when public utility heavily subsidised by government undertaking a PER in WSS, so that there are common with water tariffs remaining unchanged for sev- factors within the appropriate typology which affect eral decades10); the funding of the sector. They can also serve a use- ful purpose in that those preparing the PER are able • post-conflict; to learn lessons from PERs undertaken in the past • natural resource endowment (e.g., oil rich) or lack within the particular typology. of such natural resources (e.g., oil dry); national/ We can develop typologies by region, and sub- sub-national; region, in an attempt to understand better the common • EU accession; and factors affecting the political, economic, institutional • weak governance (including PFM system in need and administrative development of the countries of reform). reviewed. In this instance information may be more readily available for some regions and sub-regions Lessons can be learnt from developing such typolo- than others. However, factors common to certain gies to guide those who are about to undertake a PER countries may well cut across regions and sub-regions, in WSS. These typologies can be extended to varia- while each region and sub-region may contain a mix tions in objectives and assessments, in contents of a of countries which are better understood through PER, variations in definition of the sector and in the alternative typologies. institutional home (e.g. a particular ministry or gov- For instance, we may draw up typologies as follows: ernment agency) for the sector and in the proportion of public expenditure devoted to the sector. Of the • low income countries; many potential typologies that could be constructed, • scarce water resources (and possibly a sub-divi- 9 See for example, the case of Senegal where the capital Dakar is not sion between those with a strategy for using such located near any sizeable water source though over the past 15 years the country has managed to implement a strategy to deliver good quality urban water service provision in an efficient and financially sustainable manner (Political Economy in Urban Water series, no. 4, World Bank, May 2012). 10 See for example, The Political Economy in Urban Water series, no.1, World Bank, May 2012 (on Panama). 16 GUIDANCE NOTE: PUBLIC EXPENDITURE REVIEW FROM THE PERSPECTIVE OF THE WATER AND SANITATION SECTOR some of the key ones are discussed below as a Guide Other typologies may be based on the objec- to the preparation of a sector PER. tives and assessments of the PER, depending on the Within Europe, Central & Eastern Europe can be particular context. A PER may aim to gain insight divided into the Former Soviet Union and Central into how budgeted allocations for the water sector Europe and the Balkans. This typology is useful ini- translate into actual water and sanitation service tially since all of the former Soviet economies have delivery and to understand what impacts the links common characteristics though they also have specific between the two. The review may examine the sub- political, economic, institutional and cultural features sectoral themes of water supply and sanitation and that may have proved more important in terms of their irrigation and drainage, as well as the overall water subsequent emergence as independent countries. For resource and fiscal management issues for the sector. instance, some of the central European economies have The state of WSS may not, for instance, be not in line recently been accommodated within the European with the level of economic development reached by Union and so share common characteristics of EU the country. Despite a relatively high coverage rate accession states (e.g., Bulgaria, Romania). in the water sector, the continuity of supply may be Elsewhere, within the FSU, in a region such as extremely low. The PER may assess the trends of the Central Asia where water is a fundamental issue public expenditures in the water sector with a par- for all countries, there is a mix of relatively wealthy ticular focus on the irrigation and WSS subsectors, (e.g. Kazakhstan, Turkmenistan) and relatively poor the major recipients of public financing in the water countries (Kyrgyz Republic, Tajikistan, Uzbekistan), sector, the different sources of finance and explore thus demonstrating one of the problems of a typology the efficiency and equity implications of the current purely by geographical region. In this case, a typology arrangements. The water supply and sanitation may based on wealth accrued through the possession of be of prime importance in the PER because of their natural resources (oil, gas) and those countries that complementary role in preventing disease. lack such resources may be of more use, though it is Other typologies might relate to the definition often the case that countries which appear under the of the sector, which might differ considerably from former category (‘wealth based on natural resources’) one PER to another. Indeed, in accordance with clas- also appear under a grouping that might be headed sification systems, it is important to consider which ‘weak governance, accountability and transparency’. sector expenditures are included and which are not: A similar sub-regional grouping would be relevant for example, is expenditure on sector training or on in the case of the south Caucasus where Azerbaijan state water and sanitation companies included in the fits a typology of wealthy through natural resources definition of the sector. One ministry may be respon- (oil) and with governance issues but the other two sible for the bulk of sector expenditure, although other countries are relatively poor in comparison (without public bodies, as well as private bodies and NGOs, such resources) but with better governance and more may also be important players in the sector. While evidence of progress with PFM reforms. Another data on the annual spending of these other organisa- typology could be developed for the FSU based on tions needs to be included, so also does expenditure the considerable proportion of GDP accruing from at sub-national (as well as national) level, if a com- income from remittances (e.g. Armenia, Tajikistan). plete picture of sector expenditure in the country is Some countries may be grouped according to the to be obtained. In addition, in some countries, some need to improve governance where, for instance, sector-related spending is not recorded in the total undertaking such a PER in water and sanitation is expenditure of the sector. made difficult because of the general lack of transpar- A number of other approaches may be adopted ency and accountability within the system. This is when preparing a PER, including more recently that typified by the lack of appropriate data (in terms of using political economy, in an attempt to understand both quantity and quality), difficulties with access better the political and institutional factors that can to data, data reliability and data that is produced in impede or delay developments within the sector.11 a timely fashion, all of which limit/hinder informa- tion flow and renders such an exercise as a PER, 11 See for example, The Political Economy of Policy Reform: Issues and particularly difficult. Many of these same countries Implications for Policy Dialogue and Development Operations, Report No. 44288-GLB, World Bank/Oxford Policy Management Ltd., Washington D.C., could also be grouped, for example, according to low 2008; ‘Guidelines for Political Economy in the Urban water Sector’, internal capacity and developments skewed by donor funding. draft, World Bank, May 8, 2012. CHAPTER 3: METHODOLOGICAL FACTORS AND DATA ISSUES IN WATER PUBLIC EXPENDITURE REVIEWS 17 DATA ISSUES • Sector expenditure as a percentage of GDP • Domestic/external expenditures in the sector as The availability and quality of the data will be a key a share of total public allocations determinate in what can be expected from a PER • The composition of on-budget expenditures by process. Most certainly data issues must be discussed sub-sector, by level (national, sub-national), and in the initial consultations with stakeholders as such (in the case of the capital or development budget) will determine the scope and quality of the analysis by major program that can be achieved. From the start it is essential to identify the sources, accessibility, timeliness, and • Sector expenditure per capita any limits in data. If there are major constraints these • Sector expenditure by region or province should be identified and means of compensation suggested. Budget Performance WSS PERs rely on existing reporting and monitor- • Budget versus actual expenditure (total, domes- ing documents for the expenditure and performance tic, external) data they require. They do not normally involve primary data collection. However, WSS PERs may • Budget versus actual expenditure (recurrent, include key informant and stakeholder interviews capital) to validate understanding, use of household and • Budget versus actual expenditure (national, local; international survey data for comparative analysis urban, rural) and use of sector specific studies. While PERs are • Ratio of recurrent to capital expenditure not audits, they will seek third party assurance on • Sector expenditure in urban versus rural subsec- the accuracy and propriety of government financial tors, as a share of total expenditure and per capita reports and management systems (for example, from • Flow of funds—how predictable is the flow of the annual report of the Auditor General, the PEFA funds once the annual budget has been approved? PFM Diagnostic, and other similar reports). For general quantitative comparison of perfor- • Fiscal impact from the policies of CAPEX and mance and expenditure allocations between coun- OPEX? tries, a WSS PER should normally seek to analyze –– Subsidies to the sector as a percentage of total the following expenditure and performance metrics government deficit over time, usually the last 3–5 years: Performance Access • Coverage of water supply and sanitation services? • Access per household and per capita to improved –– Water Supply (house connection; public tap; water supplies (by location, income group and private well or source, street vendor, other) over time; and by main subsector—urban, rural)12 –– Sanitation (Sewerage connection; septic tanks • Access per household and per capita access to or latrines; other) improved sanitation (by location, income group –– Wastewater treatment (primary, secondary) and over time; and by main subsector) • Quality of services in terms of safety and conve- nient water? Quality –– Hours of service • As measured by type of service (piped, non-piped; –– Water quality (water treatment and disinfection?) improved, unimproved) • Efficiency of use of resources in CAPEX? –– Investment per capita (water; sanitation; waste- Expenditure Allocations water treatment) in urban and rural areas • Sector budget share as a percentage of the total • Efficiency of use of resources in OPEX? government budget • Non-revenue water (as a percentage and as m3/ day/km of distribution pipes) 12 Where access is defined as direct connection to the household or a public facility within 200m of the household. • Sustainability of services? 18 GUIDANCE NOTE: PUBLIC EXPENDITURE REVIEW FROM THE PERSPECTIVE OF THE WATER AND SANITATION SECTOR household level given the virtual lack of metering in most countries but the PSIA data nevertheless provides a useful picture of equity and affordability patterns in the water sector, including: • Unmet demand: the extent to which connected customers face rationing of public water supply; • Private water supply: household spending for private supply solutions as a percentage of total water expenditure;, and • The difference in the share of income spent on water in private connected households and pri- vate unconnected households DATA ANALYSIS The PER should include specific information on data sources both in the client countries (e.g. data on expenditures, national survey data, etc.) and from IFIs and other international organizations. The work should include additional information which can help • Cost recovery to overcome problems of finding appropriate data. • The effect on social equity from the pattern of CAPEX and OPEX? Source of expenditure data and its validation –– Improving access (water and sanitation) to low- In order to allow useful data analysis it is impor- income segments tant to understand the source of expenditure data –– Cost of services for low-income segments (as reported in the PERs and the extent to which it has a percentage of family income) been validated. In order to permit trend analysis a series of annual data is necessary to compare sec- Expenditures should be shown in constant (infla- tor performance within a given country (time series tion-adjusted) prices to allow for comparison over time analysis). In order to permit comparisons between and presented for the period covering the previous different countries (cross-sectional analysis) it is a 3–5 years to allow trends to be observed. The source prerequisite to have clear definitions of the different of expenditure data should be the audited accounts indicators. In the completed PERs, such definitions of government and of service providers (for instance, are usually absent. Indeed, some indicators show utility companies). In the absence of audited accounts, such large variations that one could suspect that dif- unaudited financial reports of may be used provided ferent definitions have been used which is often the the source is made clear (and an observation made case when a large number of studies from different on the general quality of financial reports based countries and regions are analyzed. on the findings of previous audit reports). Data on access to water and sanitation services is normally What data do we need on basis of Public provided by national household surveys. Household Expenditure and Financial Accountability? surveys may also identify changes in the quality of services provided. The IMF’s Manual on Fiscal Transparency (May, 2007) Survey data (for example, Poverty and Social and the Public Expenditure and Financial Account- Impact Analysis) conducted in the water and elec- ability’s (PEFA) Performance Measurement Framework tricity sector can provide a wealth of information on (PFM) provide, respectively, a good introduction to household spending patterns and quality of service the public expenditure management process and its provision in the water sector. Spending and consump- core documents (sources of data) and to standardized, tion patterns cannot often be jointly assessed at the country-specific assessments of the PFM systems. CHAPTER 3: METHODOLOGICAL FACTORS AND DATA ISSUES IN WATER PUBLIC EXPENDITURE REVIEWS 19 The Manual on Fiscal Transparency provides stan- The 28 indicators for the country’s PFM system dard definitions and further information on important are structured into three categories: features of the PFM systems. It has gained acceptance • PFM system out-turns: these capture the immedi- as the standard against which fiscal transparency ate results of the PFM system in terms of actual should be judged and has become the principal expenditures and revenues by comparing them to source of reference on accepted definitions for bud- the original approved budget, as well as level of get documents and approaches to improving fiscal and changes in expenditure arrears. transparency. The budget documents that provide the main source of public expenditure data for a PER are: • Cross-cutting features of the PFM system: these capture the comprehensiveness and transpar- • The annual budget presentation. Includes detailed ency of the PFM system across the whole of the projections of revenues, expenditures, balances budget cycle. and borrowing; proposed revenue and expendi- ture measures; and expenditure for each ministry, • Budget cycle: these capture the performance of the department and agency for the coming year to be key systems, processes and institutions within the authorised by the legislature through the annual budget cycle of the central government. budget law (appropriations). Transactions are generally classified by administrative unit and In addition to the indicators of country PFM per- item of expenditure formance, this framework also includes: • Budget supporting documents. Includes various • Donor practices: these capture elements of donor statements (e.g. autonomous agencies, guarantees practices which impact the performance of coun- and other contingent liabilities) and background try PFM system. papers. Increasingly may include presentations PEFA PFM Performance reports are normally con- for medium term expenditure estimates by pro- ducted every 3–4 years. Although the reports focus on grammatic classification (medium term expendi- central government as a whole they provide a useful ture frameworks). indication of the type of performance issues which • Within-year budget reports. Reports on fiscal out- may affect WSS sector expenditures and of the gen- turns produced monthly or at least quarterly. These eral quality of public expenditure data. Moreover, the will be prepared by the Accountant General for PEFA Guidelines which accompany the measurement the government and will not be audited. framework and explain its scoring system serves as a • Final Accounts. Final audited accounts presented useful introduction to public financial management to the legislature at year’s end to provide assurance for the non-specialist. of regularity and consistency with the approved PEFA PFM Performance reports will provide infor- appropriations. mation and an assessment of, inter alia, the following important aspects of public expenditures: A good understanding of the institutional features • Composition of expenditure outturn compared to the of the public financial management system and its original improved budget (Performance Indicator impact of performance is available through the PEFA’s (PI) 2). A PER should assess the extent to which PFM. This is an integrated monitoring framework that this is reflected in the WSS sector and investigate measures country PFM performance over time. The underlying causes for any differences. framework provides a basis for understanding aggre- • Extent of unreported government operations (PI- gate expenditure management issues (i.e. PFM system- 7). This provides a general indication of whether wide) and the accuracy and comprehensiveness of all sector expenditures are included in budget the expenditure data reported in budget documents.13 documentation. • Predictability in the availability of funds (PI-16). 13 The PEFA PFM Performance Measurement Framework was developed as a contribution to the collective efforts of many stakeholders to assess This provides an indication of the extent to which and develop essential PFM systems. It provides a common pool of infor- spending ministries, departments and agencies mation for measurement and monitoring of PFM performance progress. The development of the Framework was undertaken by the OECD/DAC. (MDAs) receive reliable information on availability Since 2005, nearly 200 PEFA assessments have been conducted in over of funds within which they can commit expendi- 110 countries with involvement of over 25 donors and multilateral organi- zations. www.pefa.org ture for recurrent and capital inputs. 20 GUIDANCE NOTE: PUBLIC EXPENDITURE REVIEW FROM THE PERSPECTIVE OF THE WATER AND SANITATION SECTOR • The quality and timeliness of in-year reports and • Local Level Financing. There tend to be many audit (PI-24, 25 and 26). The ability to ‘deliver’ small-scale providers, community groups and the budget requires timely and regular informa- NGOs active in the water sector. Comprehensive tion on actual budget performance to be avail- data on local level financing is often not available able both to the ministry of finance, to monitor and for this reason actual spending from these performance, and to ministries, departments and sources is often excluded from PERs. International agencies for managing the affairs for which they NGOs (e.g., WaterAid) sometime publish com- are accountable. The indicator focuses on the parative research in this area. ability to produce comprehensive reports from the • The most recent PEFA PFM Assessment. PEFA accounting system on all aspects of the budget. reports can provide an indication of the type of systemic PFM problems which may affect the Data sources required water and sanitation sector. This will need to be investigated in key ministries. Common lines of To get a comprehensive picture of public expenditures enquiry include the extent to which policy and in the WSS sector, it is often the case that several data budget planning are linked, the extent to which sources will be needed triangulate findings. The fol- budgets approved are disbursed, and predictabil- lowing sources of data would normally be consulted: ity of in-year funding (including disbursements • Publicly available budget and expenditure data. to local governments). Budget estimates and disaggregated actual expen- • The national statistical authority of the country ditures for the major sources of sector expenditure, under review for household surveys, poverty and including the ministry responsible for water, local social impact assessments (PSIA) and/or living and regional government authorities, and other conditions surveys for background data such as government ministries as appropriate. Apart from population, number of households, average house- these government entities, water utilities may be hold size and household water connection rate. included in the analysis. The detailed expenditures • The International Benchmarking Network for of utilities do not appear in budget documents and Water and Sanitation Utilities (IBNET) for com- financial reports of the government but they are parative indicators of utility performance. IBNET often are public companies. The most significant is an initiative to encourage water and sanitation of these companies should be included in the PER. utilities to compile and share a set of core cost • The national water authority for technical data and performance indicators, and thus meet the including water produced, water sold, total con- needs of the various stakeholders. It sets forth a nections, water losses and continuity of supply. common set of data definitions; a minimum set Major water utilities can provide data on staff/ of core indicators, and provides software to allow connection ratios, operations and maintenance easy data collection and calculation of the indica- expenditure, staff costs, maintenance costs as per- tors, while it also provides resources to analyze centage of the depreciated value of infrastructure, data and present results. IBNET is funded by DFID, failure rates, total investment (capital expenditure), the World Bank and the WSP. billed and collected revenues, and the servicing of • The WHO/UNICEF Joint Monitoring Program for finance instruments (debt, equity). Agreement on Water Supply and Sanitation (www.wssinfo.org) the extent of utility coverage should be reached for country, regional and global estimates of access at the scoping stage of the PER based on access to water and sanitation by type of drinking water to and quality of water authority data. and type of sanitation facility. • Private and community-based expenditures in the sector. Ideally, private expenditure should be DATA PROBLEMS investigated to enable public policy choices and expenditures to be seen in their strategic context. However, it is often difficult to get comprehensive and Information on household expenditures on water comparable data on WSS sector financing. Contribu- and sanitation is normally available from house- tory factors include: hold survey data (see below). CHAPTER 3: METHODOLOGICAL FACTORS AND DATA ISSUES IN WATER PUBLIC EXPENDITURE REVIEWS 21 • Limited availability of government financial data section looks at the data problems that are likely to generally and in the WSS sector in particular, with be encountered: mutual responsibilities and data often not reported • No satisfactory state of sector financing available in a way that allows straightforward identification It might be the case that no consolidated and com- of sector expenditure; prehensive overview of public and other sector • Performance data on access to WSS services at expenditure is available that provides a satisfac- national level only periodically available through tory picture of the status of sector financing and household budget surveys; the flow of resources into the sector; • Important elements of sector expenditure unlikely • Different organisational responsibility for plan- to be fully captured within central government ning and reporting expenditure accounts (notably, off-budget aid, spending by local Expenditure planning and reporting responsibilities government, the private sector and NGOs); and are spread between different ministries as well as • Incomplete capture of the government’s full rela- different administrative levels. Specifically, plan- tionship with paratstals (e.g. government owned ning of recurrent and capital budgets is separated utilities) and related large capital programs. between two ministries, and recurrent and capital budgets are only weakly linked and coordinated; Data problems and the impact on the quality • Different expenditure reporting and classifica- of PERs tion systems The previous points are compounded by different As might be expected, data problems, including expenditure reporting and classification systems reporting inadequacies, are a common problem hin- that do not allow the monitoring of spending along dering the comprehensiveness of the analysis that programs or sector objectives; can be carried out under a Review. For this reason, • Problems with sub-national expenditure any interpretation of the findings and conclusions of PERs needs to take account of the tenuous nature of Expenditure analysis is further complicated by the data. For example, the inadequate flow of data the fact that sub-national expenditures may not on both budgets and expenditure is a significant be fully captured in the spending data that is held constraint to the identification of resource needs and at the central level (see below); commitments for existing programmes and activities, • Inconsistencies (over/under estimations) to an assessment of the funds that are available for There are significant inconsistencies and gaps in new programmes and to calculating funding gaps in the overall expenditure picture, which may also the sector. include over—and under-estimations of different In fact, the quality of many PERs often suffers from expenditure; the review teams being unable to obtain a complete • Expenditure reporting is often fragmented: for and detailed breakdown of expenditure for the sec- instance, capital and recurrent spending follow tor, covering the recent past. Both the poor quality of different reporting channels, while DP funds are the data and their limited availability and access are separately reported and accounted for; and problems and are likely to result in unreliable analy- • Not all expenditure of budget funding being ses of expenditure. For example, a major limitation recorded or captured to a review can be principally on data accessibility. In particular, data on revenue and expenditure might At the same time, as a result of poor reporting, either not be available or are aggregated in other particularly by local governments, the central categories of expenditure in the sector ministries. authorities have inadequate information on actual Similarly, the ministry (or other relevant government expenditure levels and composition, as well as on agency) estimate of expenditure from certain years the activities financed. A consequence of this is may be dramatically less than the amounts reported that it is impossible to assess the effectiveness of in other official documents and these figures cannot expenditure at the programme level. be satisfactorily reconciled. Expenditure reporting by DPs may be poor, yet To provide guidance on the kinds of difficulties to DPs are often substantial contributors to devel- be aware of when undertaking a PER, the following opment budgets, in particular. This, combined 22 GUIDANCE NOTE: PUBLIC EXPENDITURE REVIEW FROM THE PERSPECTIVE OF THE WATER AND SANITATION SECTOR • Overall expenditure unknown Such poor expenditure reporting practices results in uncertainty over the total spending in the sec- tor and whether or not overall spending reflects national priorities for the sector. Indeed, overall expenditure on the sector tends to be under- estimated and, not surprisingly, this complicates planning the development of the sector. Records of expenditure and budget data may not be up to date and this can prove problematic within a changing budget environment. • Inconsistencies from different sources There are significant inconsistencies in expendi- ture data obtained from different national sources. The (institutional home) ministry data provide a with the sub-national reporting problems, means significantly higher expenditure pattern than the that total expenditure levels in the sector may be data assembled by the Ministry of Finance, while largely unknown. maybe another government institution (Ministry If expenditures are recorded by DPs themselves, of Planning and Investment or Parliament ?) such information is not systematically recorded produces a third series of budget data which are or passed on to those in the recipient government again, different. who are involved in recording public expenditure. • Differences in budget and aggregated expendi- In addition, DP financial year (and expenditure) ture data reports sometimes differ from those of the govern- Major differences may be found in both the bud- ment with which they are working. DP funding get and the aggregated expenditure data available may account for a substantial portion of sector from different government sources. (A study of expenditure, although it is usually under-reported PERs which cover the sector may reveal that, on or not accounted for in calculating the total spend- average, this difference amounts to more than x% ing in the sector. It may account for a significant of the total spent on the sector.) proportion of the total budget. • Fragmented, inconsistent, poorly-organised In any case, a significant proportion of DP expendi- expenditure data ture may be ‘off-budget’ in special accounts (with Expenditure data are also often fragmented, incon- their own disbursement, accounting and report- sistent and poorly-organised. Frequent revisions ing procedures) and, consequently, more difficult made to the budgets and allocations during the to capture (with only a certain percentage of DP course of budget implementation further compli- expenditure recorded in the national budget, a cate their collection and analysis. There may well certain proportion disbursed using the govern- be confusion over what constitutes the official ment’s budget procedures and another percentage government budget. following the government’s financial reporting sys- tems). The recorded income from DPs is probably • Different bodies responsible for recurrent and significantly higher than that recorded as going development expenditure through the Treasury, indicating that large sums It may be particularly difficult to collect expen- are ‘off-budget’. The DPs also provide notoriously- diture data when different ministries are respon- poor expenditure forecasts, releases of funds are, sible for the recurrent (e.g. Ministry of Finance) for the most part, erratic while reporting them is and development (e.g. Ministry of Planning and often poor. Overall, then, DP releases and expen- Investment) budgets. As a consequence, neither diture data series are often incomplete or out-of- the ministry which serves as the institutional date and governments are consequently unable home for the sector nor the Ministry of Finance to obtain a comprehensive picture of expenditure has the complete picture, so that neither is able on the sector and of its impact. to monitor expenditure adequately. CHAPTER 3: METHODOLOGICAL FACTORS AND DATA ISSUES IN WATER PUBLIC EXPENDITURE REVIEWS 23 • Numerous institutions collect data of capital expenditure, together with the absence The involvement of multiple and uncoordinated of records on DP contributions to the sector might institutions in data collection compounds the lead a PER to conclude that there were no com- problem of data inconsistencies. plete and consolidated data on sector expenditure for the country. Despite improvements in govern- In some cases, the lack of data and information ment financial reporting, the presence of incom- may stem from agencies being unwilling to disclose plete data for government and donor expenditure such details to those involved in carrying out the and the lack of readily available expenditure data PER exercise (issues linked closely to transparency, continue. Moreover, actual spending figures only accountability and governance discussed above). become available after a delay, which makes the Decentralisation of the budget to local authorities ability to track and analyse actual expenditure in can further aggravate the collection of expendi- the sector extremely difficult. ture data. Some PERs fail to distinguish between • Data needed expenditures at the national and local government levels, though inadequate and delayed reporting to Data is needed on central spending; on other exter- the parent ministry of expenditure (and releases) nal assistance to the central budget; on regional by local authorities, will result in the data being government spending on water supply; on available of poor quality and incomplete. funds (water utilities; NGOs) for financing rural water supply; municipal expenditure; sanitation. • Recurrent and capital costs • Gaps in data Recurrent costs may be misclassified as capital expenditure, which complicates any analysis of Due to the serious problems encountered in obtain- the ‘economic’ classification of expenditure. The ing and reconciling data from different sources, capital budget (and the capital expenditure line) there can be gaps in the data and what is presented often hides much recurrent expenditure, meaning should be taken as indicative rather than defini- that the split between the two may serve little pur- tive (e.g. NGOs also contribute a large amount pose. In some places, the deliberate misclassifica- and information on this may not be included). tion of recurrent expenditure (and operating costs, Whether a reasonable estimate of the annual in particular), as capital spending, is widespread spending on water supply and sanitation by regions throughout government, so as to enable spending can be achieved depends very much on the extent departments to increase their control over funds. and nature of the regional information available. At the same time, detailed data on expenditure Data might not be collected on actual and bud- broken down by function are limited. Both of geted spending in the smaller regions, for instance, these factors serve to complicate any analysis of but data may be available for spending in the expenditure amounts and patterns. larger regions which may account for a majority of the total spent by all regions on water supply • Information reporting fragmented and delayed and sanitation. The reporting of information is both fragmented (with capital and recurrent expenditure following different reporting channels) and delayed. Indeed, DATA AND METHODOLOGICAL ISSUES although it is a critical process, the reporting of expenditure (and performance) is often problem- Severe data limitations often limit the scope and atic: it is difficult to report progress against budgets analysis of a WSS PER. In 2011, the Regional Overview in many countries where expenditure is not clas- Paper of WSS PERs in selected African countries noted: sified by programme. The end result is that much of the data on the amount and composition of the “The review faced considerable data limitations. expenditure and on the activities being financed As a result all analysis in this review are based which is needed for a PER, is simply not available. on partial and sometimes unreliable data and (Due to reporting problems, the ministry may lack should be used with care. Data scarcity poses aggregate data on arrears, as well as information problems well beyond this review. In order to on the funds actually released to its provincial set and monitor programs, policymakers require and district departments). The limited reporting quality and timely disaggregated data gathered 24 GUIDANCE NOTE: PUBLIC EXPENDITURE REVIEW FROM THE PERSPECTIVE OF THE WATER AND SANITATION SECTOR by local jurisdictions. Often special information of sector revenues (user fees). Inclusion of user is required to respond to the needs of the poor, fees in expenditure planning is crucial for enabling who often do not show up as a disaggregated governments and sector ministries to have a com- unit in consumer databases or even in survey plete picture of the full costs of service provision. and census information. The first conclusion of • Inadequate capture in the budget of external expen- this review is thus that more attention needs to ditures supporting the WSS sector. Despite recent be paid to WSS information systems, particularly efforts at coordination, most donors and NGOs with respect to data definitions, classifications have disbursement and expenditure reporting sys- and coverage.�14 tems that are independent of government. In most cases, information on grants directly executed by Commonly cited problems include: donors is fragmented and not brought together in • Lack of WSS performance data: Lack of regular one location (e.g. the ministry of finance). This is monitoring data on access to WSS services, espe- likely to be a particular problem in the WSS sector cially in rural areas, where non-governmental where donor funding represents a large portion actors may have a significant impact; inconsis- of sector expenditure. tencies in the definitions of drinking water used • Weak integration of policy-making and budget between different household surveys; differences execution. Many countries still operate dual bud- in methodologies between government and non- geting systems—the practice of making capital government household and sector surveys; large and recurrent expenditure decisions separately, temporal gaps between national household sur- often in separate ministries. In many countries veys, and; differences in service standards between the Ministry of Finance prepares the overall fiscal countries, making comparison difficult. framework and recurrent estimates and anoth- • Incomplete and inaccurate expenditure data. er agency (such as the Ministry of Planning or Common system-level problems include lack of Investment) prepares the public investment pro- audited accounts and classification systems that gram. Dual budgeting results in poor coordina- do not distinguish accurately between expen- tion of capital and recurrent spending. Typical diture categories (e.g. recurrent/development). indicators of this are actual capital expenditures Problems of completeness include difficulty in significantly below budgeted levels and failure to identifying sector expenditures in other institu- provide fully for the operations and maintenance tions and in multi-sector programs, subsidies to expenditures implied by new investments in the state owned enterprises and incomplete records recurrent budget. 14 Public Expenditure on Water and Sanitation in Selected African Coun- tries, 2000–2008, Draft version for Internal AFTUW Review, Africa Region, World Bank, February 2011. 25 CHAPTER 4: HOW PER FINDINGS IMPACT ON SECTO AND REFORMS CHAPTER 4 How PER Findings Impact on Sector Policy and Reforms T he PER examines expenditure patterns in the sector to determine their consistency with policy objec- tives and priorities and their adequacy in terms of PER AND DECENTRALIZATION POLICY PERs, together with a number of other public expendi- meeting sector targets. Thus, the findings that come out ture tools15 can also be used to study the implications of the analysis of public expenditure within the water of de-centralisation on service provision in the sector and sanitation sector should provide some guidance (i.e. the result of a policy decision) while they can also as to key policy issues which need to be addressed in play a useful role in improving the dialogue between the future and reforms required for their successful the sector ministry and the ministry(ies) responsible implementation. In essence, the PER analysis can for finance and planning. This is particularly important serve as a guide to future policy discussions and the in the water sector where sub-national authorities necessary sector reforms. may have responsibility for providing services but not necessarily the responsibility to finance. PER AND SECTOR POLICY DIALOGUE PER AND POLICY IMPLEMENTATION A PER is a key component of the sector policy dia- logue between the government and its Development Most importantly, the PER analysis can provide justifi- Partners, with the findings and conclusions of the cations for requests for additional funding or it might PER providing valuable input into these discussions. reveal that funds allocated to the sector could be used It may be the case that PERs have brought together for more efficiently and effectively and thus ‘savings’ the first time data on public expenditure within the can be made which can be used to fund other sector sector which provides a basis for future analyses of priorities. Alternatively, it might reveal the need to the impact of public spending on sector performance. re-prioritise, from relatively low-benefit programs to A PER can also contribute to a better understand- those which have potentially greater benefit, or in ing among government decision makers and sector accordance with new government policy directions. planners of expenditure in the sector and stimulate Partly as a consequence of the constraints that are discussion and exchange between the ministry and likely to be placed on the capacity of governments to sub-national line authorities on sector priorities and increase public expenditure in the near future, as a their associated fiscal implications. 15 A number of Public Expenditure Assessment Tools (PEAT) are avail- able which can be used to track public expenditure, in particular at sub- national levels, to service delivery mechanisms and to final beneficiaries. Such PEAT include Public Expenditure Tracking Surveys (PETS), Benefit Incidence Analysis (BIA) and QSDS. 26 GUIDANCE NOTE: PUBLIC EXPENDITURE REVIEW FROM THE PERSPECTIVE OF THE WATER AND SANITATION SECTOR continuing consequence of the impact of the global increasing scrutiny, at a time of fiscal constraints, financial crisis, questions are continually asked about it is critical that sector spending be targeted more both the quantity and quality of public expenditure effectively. within the sector and the fiscal space available for Finally, given that water and sanitation bodies additional funding. Thus, it is important for sector have, in general, been ineffective in making claims planners and decision-makers to have a thorough upon the limited national budget resources, a PER understanding of the volume of public spending, can help provide clear, more understandable and together with its patterns and trends, within the sec- relevant information to enable the sector to advo- tor. At the same time, because of the potential of the cate more effectively for more appropriate levels of sector to contribute to poverty reduction and envi- budgetary allocation to the sector. It should also be ronmental improvement, it is important to evaluate emphasised to all parties from the outset, however, the patterns of public expenditure in the sector and, that by commissioning such a Review, the government subsequently, to recommend more effective allocation is committed to implementing its recommendations. of funds. The WSS may also be seen, for example, Otherwise, the exercise represents a waste of valuable within the broader context of natural resource devel- (and scarce) resources. opment and climate change and hence, by making links with other policy issues, it becomes possible to Sectoral, program and sub-program analysis justify and attract additional funding for the sector. Where expenditure details exist, the same analysis PER AND IMPROVING SECTORAL BUDGET can be carried out by program, sub-program or bud- ALLOCATION get agency under the sector. This can reveal those which are the most funded and the least funded. PER The objective of carrying out a PER, therefore, is to analysis can provide information on how programs improve sectoral budget allocation and management and sub programs are prioritised in practice by the decisions made during budget formulation, to improve relevant line ministry (ies) or government agencies the composition and management of the budget, at (ies). It can show the variance between the initial both national and sub-national levels, as well as to allocation budgeted and expenditure (are programs improve the efficiency of actual expenditure. or sub-programs funded which were not intended or The results of a PER can be used to improve the over-funded and others under-funded?), and between efficiency, effectiveness and equity of public spending what is allocated and what is unspent. The sector line in the sector in the future (by better aligning future ministry and/or government agency needs to prioritise expenditure to national development policy priorities), on the basis of the national development strategy for thereby improving the likelihood that sectoral/national the sector (indicating which policies are prioritised outcomes will be realised. Thus the PER is used as for the sector) and then the programs prioritised for an input into discussions to improve the prospects budgetary funding need to be able to achieve the of achieving priority sectoral outcomes outlined in outcomes intended to address the priority policies national planning documents and to come up with (and correspondingly, the sub-programs need to be options and recommendations to help improve the able to achieve what is intended in the program). effectiveness and impact of the sector. Analyses The PER analysis should be able to demonstrate the of public spending in the sector should highlight correspondence between sector prioritisation and whether budget allocations to the sector have been programs that are funded. It is important to remember in accordance with sector priorities. that policies can only become effective once funds Changing both the composition and prioritisation have been allocated and used for their implementa- of water and sanitation expenditure, for instance, tion. Without proper funding, policies become only may have a huge impact within a country. Thus, it parts of a ‘wish list’. can be hypothesised that, by altering the composi- If reforms are necessary, programs to achieve tion of sectoral expenditures and bringing about a these will need to be prioritised and funded. The more-efficient use of public goods and services, the PER should help to demonstrate to the sector and chances of meeting sectoral targets should improve. policy/decision makers whether there is fiscal space In addition, with the resources being made available for this. Most important is whether there is medium for public expenditure as a whole coming under term budgeting in place and whether there is a sector CHAPTER 4: HOW PER FINDINGS IMPACT ON SECTOR POLICY AND REFORMS 27 strategy, a sector expenditure strategy and a sector • prioritise rural sanitation; Midterm Expenditure Framework. If funds have been • prioritisation of rural over urban; well used (efficiently and effectively and provide value • capacity constraints recognised and measures for money) then this can be used as justification for proposed to remedy the situation; additional funding. • M&E difficulties recognised and addressed within Implications for development projects a decentralized environment; and implications for water resource management; The above analysis would entail the following; • links with other social sector spending; and • The listing of development projects under the • new targets set for the consequences of such pol- sector, showing total budget, and how they are icy changes (e.g. expected reduction in morbidity shared between government funding and exter- and mortality from improved water supply and nal funding. This can tell the extent to which the sanitation so new targets re-incidence of certain government is improving the financing of capital diseases). expenditure. Some of the main policy changes in policy direc- • The likely future recurrent expenditure conse- tion that are likely to stem from PER findings and quences of development expenditure. recommendations are discussed below. POLICY IMPLICATIONS AND LINKS WITH Policy shift in focus from large urban to A BROADER NATIONAL DEVELOPMENT smaller towns and rural communities STRATEGY In recent years governments have tended to devote As a consequence of the PER findings, there are more resources to improving urban water supply in likely to be shifts in policy relating to the WS sector. the largest cities than to rural or small town water Governments may well have decided (and/or been supply, the result being that coverage in rural com- pressurised) to change policy direction but required the munities and smaller towns is much lower than in necessary data to support their argument for change. the larger urban centres. While there may well be Such policy changes may well involve a number of justifiable reasons for having prioritized urban over trade-offs since the total volume of public spending rural in the past, a shift in focus to rural communi- might not increase but the way in which resources ties and smaller towns in the future, may well be are distributed may change, i.e. in accordance with recognized by government (policy) and supported new priorities. A new policy focus might well be with results from the PER. necessary to fit within the broader country Develop- The larger cities, most of which have new or ment Strategy and the goals and targets that are set recently rehabilitated water supply systems, will be within it for the sector. expected to pay for the upkeep and expansion of The sorts of policy changes within the water and those systems with internally generated funds. The sanitation sector might involve: financial and economic analysis stemming from the • a shift in focus from large urban to smaller towns PER may indicate that this is feasible, and other stud- and rural communities; ies may indicate that customers are willing and able to pay the required tariffs if services are improved. • a move to higher customer tariffs; What is critical is whether there is the political will • grant financing (or an increase in it) for new to support such a move and a willingness to charge water utilities; higher tariffs. Some capacity building will be needed • new emphasis on rural water; to help newly formed autonomous water boards • urban sanitation and sewerage: the poor can- improve service levels, efficiency, financial perfor- not pay so if a policy decision is taken to priori- mance, financial management and monitoring and tise this a budget must be allocated or a multi- evaluation systems so that they can prove themselves pronged approach taken, involving public and creditworthy entities. private funds; 28 GUIDANCE NOTE: PUBLIC EXPENDITURE REVIEW FROM THE PERSPECTIVE OF THE WATER AND SANITATION SECTOR the high operating and maintenance costs of exten- sive sewerage systems (though donors may agree to fund some improvements to these water supply and sanitation systems). Therefore, a multi-pronged approach may be supported: • Planning for sanitation—including sewerage, where applicable, and drainage—to be carried out in con- junction with planning for improvements in water supply and planning for the latter will normally be the responsibility of municipalities. • Sewage systems should be developed to serve only the most densely populated areas and the business districts of large urban centres, where affordability is usually higher and health issues dictate the need for piped sewerage. Focus on approach to financing improved • Urban customers with inside plumbing (prob- water supply and sanitation ably a small percentage of water connections in most cities) should be required to be connected to Many smaller towns (under a specified population) the sewerage system where one exists or, in less may not have a functioning water system. Grant densely populated areas, to have a septic tank. financing will be required for the initial investment • Vacuum truck operators should be regulated to and capacity building to establish financially viable ensure proper disposal of septage. In general, water utilities capable of funding their own opera- construction of latrines, installation of septic tions and maintenance, renewal and expansion going tanks and septage hauling should be carried out forward. Rapid growth can be expected in such towns by the private sector and would be financed by and a functioning water supply system will help lay households, not from the Government budget. the groundwork for their contribution to the overall However, government policy should be to sup- economic development of the country. port development of a market for private sector Policy focus on rural water supply: The greatest operators to construct latrines and for vacuum needs are in the rural areas, where a large percentage truck operators to haul septage. of the population is located but only a small proportion • Government should also support dissemination of water supply coverage. Where there is high failure of sanitation and hygiene promotion, with the rate of such systems there will be a need to address help of NGOs. the underlying causes, such as inadequate prepara- tion of communities to manage their own systems For rural sanitation; communities are expected to and lack of spare parts and maintenance support. For finance sanitation promotion and hygiene education implementation of all rural water supply systems, carried out at the community level in conjunction communities should be fully involved in the planning with improvements to water supply systems, together stages (often together with NGOs) so that they choose with support from donors and NGOs. Support will systems they are willing and able to maintain and also be needed to train local operators to construct thus reduce the per capita investment cost. latrines and to help them to become business oriented. Focus on urban sanitation; It is not always clear Institutional arrangements will need to be addressed who is expected to finance the expensive urban to ensure coordination of the various governmental wastewater systems. Cost recovery is notoriously agencies involved in planning and promoting sanita- difficult as willingness to pay for piped sewerage tion and hygiene. and treatment is usually low (even for the on-going Prioritization of rural over urban: Despite a stated operation and maintenance costs) and given the low intention by government to withdraw over time from levels of household income in many of the countries using Government resources to finance investments covered, it is unlikely customers will be able to afford in urban water supply and to devote more funding CHAPTER 4: HOW PER FINDINGS IMPACT ON SECTOR POLICY AND REFORMS 29 to improvement of rural water supply and sanitation ity (especially among the young and most vulnerable). (i.e. the policy change), there is a risk that this will However to measure these linkages requires tightly- take a long time. Tariffs for urban water supply will controlled surveys to isolate the effects of improved have to increase, but political realities dictate that water-supply from other factors. Such measures are they must be phased up to full cost recovery levels, clearly necessary and require funding to ensure that and corresponding programs will need to be carried such policies can be implemented. out to increase understanding by customers and decision-makers of the reasons for the increases. Tariff WATER POLICY increases will need to be accompanied by improve- ments in service and efficiency and utilities will have It should be noted that much spending in the water to be more accountable to consumers. At the same sector is not technically public expenditure. While time, efforts will be needed to raise awareness of the government funds the bulk of capital costs, users the benefits and need to prioritize rural water sup- contribute in the form of connection fees for urban ply and sanitation among local government decision water supply, community contributions (cash and in- makers, who will need to budget resources for rural kind) for rural water supply, and direct purchase of water supply and sanitation. The Ministry of Water on-site sanitation. In addition, user fees cover a large Resources and other government organisations will share of the recurrent costs of operating and main- have to play the role of advocate for the policy objec- taining urban water supply and sanitation systems. tives and achievement of targets. Financial sustainability resulting in users covering Capacity constraints in the sector need to be an increasing share of both capital and recurrent addressed as a matter of priority and this is more expenditures over time and the PER findings can be critical and more difficult with decentralization. used to support this policy initiative. There is an increasing awareness that it will not be Water resources management: While the PER possible to employ sufficient staff in the public sector focuses on water supply and sanitation, it should be and that, in fact, this is not necessary or desirable. recognised that without accompanying measures for Other actors, including the private sector and NGOs water resources management, water supply and sani- should be brought in as partners in development and tation improvements cannot be sustainable. Thus, the considerable work is required to create an enabling PER needs to take account of separate sector work environment and to attract private sector partners to (government, donors)—and policies—which reviews the water sector. the water sector in an integrated way, examining Monitoring and evaluation in a decentralized the linkages between water resources management, environment; With the continued moves towards hydropower, irrigation and water supply and sanita- more decentralization, it is becoming increasingly tion as they relate to poverty and economic develop- difficult to monitor the level of spending in the sector ment in the country. Only in this way, can such an and to evaluate the efficiency and effectiveness of this integrated policy for water resources management expenditure. Data are not collected and reported in prove effective. a consistent manner from region to region and what does exist is not passed up to the national (federal) USING THE PER FINDINGS TO STRUCTURE level. Thus considerable efforts will be required to FOLLOW-UP ACTIVITIES implement effective monitoring and evaluation sys- tems throughout the country in order to provide the The Conclusions & Recommendations sections at the data and feedback necessary to attract resources for end of the PER are critical for developing a program sector development. of follow up work. One of the most important points of carrying out a PER is to use it as a guide for what Linkages with other social sector spending needs to be done in the future—to develop a road map, an Action Plan with an implementation sched- Several studies have shown strong linkages between ule, designated funding sources and a timetable with water supply and sanitation and performance in other priorities. There is little point in undertaking a PER sectors, such as health and education. Evidence shows (and wasting valuable resources) if the government that increasing access to clean water and to improved fails to take account of the PER findings and recom- sanitation reduces the incidence of disease and mortal- mendations and, most critically, act on these issues. 30 GUIDANCE NOTE: PUBLIC EXPENDITURE REVIEW FROM THE PERSPECTIVE OF THE WATER AND SANITATION SECTOR and power to engage in such activity needs to be carefully assessed before being built into any program of follow up work. Consumer contributions (through tariffs) to financ- ing water and sanitation may be required, though that will need to be carefully phased, ensure they are realistic, taking account of ability to pay and politi- cal support (with convincing explanations as to why these are needed) and demonstrating to consumers that money is well used, by providing evidence of improvements in service delivery. Where governance is an issue, different arguments will apply. There is also a need to ensure local decision mak- ers allocate adequate resources to these new priorities (e.g. rural water and sanitation) and that the funds PER findings may help to (re)examine prioritisa- are spent appropriately. tion within the sector which may lead to policy chang- The PER should indicate in the institutional es, although to ensure such policies are implemented review some sort of capacity assessment (needs will require specific sources of finance, whether public assessment), staffing required, numbers, qualifica- budget or investment, national or sub-national levels, tions, organisational chart (policy, budget, M&E) as private sector, NGOs, or IFIs/donors. well as a judgement on the absorptive capacity of the Despite the stated intention by the Government to institutions involved. Any such institutional review reduce government resources to finance urban water should be guided by policy priorities for the sector supply and to devote more funding to improvement and closely linked to financing. of rural water supply and sanitation, in line with Capacity constraints in the sector need to be re-prioritization, there is a risk that politics and the addressed as a matter of priority. With decentraliza- political environment may work against this shift tion this is at the same time more critical and more in focus. Tariffs for urban water supply will have to difficult. There is an increasing awareness that it increase, but political realities dictate that they must be will not be possible to employ sufficient staff in the phased up to full cost recovery levels, and correspond- public sector and that, in fact, this is not necessary ing programs will need to be carried out to increase or desirable. Other actors, including the private sec- understanding by customers and decision-makers tor and NGOs, should be brought in as partners in of the reasons for the increases. Tariff increases will development. Much work will be needed to create need to be accompanied by improvements in service an enabling environment and to attract private sector and efficiency and utilities will have to be more partners to the water sector. accountable to the public. At the same time, efforts The PER should also provide an assessment of the will be needed to raise awareness of the benefits and state of Monitoring & Evaluation (M&E) particularly need to prioritize rural water supply and sanitation at sub-national levels, and the ability to review spend- among local government decision makers, who will ing and its efficiency and effectiveness. The appropriate need to budget resources for rural water supply and data and of the right quality are required in time to sanitation. The Ministry of Water Resources and any enable such an assessment to be undertaken. Hence regional bodies will have to advocate for the policy the need under any such institutional reorganisation objectives and achievement of targets. and capacity needs assessment to ensure that adequate Whether such policies can be implemented will consideration is given to strengthening capacity within depend on political will and power—hence the need for M&E. As decentralization is being gradually intro- a political economy assessment (as discussed below) duced, it is becoming increasingly difficult to monitor and discussion of governance—to help determine the the level of spending in the sector and to evaluate the likelihood of such outcomes being achieved, though efficiency and effectiveness of spending. Data are not this needs to be handled with a degree of sensitivity collected and reported in a consistent manner from given that the PER is usually conducted together with region to region and what does exist is not passed government. The government’s ability, willingness up to the national (federal) level. A concerted effort CHAPTER 4: HOW PER FINDINGS IMPACT ON SECTOR POLICY AND REFORMS 31 will be needed to implement effective monitoring and A table could review the large number of studies that evaluation systems throughout the country in order have sought to understand and estimate the impact to provide the data and feedback necessary to attract of improved water and sanitation facilities on water- resources for sector development. related diseases. Without accompanying measures for water resourc- The results of the PER are often useful in terms of es management, water supply and sanitation improve- other aspects of the social sector.16 To measure these ments cannot be sustainable. Thus the PER findings linkages, however, requires tightly-controlled surveys need to be taken together with other (separate) sec- to isolate the effects of improved water-supply from tor work (by donors, government), which reviews other factors. Unfortunately, quantitative studies the water sector in an integrated way, examining linking spending on water supply and sanitation to the linkages between water resources management, improvements in health and education are often not hydropower, irrigation and water supply and sanitation conducted, although sometimes a very preliminary as they relate to poverty and economic development modelling exercise has been conducted where data in the country. suggest that full rural access to safe water could reduce Other studies have shown strong linkages between under-5 mortality, with the benefits being greatest water supply and sanitation and performance in other for households in the poorest consumption quintiles. social sectors, such as health and education. Increas- Thus, the future work program, based on the PER ing access to clean water and to improved sanita- findings, might include such surveys to gather the tion reduces the incidence of disease and mortality. necessary data for this type of analysis. 16 Thus, the need to advocate for change, using arguments such as when water points are installed, especially in rural communities, women and girls spend less time fetching water and are, therefore, able to engage in more productive activities and attend school. In many cultures, school attendance frequently falls-off or ceases by older girls, when sanitation facilities are inadequate. 33 CHAPTER 5 CHAPTER 5: EXAMPLES FROM CASE STUDIES Examples from Case Studies P ERs should provide data that will enable analysts to undertake more penetrating kinds of analysis. There are many examples of this kind of analysis, and National Development Plan and its corresponding Sector Operational Programs will constitute about 70% of the public investment program for 2007- a few sound examples are cited below to follow in 2013. It will be eligible for grant assistance from the future PERs. The first example, from a PER in Roma- European Union’s Cohesion and Regional Develop- nia, focuses on the capacity of the sector to absorb ment Funds in aggregate volumes that dwarf the pre-accession grants that Romania could obtain prior pre-accession funds. The post-accession funding is to acceding to the European Union. The absorptive “perishable� in the sense that at least part will be lost capacity is key to monitor since pre-accession fund- if Romania proves unable to use them under the EU ing is limited in time: a country’s failure to make directives. The effective and timely absorption of the use of it by a certain year would translate in lost post-accession funding will be analyzed considering concessionary financing with the subsequent loss in five critical factors: (See Exhibit 4) macro-economic stimulus and employment creation. • The ability to prepare feasibility studies that respond to EU directives; EXAMPLE ONE: ROMANIA—MONITORING • The ability to mobilize the necessary co-financing SECTOR CAPACITY TO ABSORB INVESTMENT to the EU grant funds; FUNDING • The ability of the municipalities to contract debt At times, there is a concern that the water supply and pay for debt service; and sanitation sector suffers from limited absorptive • The ability to implement the projects under EU capacity. One such example is from a PER in Romania procurement procedures; and where the concern was whether the country would • The ability of the municipalities and independent be able to utilize EU concessionary financing to water supply and wastewater operators to man- help the new EU member comply with the EU water age and maintain the constructed environmental acquis. At the time (in 2005), the PER analyzed the infrastructure in a sustainable fashion. issue as follows: The bulk of the EU funding—and of the investment requirements to comply with the EU environmental EXAMPLE TWO: NEPAL—MONITORING acquis—will arrive from January 1, 2007 onwards. THE EVIDENCE OF INSUFFICIENT SECTOR Following EU directives the Ministry of Public Finance FINANCING is now rushing towards the deadline of December 31, 2005 to prepare Romania’s National Development Another example-this time forms a sector assess- Plan that will be detailed in Sector Operational Pro- ment for Nepal-is concerned with the ability of the grams and in Regional Development Programs. The sector ministry to reduce the construction time so 34 GUIDANCE NOTE: PUBLIC EXPENDITURE REVIEW FROM THE PERSPECTIVE OF THE WATER AND SANITATION SECTOR EXHIBIT 4: Romania—The Absorptive Capacity of the Water Supply and Wastewater Sector The necessary average investment volume to comply with the EU acquis can be estimated by dividing the out- standing investment volume by the number of years available from accession to the respective year of compli- ance as shown below: AVERAGE REQUIRED INVESTMENT VOLUME IN WATER SUPPLY AND WASTEWATER Investment Costs, Average Annual Investment, Sub-sector € mn Available Years € mn Urban water supply 1,500 2010–2007 = 4 375 Rural water supply 3,000 2015–2007 = 9 425 Urban wastewater 4,500 2013–2007 = 7 640 Rural wastewater 5,500 2018–2007 = 12 460 Urban solid waste 6,000 2018–2007 = 12 500 Total 20,500 The highest pace of project implementation would occur in the early years following accession, precisely when Romania is the least experienced and prepared to tackle the implementation difficulties. In these early years the simple calculation shows that the country would have to invest as much as €2,400 million per year. This disbursement rate is about ten times as high as the combined ISPA annual level of commitments of €230 million and about 100 times as high as the reported level of disbursements. The conclusion is stark: at the present rate of project preparation and implementation it is excluded that Romania will be able to avail itself of all available EU grant funding. The likely outcome is that Romania may have to be provided the necessary level of grant funding over a much longer period in order to be able to utilize the funding efficiently. that consumers could benefit from allocations. Pro- In Nepal, the average implementation periods for tracted implementation periods could be the result investment project financed by government budget of many factors, including poor sector governance funds have slowly been edging upwards. The total and accountability, or inadequate procurement and value of all investment projects under implementa- contract administration. tion reached Rs. 21 billion in the budget year 2010/11 The limited absorptive capacity in the sector is at whereas the average annual disbursements were times compounded by a mismatch between invest- only Rs. 2.1 billion, indicating an average imple- ment projects started and available financing. Fre- mentation period of 10 years, or double or triple the quently there is a much heavier demand for starting average implementation period for projects that were the construction of projects than funding available financed by external donors. The table shows how for a speedy implementation. It might be that many the percentage of completed projects as compared projects are started in response to political pressure. to the total number of projects under implementa- Over time the insufficient financing and the tendency tion. The proportion of ongoing projects that were to start up construction even in the absence of secure completed in a given budget year decreased from construction financing will create a situation of exces- 38% in the budget year 2006/07 to 7% in the budget sively long implementation periods. year 2010/11. The worsening of the share of projects EXHIBIT 5: Nepal—Evidence of Mismatch between Started and Completed Projects Fiscal Year Ongoing Projects Completed Projects Completed/Ongoing 2006/07 455 171 38% 2007/08 527 115 22% 2008/09 742 100 13% 2009/10 819 85 10% 2010/11 1,134 80 7% Source: Department of Water Supply and Sanitation, Ministry of Physical Planning and Works CHAPTER 5: EXAMPLES FROM CASE STUDIES 35 EXHIBIT 6: Effect on Economic Returns from Protracted Project Completion (US$ millions) Annual Period of Investment Present Value Annual Present Value Benefit/Cost Economic Execution Costs Costs Benefits Benefits Ratio Rate-of-Return 20 in each of 20 in each of 5 years years 1–5 75 years 6–35 117 1.54 14.7% 10 in each of 20 in each of 10 years years 1–10 61 years 11–40 73 1.18 11.3% completed indicates weak investment planning, dif- water supply and wastewater projects. If instead, due ficulties of the government budget to finance CAPEX, to undependable financing the project is executed and investment scheduling that suffers from political during 10 years the benefits will be delayed and the pressure to start more projects than is prudent from rate-of-return will drop to 11.3%. Similarly, the ben- the budget perspective. (See Exhibit 5.) efit/cost ratio drops from 1.54 to 1.18, being barely economically justified (assuming an opportunity cost EXAMPLE THREE: IRAN—THE LOSS of capital in the country of 10%). This simple example OF EFFICIENCY FROM PROTRACTED illustrates the substantial costs of the undependable IMPLEMENTATION investment financing. Economic rates-of-return are substantially reduced. In practice, of course, the The third example-again from sector work in Iran- effect is much more serious given that the country’s estimates the reduced economic returns of protracted high inflation rates that will make the financing of implementation periods. Economic returns are sharply long-term investments a perennial catch-up exercise reduced, and consumers are frustrated when schemes where a year’s budget allocation for a project proves are started but not finished within ten years or longer. insufficient if the inflation rate turns out to be higher Where investments are financed by artificially than forecast. Contractors and equipment suppliers cheap financing the result is an excessive use of try to protect themselves against this uncertainty by capital, i.e., excessively large or even unnecessary charging excessive costs since they have the experi- investments. There is no penalty for a water company ence of not getting paid on time. The end result is or a municipality to invest in unnecessary work as a further reduction of the economic rates-of-return. long as there is no debt service. But the cost to the sector is high: it is the cost of not being able to satisfy EXAMPLE FOUR: TURKEY—DIFFERENCES IN the needs of unserved populations for safe water and INVESTMENT EFFICIENCY proper wastewater management. Conversely, where municipalities have access to grants for investment The fourth example from sector work shows the wide they will find it easier to build new capacity rather variations in investment productivity between differ- than making the effort of maintaining the already ent service providers. Such wide differences can be existing systems. Another proof of the artificially explained by differences in hydrology, and geography cheap investment financing in Iran is the imbalance but they can also point to inadequate governance between demand for funding and its availability. The and accountability and public procurement systems. consequence is that investment projects frequently It is generally understood that the purpose of require very long implementation periods since many investment is to provide water and sanitation services more projects are under execution than there is funding to previously unserved or poorly served population. for. Such slow project execution reduces the economic Different utilities go about meeting this objective in rates-of-return of projects. (See Exhibit 6.) sharply different ways. One utility might prefer to Figure 6 assumes that a project costing $ 100 mil- invest relatively more in the upstream works of cap- lion should normally be executed during 5 years and turing and conveying water to its service area. This will thereafter generate annual net benefits of $ 20 approach might be termed “supply-driven�. Another million that will produce an economic rate-of-return utility might make a conscious effort to connect of 14.7%. Such a rate-of-return is typical for many households and stretch already installed supply capac- 36 GUIDANCE NOTE: PUBLIC EXPENDITURE REVIEW FROM THE PERSPECTIVE OF THE WATER AND SANITATION SECTOR ity through programs of selective (and inexpensive) General Directorate of State Hydraulic Works (DSI) increases in supply by removing bottlenecks in the that finance works over 30 years without interest. system, and through demand management where The financial policies of local government-owned consumption is tightly managed through metering Iller Bank for distribution and wastewater treatment and pricing policies designed to ensure prudent works have also been strongly concessionary in the consumption levels. This approach can be called past although this may belatedly be changing. Cheap “demand-driven� since it focuses on the consumer financing reduces the pressure on either institution end of the system and on their demand. and on the municipalities to invest as efficiently as The differences in investment efficiency, or the they could. The variations in investment productiv- productivity of CAPEX, can be much different whether ity, as measured by the average cost of connecting “supply-driven� or “demand-driven� approaches are one person to piped water and sewerage, are quite pursued. The differences can be remarkably large if large. The most efficient utilities, such as the Bursa subsidies of headworks provide incentives to make Water Supply and Sewerage Administration in Bursa their capacity uneconomically large. In contrast, utili- and the Istanbul Metropolitan Water and Sewerage ties do not find the same ready subsidized funding for Company in Istanbul, have managed to provide ser- making connections and may therefore hold back on vice at costs one third of the average for all utilities, such works. Investments can therefore be inefficient, testimony to the potential productivity gains that partly because the financing is heavily subsidized. In would be possible with more rigorous screening of Turkey, the headworks are financed and built by The investment projects. ANNEX 1: LIST OF PUBLIC EXPENDITURE REVIEWS FROM 2003–2010 37 ANNEX 1: List of Public Expenditure Reviews from 2003–2010 Project ID Fiscal year* Country Region Type of PER % Water P080698 FY03 Mozambique AFR National PER with chapter/volume on water 25% P078637 FY03 Tanzania AFR National PER with chapter/volume on water 10% P078600 FY03 Uganda AFR National PER with chapter/volume on water 15% P074788 FY03 Dominican Republic LAC National PER with chapter/volume on water 10% P079434 FY03 Pakistan SAR National PER with chapter/volume on water 25% P085235 FY04 Benin AFR National PER with chapter/volume on water 33% P077409 FY04 Ethiopia AFR National PER with chapter/volume on water 25% P083314 FY04 Tanzania AFR National PER with chapter/volume on water 15% P078900 FY04 Ecuador LAC National PER with chapter/volume on water 10% P083947 FY04 El Salvador LAC National PER with chapter/volume on water 25% P083582 FY04 Mexico LAC National PER with chapter/volume on water 10% P089103 FY05 Mexico LAC National PER with chapter/volume on water 25% P079240 FY05 Jordan MNA National PER with chapter/volume on water 25% P091725 FY06 Cape Verde AFR National PER with chapter/volume on water 15% P094806 FY06 Bulgaria ECA National PER with chapter/volume on water 20% P095895 FY06 Mexico LAC Water PER 100% P094882 FY06 Panama LAC National PER with chapter/volume on water 25% P095753 FY06 Egypt MNA Water PER 100% P096137 FY07 Madagascar AFR RWSS PER 100% P089205 FY07 Indonesia EAP National PER with chapter/volume on water 10% P099261 FY07 Indonesia EAP National PER with chapter/volume on water 10% P103079 FY07 Philippines EAP National PER with chapter/volume on water 10% P088834 FY07 Albania ECA National PER with chapter/volume on water 25% P096939 FY07 Armenia ECA National PER with chapter/volume on water 10% P094881 FY07 Nicaragua LAC National PER with chapter/volume on water 15% FY07 Romania ECA National PER with chapter/volume on water 4% P096894 FY07 Algeria MNA National PER with chapter/volume on water 25% P102039 FY08 Cape Verde AFR National PER with chapter/volume on water 10% P101236 FY08 Ethiopia AFR National PER with chapter/volume on water 10% P106488 FY08 Burkina Faso AFR RWSS PER 100% P106488 FY08 Ghana AFR RWSS PER 100% P106488 FY08 Mali AFR RWSS PER 100% P104232 FY08 Albania ECA National PER with chapter/volume on water 10% P101237 FY09 Ethiopia AFR RWSS PER 80% P114586 FY09 Tanzania AFR Water PER 100% P117713 FY09 Mozambique AFR Water PER 100% P112273 FY09 Cameron AFR RWSS PER 100% P112273 FY09 Cote d’Ivoire AFR RWSS PER 100% P112273 FY09 Cross River AFR RWSS PER 100% 38 GUIDANCE NOTE: PUBLIC EXPENDITURE REVIEW FROM THE PERSPECTIVE OF THE WATER AND SANITATION SECTOR Project ID Fiscal year* Country Region Type of PER % Water P112273 FY09 Niger AFR RWSS PER 100% P107244 FY09 Libya MNA National PER with chapter/volume on water 25% P110556 FY10 Lebanon MNA Water PER 100% * World Bank fiscal year runs from July 1–June 30. ANNEX 2: DATA AND METHODOLOGICAL FACTORS IN WATER PUBLIC EXPENDITURE REVIEWS 39 ANNEX 2: Data and Methodological Factors in Water Public Expenditure Reviews S ince 2003, the World Bank has undertaken 42 PERs that include analysis of the WSS sector. Most of these PERs discuss the water sector alongside other PER because of their complementary role in pre- venting disease. sectors, with varying scope and depth of analysis of VARIATIONS IN DEFINITION OF THE SECTOR WSS sector issues accordingly. Most focus on urban AND ITS SIGNIFICANCE water supply services and sanitation. A few of the water PERs focus on rural water supply and sanita- The definition of the sector differs considerably from tion and some focus on water resource management one PER study to the next. Indeed, in accordance and irrigation. with classification systems, it is important to con- Out of the 42 PERs, 20 are from the Africa region, sider which sector expenditures are included and 8 are from the Latin America region, 5 are from the which are not: for example, is expenditure on sector Middle East—North Africa region, 5 are from the training or on state water and sanitation companies Europe—Central Asia region, 3 are from the East included in the definition of the sector. One ministry Asia—Pacific region and 1 is from the South Asia may be responsible for the bulk of sector expenditure, region. 28 of the 42 PERs conducted are national although other public bodies, as well as private bod- PERs with a short chapter or section on water. The ies and NGOs, may also be important players in the 14 stand alone PERs, mostly from the Africa region sector. While data on the annual spending of these are primarily focused on rural water supply and other organisations needs to be included, so also sanitation with 5 (Mexico, Tanzania, Mozambique, does expenditure at sub-national (as well as national) Egypt and Lebanon) addressing both urban and rural. level, if a complete picture of sector expenditure in The PERs vary in objectives and assessments the country is to be obtained. In addition, in some depending on the particular context. In Tanzania, countries, some sector-related spending is not recorded the PER aims to gain insight into how budgeted in the total expenditure of the sector. allocations for the water sector translate into actual A major problem that the review discovered water and sanitation service delivery and to under- was the fact that the definition of what ‘water and stand what impacts the links between the two. In sanitation’ actually constitutes differs considerably Mexico, the report examines the sub-sectoral themes between the studies. The definition often adopted for of water supply and sanitation and irrigation and convenience covers spending on the sector through drainage, as well as the overall water resource and core sector institutions—the water and sanitation fiscal management issues for the sector. In Leba- ministry and those which also feature some water non, the state of WSS in Lebanon is not in line with expenditure. What should be included under sector the level of economic development reached by the spending here is of great relevance: should spending country. Despite the relatively high coverage rate incurred by research and training institutions, and in the water sector (78 percent), continuity of sup- by other ministries, be included if this is related to ply is extremely low. In Egypt, the PER assesses water and sanitation? the trends of public expenditures in the water sec- Not surprisingly, in order for comparisons of the tor with a particular focus on the irrigation and principal features and patterns of public expenditure WSS subsectors, the two major recipients of public on the sector to be made between countries, the financing in the water sector and also investigates term needs to be clearly defined. Indeed, the reason different sources of fiscal stress and finance, and why no international comparisons are made in any explores efficiency and equity implications of the of the PERs reviewed may be due in part to these current arrangements. In Mozambique, water sup- inconsistencies. Data problems are also likely to have ply and sanitation are of prime importance in the hindered such an exercise. 40 GUIDANCE NOTE: PUBLIC EXPENDITURE REVIEW FROM THE PERSPECTIVE OF THE WATER AND SANITATION SECTOR EXHIBIT A: Water Supply & Sanitation Expenditure (% of GDP) 80% 70% 60% 50% 40% 30% 20% 10% 0% ) ) ) ) ) ) ) 8) ) 7) 8) 5) 6) 4) ) ) ) ) 07 07 08 08 08 05 03 06 08 07 06 08 (0 –0 (0 –0 –0 (0 1– 2– 2– 2– 2– t( 0– 1– 2– 1– 2– 2, 02 00 01 ia n o yp (0 (0 (0 (0 (0 (9 (0 (0 (0 (0 no (0 ic op t( r( i( ex Eg so n ic R ic or na er a o e ba al hi as ca ni oo g D qu bl bl M ig ad M Fa ha Et To Le za Co as pu pu o, er bi N lv G n ag a ng am m Re Re Sa Ta y in or ad Ca Co rk oz n o, El Iv M Bu ca ng M fri Co lA ra nt Ce Source: Respective countries’ WSS PERs. Figures are from available years within PER data. VARIATIONS IN INSTITUTIONAL ‘HOMES’ FOR VARIATIONS IN THE AMOUNT ACTUALLY WATER AND SANITATION SPENT ON WSS There are a wide variety of different institutional Similarly, there is no consistency among countries as homes (such as the Ministry of Water, the Ministry to amount of public expenditure on water & sanita- of Infrastructure) for the water and sanitation port- tion. If a typology were developed for the amount of folios in the governments of a sample of countries total public funds actually spent on WSS then, in the looked at in detail during the review of PERs. There majority of cases, it could be shown that expenditure appears to be no consistent pattern and this applies on water supply services and sanitation comprises as much in countries with decentralisation as in only a small part of total public expenditure (an aver- those where responsibility for the sector rests with age of 0.3-0.5% of GDP, between 2000-2008, in the central institutions. reviewed countries). Mexico, Lebanon and Jordan The review of Africa PERs showed that water report slightly higher spending (of 0.5–0.6% GDP), sector institutions follow no consistent pattern. In which includes irrigation and water resource manage- Sub Saharan Africa, with respect to decentralisation, ment. This still falls short of the figure recommended some countries (mainly francophone) have chosen a in the UN Human Development Report (2006), of single water utility while the remaining ones (mainly 1% of annual GDP, and the estimated 2.6% of GDP anglophone), have undergone some decentralisation required annually by SSA countries to meet water with powers allocated to local jurisdiction. Where MDGs. In some SSA countries, such as Tanzania for services were centralised, a significant monitory have example, comparatively high amounts (1.2% of GDP) chosen to combine power and water services in a have been spent on the sector. Thus, it is difficult to single national multi utility. (See above.) provide guidance on the percentage that should be allocated to the sector from total public funds ANNEX 2: DATA AND METHODOLOGICAL FACTORS IN WATER PUBLIC EXPENDITURE REVIEWS 41 EXHIBIT B: Urban Access to Clean Water 100% 95% 90% 85% 80% 75% 70% 65% 60% 55% 50% Ecuador Egypt El Salvador Jordan Mexico Mozambique Tanzania (1999) (2000) (2002) (2000) (2004) (2006) (2007) Source: Data collected from respective countries PERs. ANALYSIS OF COMPLETED PUBLIC in Jordan (2000), 96% in El Salvador (2002), and EXPENDITURE REVIEWS 90% in Mexico (2004) to 80% in Tanzania (2007) (taking in account service level differences). The The lack of comprehensiveness and the apparent access varies due to population growth and the definitional uncertainties restrict the use of PER data inability of utilities to keep pace with the rapid which is often, therefore seen as a first step in analysis growth of urbanization. (See Exhibit B.) of the WSS sector prompting additional questions • Rural access to safe drinking water is everywhere and additional data gathering and validation. Despite lower than in urban areas and varies significantly these uncertainties, some tentative findings emerge between countries from 84% in Jordan (2000) from WSS PERs. and 75% in Mexico (2004) to 30% in El Salvador • Most expenditure for water supply services and (2002) and 42% in Tanzania (2007). Investment sanitation is only a small part of public expendi- in rural water supply in most Sub Saharan Africa ture. Overall, average actual expenditure in the countries has only just kept up with population WSS sector was in the region of 0.3–0.5% of GDP growth rates. A significant factor in rural areas between 2000 and 2008 in the reviewed countries. is the high rate of non-functional water supply Mexico, Lebanon and Jordan, for example, report facilities, a statistic that is not always reported. to be spending 0.5–0.6% of GDP on the WSS (See Exhibit C.) sector (including irrigation and water resources • The gap in access to improved sanitation services management). This compares with the 1% of GDP between urban and rural areas is similar to the suggested by the Human Development Report, variation observed in access to improved water 2006, and the estimated 2.6% of GDP required supply. For example, in Mexico 95% of the urban annually by SSA countries to meet water MDGs.17 population have access to improved sanitation Some SSA countries appear to be spending rela- services compared to 75% in rural areas (2004). tively high amount on the WSS sector, such as Similarly, in El Salvador 90% of the urban popu- Tanzania where expenditure was 1.2% of GDP in lation have access to improved sanitation services 2006/07. (See Exhibit A.) compared to 51% in rural areas (2002). In some • Access rates to improved drinking water in urban countries, the proportion of the rural population areas vary widely between countries, from 100% with access to improved sanitation services can be very low. In Ghana, Ethiopia and Mozambique 17 Brinceno-Garmendia, Smits and Foster, Africa’s Infrastructure: A Time access to improved sanitation in rural areas was for Transformation, World Bank, 2010. 42 GUIDANCE NOTE: PUBLIC EXPENDITURE REVIEW FROM THE PERSPECTIVE OF THE WATER AND SANITATION SECTOR EXHIBIT C: Access to Rural Water 90% 80% 70% 60% 50% 40% 30% 20% Burkina Faso Benin Ecuador El Salvador Jordan Mali Mexico Mozambique Tanzania (05) (02) (99) (02) (00) (06) (04) (08) (07) Source: Data collected from respective countries PERs. below 10% in all three countries (2008) compared and Benin. This high dependence on development to urban access (18%, 29% and 38% respectively). expenditure mirrors that of the energy sector. (See Exhibit D.) The explanation could be that the accounting of • The water sector budget is heavily skewed towards CAPEX is more complete in many countries, par- capital development. For example, the Tanzania ticularly when much of it is financed by external review noted that whereas in general 55% of the aid. Conversely, the preventive maintenance part total government budget is allocated to the devel- of OPEX may be underestimated when consoli- opment budget, in the water sector 85% of the dated sector accounts do not exist which might sector budget is dedicated to development expen- be the case when water supply and wastewater diture. Similar figures were recorded for Jordan services have been decentralized to a large num- ber of local operators and utilities. EXHIBIT D: Access to Improved Sanitation (Urban/Rural) 80% 70% 60% 50% 40% 30% 20% 10% 0% Burkina Faso Benin Ecuador El Salvador Ethiopia Ghana Lebanon Mali Mozambique Tanzania (08) (01) (99) (02) (08) (08) (02) (08) (08) (07) Source: Data collected from respective countries PERs. ANNEX 2: DATA AND METHODOLOGICAL FACTORS IN WATER PUBLIC EXPENDITURE REVIEWS 43 EXHIBIT E: Tanzania—Water Budget Allocation and Expenditure (TzS billions) 450 400 Budget 350 Actual Expenditure 300 250 200 150 100 50 0 2000–01 2001–02 2002–03 2003–04 2004–05 2005–06 2006–07 2007–08 Source: Tanzania Public Expenditure Review of the Water Sector, September 2009. • In Mexico, about half of the expenditure of the • More so than with urban WSS services, it is not National Water Commissions (CONAGUA) is spent always possible to identify total public expenditure on water supply and sanitation infrastructure, a on rural water supply services. Rural water supply quarter in the irrigation sub-sector and another services may depend of rudimentary accounts as quarter on central administration and overall compared to larger, urban utilities which skews water resources management, including flood comparisons. Local government and community- control. The relationship between recurrent and based organizations tend to manage rural water development expenditure need to be treated with supplies (e.g. Tanzania, Mexico) and their reporting caution. In most of the countries reviewed capital of expenditure and performance data and its col- expenditures are often heavily supported by exter- lation at national level may be inadequate. Third, nal partners and in other cases dips in external a significant share of expenditure on rural water funding flows can make recurrent expenditure supply services may be off-budget (see below). look abnormally high. (See Exhibit E.) Fourth, wide discrepancies between budget allo- cations and actual disbursements and a lack of The Africa PERs report that water sector institu- predictability in the release of funds to local levels tions generally follow no consistent pattern. In Sub means approved budgets are not a good guide to Saharan Africa, one important dichotomy is with actual expenditures on rural WSS services. respect to decentralisation, with some countries (pri- • A significant share of total expenditure on rural marily francophone) retaining a single national water WSS (as can be the case for urban) may be pro- utility, and the remaining (primarily anglophone) vided by NGOs, donors and CBOs. This poses having undergone some process of decentralisation challenges for data collection; difficulty in sourc- to local jurisdictions. Where service is centralised, a ing rural WSS expenditure is mentioned in several significant minority have chosen to combine power of the reviews. The Tanzania PER cites surveys and water services into a single, national multi-utility. by WaterAid in three districts in Tanzania which illustrate the significance of non-governmental SPECIFIC ANALYSIS IN RURAL WATER PUBLIC financing of rural water services: EXPENDITURE REVIEWS “The surveys collected information on reported Several PERs suggest that the performance and financ- funding sources for the water points. The ing of ‘rural’ WSS services exhibit some particular results show that a large amount of funding for features: new water point construction has come from 44 GUIDANCE NOTE: PUBLIC EXPENDITURE REVIEW FROM THE PERSPECTIVE OF THE WATER AND SANITATION SECTOR sources other than Government of Tanzania ii. Rural water & sanitation sectors (8) or donor funds (the latter are presumably not reflected in the Government of Tanzania Country Date budget).From 1995–2005, 35 percent of rural Madagascar 2007 water points in these regions were funded by Burkina Faso 2008 public entities or donors, while 57 percent were Ghana 2008 funded by NGOs or churches, and 4 percent Mali 2008 were funded by private donors. Whether the Cross River State 2009 substantial amounts of non-government fund- Cameroon 2009 ing of new water points in other regions is Cote d’Ivoire 2009 as pronounced as it is in these four regions Niger 2009 needs to be determined.� iii. Water sector (7) • The efficiency of rural WSS facilities is often low due to the large proportion of non-functional facili- Country Date ties. In part this is due to high breakdown rates Benin 2004 of rural water supply infrastructure. Contributory Jordan 2005 factors include a wide dispersion of technologies Egypt 2006 deployed and lack of capacity at local levels, par- Mexico 2006 ticularly for water engineers and water techni- Mozambique 2009 cians. Hydrological conditions can also play an important role (due to the more complex tech- Tanzania 2009 nologies needed to supply water in arid areas). Lebanon 2010 Functionality levels, although reported in most rural PERs, reviews, are often not quantified. iv. Rural water (supply) (1) Those PERs that do estimate levels of non-func- Review type Sector Country Date tionality of rural water supplies include Rwanda Public Finance Rural Water Ethiopia 2009 (29% non-functional) and Tanzania (22%, with Review Supply a range of 16% to 41% non-functional depending on type of facility). v. A n o t h e r s e c t o r t h a t i n c l u d e s wa t e r (Infrastructure; environment)(4) The following provides an indication of how Type of Review Sector Country Date the PERs may be divided according to the seven classifications: PER Infrastructure Armenia 2007 Water one of 6 i. Water & sanitation sectors (6) PER sectors* Indonesia 2007 Environment Sector Country Date PER (water) Romania 2007 Water & sanitation sector Uganda 2003 Water Water supply & sanitation sector El Salvador PER infrastructure Libya 2009 Water supply & sanitation Mozambique * The 5 other areas are: fiscal space, education, health, infrastructure, PFM and de-centralisation. sector assessment to monitor whether protracted implementation due to insufficient financing Nepal sector assessment—(protracted implementation) Iran sector assessment—variations in investment returns due to different service providers Turkey ANNEX 2: DATA AND METHODOLOGICAL FACTORS IN WATER PUBLIC EXPENDITURE REVIEWS 45 vi. National PERs with chapter/section on water vii. PER of Country Development Strategy and sanitation (includes drinking water & sanitation) (2) % PER devoted to Type of water & sanitation Country Date Review Purpose of Review Country Date 25 Mozambique 2003 PER New Development Strategy Ethiopia 2007 & Action Plan (MAP) where 10 Tanzania 2003 goals include drinking 15 Uganda 2003 water and sanitation (one of 10 Dominican Republic 2003 countries with lowest access rate to drinking water) 25 Pakistan 2003 PER Monitor sector capacity Romania 2006 33 Benin 2004 to assess whether 25 Ethiopia 2004 investment funding from EU concessionary financing 15 Tanzania 2004 to help EU member states 10 Ecuador 2004 comply with EU water acquis can be absorbed 25 El Salvador 2004 10 Mexico 2004 25 Mexico 2005 25 Jordan 2005 15 Cape Verde 2006 20 Bulgaria 2006 25 Panama 2006 N/A Aceh 2007 N/A D R Congo 2007 10 Indonesia 2007 10 Philippines 2007 25 Albania 2007 10 Armenia 2007 15 Nicaragua 2007 4 Romania 2007 25 Algeria 2007 10 Cape Verde 2008 10 Ethiopia 2008 ANNEX 3: FINANCING THE WATER AND SANITATION SECTOR GLOSSARY OF TERMS 47 ANNEX 3: Financing the Water and Sanitation Sector Glossary of Terms LEVELS OF PUBLIC SPENDING The growth of the private sector, mostly in the urban sector creates another kind of difficulty for Because of its eminently local nature the water sup- estimating public spending. To the degree that invest- ply and sanitation sector poses special challenges ments are financed by the government, as is the case for estimating levels of public funding and spending. under management and lease contracts, spending The paradigm up to the late 1980s in many countries is recorded but this will not be the case for conces- for organizing the sector was the creation of national sions. In the rural sector, the private sector may rely water supply and sanitation agencies that were publicly on public subsidies to cover deficits and again public funded and managed. The levels of public subsidies spending can be accurately tracked. to operate and maintain services became onerous For similar reasons, the level of spending by NGOs and triggered a decentralization of services to local runs the risk of being underestimated. NGO spending government that was better attuned to consumer needs is typically not recorded in central government bud- and that was expected to take decisions to assure the gets since no guarantee is necessary and is therefore sustainability and quality of services. At times, the largely unknown. responsibility and right of service delivery to local government was even enshrined in constitutional SOURCES OF PUBLIC SPENDING reforms, in practice, however their implementation has not always been fully consistent. The sources of public spending vary with institutional arrangements. Where there are national or statewide NATIONAL AND LOCAL PUBLIC SPENDING public water supply and sanitation agencies, public spending will be funded by national or state budgets The preference for local service provision introduced that in turn may originate from the national budget difficulties for estimating levels of total public fund- through revenue-sharing agreements. Urban water ing in the water sector. However to the extent that supply and sanitation services, however, are often a municipal service providers were successful in becom- municipal responsibility which makes it necessary to ing financially independent from the national budget make an additional effort to understand the portion they also gained de facto freedom from reporting how of local government funding and expenditure that is much they spent in capital expenditure and opera- for water supply and sanitation services. tional expenditure. It therefore becomes necessary to make a special effort to map how much local utilities EFFICIENCY OF SPENDING and municipalities invested. Whenever local utilities borrow with the guarantee of central government The efficiency of public spending is a key concern in this difficulty does not apply since investments can public expenditure reviews. Efficiency of investments be derived from the level of government guarantees. may be measured by the average level of investment per capita to connect incremental population. In prac- OTHER PUBLIC SPENDING tice, it is not obvious what per capita investment costs should be. The numerator, i.e. the level of investment The rural water supply and sanitation sector is par- costs, poses little difficulty but the denominator- ticularly challenging for estimating total public spend- incremental population served-is more of a challenge ing. Public spending may comprise a wide range of since service levels vary so much and service levels categories such as rural roads, social services, and estimates are notoriously prone to errors. Service water and sanitation. The agencies responsible for access can comprise a range from access to public implementing such programs do not always break standpipes within say 150 meters to individual service down spending by sub-sector and a special effort to connections. The most precise estimate of service map spending by category becomes necessary. access is the share of the population that receives 48 GUIDANCE NOTE: PUBLIC EXPENDITURE REVIEW FROM THE PERSPECTIVE OF THE WATER AND SANITATION SECTOR individual connections but this level of service may • Reallocation of funds during budget execution to not be affordable in low-income countries with a other sectors and institutions; and large proportion residing in rural areas. • Delays in expenditure due to procurement Investments in rehabilitation create other chal- processes. lenges. Rehabilitation may appear more efficient when measured by the number of households whose service is restored but this apparent efficiency may mask FLOW OF BUDGET FUNDS—RELIABILITY AND neglect of investing sufficiently in maintenance. The PREDICTABILITY conclusion is that efficiency of spending can only be reliably measured over longer time periods and where The flows of funds from the central budget to the the functionality of systems does not vary excessively. implementing agencies can sometimes slow imple- mentation when they are unnecessarily cumbersome. BUDGETED VERSUS ACTUAL EXPENDITURES Delayed release of budgeted funds may require a detailed examination of where delays occur and should The ability to implement the budgeted expenditure is prompt a streamlining of procedures. Inexplicable an important factor in supporting the government’s delays may in some instances raise questions as to ability to deliver the public services for the year as problems in governance of public funds. expressed in policy statements, output commitments The flow of funds to the sector should be mapped. and work plans. The indicator used to reflect this is It makes a good deal of difference if funding from the ratio of actual total expenditure compared to the the Ministry of Finance is transferred straight to originally budgeted total expenditure (as defined in local or regional service providers, or whether funds government budget documentation and fiscal reports). are transferred via sectoral ministries that allocate In order to understand the reasons behind a devia- funds according to criteria that are not always fully tion from the budgeted expenditure, it is important transparent. that a PER seeks to describe any the external factors that may have led to the deviation (e.g. the impact of TRACKING THE FUNDS deviations from budgeted revenue). Underlying causes for expenditure deviation can be general, affecting Tracking of budget funds should if possible be auto- government as a whole, or sector specific and related mated and prompt to avoid the risk that unreliable to particular issues, processes and/or institutions at or unpredictable funding will slow the annual imple- sector level. Possible causes for differences between mentation program. Government budgeting is often budgeted and actual expenditures include: done on an annual basis in spite of the fact that • Lack of costing of sector strategies and programs, investment implementation can span a number of leading to budget decisions based on past history years. A quick feedback is necessary to warn in time rather than specific planned objectives of any possible delays in the availability of budgets to enable implementation to adapt to changes in funding. • Delays in disbursements from the ministry of finance to sector ministries and agencies; ANNEX 4A: SAMPLE TORS FOR WATER-RELATED PUBLIC EXPENDITURE REVIEWS 49 ANNEX 4A: Sample TORs for Water-Related Public Expenditure Reviews BACKGROUND (particularly those related to macroeconomic stability and public financial management), that may hasten The purpose of Public Expenditure Reviews (PERs) the achievement of sector goals and objectives. is to track public expenditure at both national and To this end, the PER will: sub-national levels of Government to answer the • Identify the nature and scale of public expendi- key question: did public funding go to where it was ture in the WSS sector, and the channels through supposed to go, and did it promote efficiency and which expenditures flow to help achieve sector sustainability in the public sector. In addition, PERs objectives; are sometimes used to provide data and analysis of • Assemble and comment on information related specific sectors, such as the water supply and sanita- to the impact of these expenditures, in terms of tion sector. services and beneficiaries, in relation to sector policy objectives; OBJECTIVE • Summarise the policy framework and objectives The planned PER for Country X [insert] will for WSS services and comment on the targets set gather the necessary data for subsequent analysis of for future delivery of services in relation to recent how well the water supply and sanitation sector is trends and current levels of expenditure and ser- meeting the country’s sector development objective vice delivery; of providing efficient, sustainable service for the • Estimate the distribution of expenditure by major entire population. target group and geographic region location and comment on any variances in expenditures and/ BACKGROUND or services by location; • Estimate the efficiency of expenditures by type This section should provide a summary of the water service facility and comment on the variation and sanitation sector in the country under review. It in efficiency between different service providers should describe recent and current levels of access, and by beneficiary group, identifying wherever the policy and strategy framework. It should identify possible the underlying causes for any observed the main institutions at central, regional and local differences; and levels responsible for WSS service delivery and main • Systematically seek to make recommendations trends in recent years in budgetary allocations to on how the issues identified can be addressed in the WSS sector through these institutions. It should order to improve the coverage, efficiency, effec- identify the main issues affecting service delivery and tiveness, consistency and sustainability of WSS achievement of policy objectives (i.e. issues relating services—ensuring that any recommendations to service, investment and efficiency levels). are compatible with foreseeable levels of public expenditure, institutional reform, organizational OBJECTIVES improvement, and capacity enhancement A common objective of a PER is to assist the gov- ernment (and its development partners) to achieve SPECIFIC TASKS AND SCOPE OF WORK its social and economic objectives in relation to the WSS sector by supporting the design and delivery of Identify and document: effective WSS services. • Ministries, agencies and departments responsible The specific objectives are to assist the govern- for the delivery of WSS services and expenditures. ment identify strategic programs and activities in the WSS sector, consistent with its other objectives • Local providers of W&WW (representative sample) 50 GUIDANCE NOTE: PUBLIC EXPENDITURE REVIEW FROM THE PERSPECTIVE OF THE WATER AND SANITATION SECTOR • For each MDA and/or program, identify: comparison between providers and with regional –– The legislative basis for its involvement and international benchmarks –– Objectives and programs for which it is • Consulting with non-governmental organizations responsible and donor agencies involved in the funding, deliv- ery and analysis of WSS services that could provide –– Expenditures and target beneficiaries information on the impact of WSS services and –– Planned, budgeted, allocated, and actual expen- current performance issues, to triangulate data ditures by MDAs for the last three years and and gather views of sector performance. planned expenditures for the next three years, where data is available –– Quantitative and qualitative performance infor- OUTPUTS/DELIVERABLES mation in relations to the expenditure programs Outputs should include: –– Distribution of expenditures and services by target group • An initial short report within [insert] of the start of the assignment focusing on any dif- • Document sources and methods used sufficiently ficulties with the data gathering or access to key to enable future updates to take place stakeholders; • An interim report within [insert] after the start METHODOLOGY of the assignment identifying sector institutions and expenditures. The interim report focuses on The methodology is expected to involve the assessment of performance to date. It should • Literature review of academic, regional and coun- provide initial estimates of total sector expendi- try-level publications on approaches to the delivery ture and performance against key indicators and of WSS services in low/middle income countries benchmarks. It should identify those forward and benchmark levels of access, expenditure and looking issues which provide the focus for the outcomes for rural and urban WSS services final report; • Analysis of household and other survey data • A final report, within [insert] of the start to identify trends in WSS service provision, to of the assignment, addressing all matters referred determine levels of performance in relation to to under scope of work above. The final report investments shall identify the main policy, expenditure and • Consulting with relevant ministries, departments performance issues which, in its view, should be and agencies to understand sector background addressed to improve the likelihood of reaching responsibilities, policies and programs, identify sector policy targets and maximising efficiency. any performance data and understand current It should include tables showing expenditures challenges and issues and impact by different categories of beneficiary; • Consulting extensively with the Ministry of Finance • The final report should include an executive sum- about PFM issues in general which may affect sec- mary presenting in no more than 5 pages the main tor performance and appropriations, allocations findings of the study, as well as a list of concrete and expenditures for all relevant WSS programs, recommendations on how the identified issues with a particular focus on could be addressed; and –– Budgeted versus actual allocations • Language skills as appropriate. –– Horizontal and vertical allocations of expenditure –– Recurrent versus development, salary versus SCOPE OF PUBLIC EXPENDITURE REVIEW non-salary expenditure –– On-budget versus off-budget expenditure The PER should cover both the urban and rural –– Expenditure by spatial distribution population. It should collect, as a minimum, the • Consulting with WSS service providers (or pro- following data: vider associations) to understand current levels of facility performance and efficiency and enable ANNEX 4A: SAMPLE TORS FOR WATER-RELATED PUBLIC EXPENDITURE REVIEWS 51 • Urban and rural population, of the latest census • What is the coverage of water supply and sanita- and projected to the year 2015; tion services? • Population served with water supply and sani- –– Water Supply (house connection; public tap; tation, respectively, discriminated by the share private well or source, street vendor, other) served with individual connections and the share –– Sanitation (Sewerage connection; septic tanks with access to other types of water and sanitation or latrines; other) infrastructure as specified by the Joint Monitoring –– Wastewater treatment (primary, secondary) Programme (JMP); • What is the quality of such services in terms of • The levels of capital expenditure (CAPEX) in water safety and convenient water? supply and sanitation, respectively, for the follow- ing agencies and institutions: –– Hours of service –– Central government ministries; –– Water quality (water treatment and disinfection?) –– Regional governments –– Minimum/maximum pressure –– Local governments; • What is the efficiency of use of resources in capi- tal expenditure (CAPEX)? –– Utilities with separate financial statements; –– Investment per capita (water; sanitation; waste- –– Other agencies with investment programs in water treatment) in urban and rural areas water and sanitation; –– Procurement rules • The levels of operations and maintenance expen- diture, as budgeted and spent by the same agen- • What is the efficiency of use of resources in opera- cies and institutions listed immediately above. If tional expenditure (OPEX)? possible the maintenance expenditure should be –– Pipes breaks/100 km/year separated from other OPEX. All CAPEX and OPEX ∙∙ Sewerage stoppages (#/100 km/year) data should be expressed in constant prices and ∙∙ Non-revenue water (as a percentage and as in current prices for the time period analyzed. As m3/day/km of distribution pipes) a minimum, data for three historical years should • What is the sustainability of services? be collected; –– Governance (policy, price/quality regulation, • If ready data on CAPEX are not available cost data operational responsibilities) from project feasibility studies should be collected; –– Cost recovery • The ownership of fixed assets in the water supply and sanitation sector should be specified; • What is the effect on social equity from the pat- tern of CAPEX and OPEX? • Financial policies for financing of CAPEX, by level of interest rate; and maturity; –– Improving access (water and sanitation) to poor people • Pricing policies for water supply and sanitation services, respectively and an indication how such –– Cost of services for the poor (as a percentage policies are regulated; of family income) • The approximate value of ongoing projects should ∙∙ Affordability of services provided be estimated; and ∙∙ Cost of new connection (water/sewerage) • Procurement rules in the public water and sani- • What is the fiscal impact from the policies of tation sector. CAPEX and OPEX? • Subsidies to the sector as a percentage of total government deficits. SCOPE OF ANALYSIS The scope of analysis will vary with the objective RECOMMENDATIONS, DISSEMINATION AND in each specific country. As a minimum, it could be ACTION PLANNING expected that the analysis would attempt to analyze and answer the following questions: The findings of the PER will be summarized in the form of recommendations. The dissemination pro- 52 GUIDANCE NOTE: PUBLIC EXPENDITURE REVIEW FROM THE PERSPECTIVE OF THE WATER AND SANITATION SECTOR cess for the PER will include a review workshop The consultant(s) will work closely with sector including representatives of the key stakeholders. institutions [insert] under the auspices of the The participants would engage in action planning [World Bank]. Logistical support will be provided by for subsequent follow-up. [insert] . TIMETABLE QUALIFICATIONS AND COMPETENCIES The task is expected to take an elapsed period of Core competencies for this assignment are: [insert] working days [insert] by a skilled • Advanced understanding of WSS sector issues team of WSS and public finance specialists, with the and program design issues in low and middle majority of this time being spend in-country. income countries • Skills and experience in analysing public expen- REPORTING ditures and associated research and informational issues The assignment will be managed by [insert] , which will be responsible for agreeing the Terms of • Demonstrable team management and organiza- Reference, facilitating access to relevant institutions tional skills and data sources, receiving outputs and approving Excellent communication and interpersonal skills deliverables. A suggested structure for the interim and and experience of working with and reporting to final reports will be developed in collaboration with multi-stakeholder groups. the [insert] at the start of the assignment. ANNEX 4B: SAMPLE TOR FOR RURAL WATER—AND SANITATION-RELATED PUBLIC EXPENDITURE REVIEWS 53 ANNEX 4B: Sample TOR for Rural Water—and Sanitation-Related Public Expenditure Reviews 1. BACKGROUND assess the quantity and quality of the transfers of public funds to the water and sanitation. This Improving access to and quality of rural water supply will include : and sanitation (WSS) helps to reduce poverty. The a. Description of the institutions and processes importance of access to improved water supply and involved in the allocation of resources to the sanitation has been recognized in the Millennium rural water and sanitation sector, including Development Goals (MDGs). In many countries, programs of hygiene education; the achievement of the MDGs will require a large investment to increase access to safe and sustainable b. The quantity and quality of expenditures in water and sanitation services. However, anecdotal the rural water and sanitation sector; evidence has shown that “pumping up the invest- c. The factors that determine the efficient and ment volume� is often not enough to ensure safe and equitable allocation and disbursements of sustainable access to WSS services. The size of the these expenditures; required investments can be substantially reduced if d. The extent to which expenditures are aligned the efficacy, efficiency and quality of public expen- with sector priorities; and ditures in the water and sanitation (WSS) sector can be increased. Poor targeting of public expenditure is e. The extent to which expenditures benefit another major concern that may affect the efficiency the poor (social impact of public spending, of public expenditure programs in the WSS sector, and the issues of subsidies, the regressive potential especially affect the access for the poor to improved nature of the spending) WSS services. Gaps in achieving outcomes can be iii. To make recommendations about the need to (i) due to: increase the volume, (ii) improve the composi- • Sub-optimal spending, due to inefficient alloca- tion and (iii) improve the effectiveness of public tion of resources (delays and lack of predictabil- expenditures and determine what reform ele- ity), discretionary reallocation of resources (lack ments need to be introduced or enhanced in the of transparency in allocation of resources), inap- WSS sub-sector in order to help these countries propriate policies and institutional incentives; meet the MDG. • Low quality of service delivery due to inefficien- Specifically the PER will: cies in service delivery • Describe the framework in which public expendi- • Poor targeting of public expenditure tures are made. This includes institutional map- ping of responsibilities, budget allocation and 2. OBJECTIVES disbursement processes. • Assess the efficiency and effectiveness of public The overall objective of the rural Water Supply and expenditures in the rural WSS. This element of Sanitation Public Expenditure Review (PER) is the work includes a quantitative analysis of the i. To provide a context of the Water Supply and allocation of funds by government at the national Sanitation (WSS) sector and its performance that and sub-national level. It will also look behind the will help to put into perspective of how public numbers to understand what affects the expen- expenditure translates into actual water and san- diture patterns and address the legal and policy itation service delivery; framework by emphasizing the cross-cutting issues such as competence building of institutions, decen- ii. To gain an understanding of the financial frame- tralization and efficiency of resource allocation work in which expenditures are made in the and utilization. rural water supply and sanitation sub-sector, and 54 GUIDANCE NOTE: PUBLIC EXPENDITURE REVIEW FROM THE PERSPECTIVE OF THE WATER AND SANITATION SECTOR • Contribute to enhance the quality of rural WSS –– How does Government finance operational programs by providing tools to better target their expenditure (OPEX) and capital expenditure interventions and achieve value-for-money in WSS (CAPEX) in the rural water supply and sanita- delivery. Stakeholder consultations and engage- tion sub-sector? ment with various donors and relevant Ministries –– Does public spending help the poor? on the PER process will sensitize decision-makers –– Are public resources being used efficiently and and planners to the need for more efficient and effectively? effective ways of doing business if scaling up of WSS delivery is to be achieved in a sustainable –– How much public funds will be needed to manner. achieve the MDGs using different scenarios that trade-off between investments and efficiency • Determine the need for public funds to the rural improvements? WSS if the poverty reduction goals are to be achieved especially in improving the human devel- • Charting budget flows through the various gov- opment indicators. The PER will provide invest- ernment levels, when funding is provided at both ment scenarios based on different combinations the central and local level. Specific attention will of efficiency improvements while applying sen- be paid to the following aspects: sitivity analysis. –– water supply and sanitation are often funded through different government agencies, and hence the need to check the budgets of all 3. METHODOLOGY ministries that might fund water and sanita- tion expenditures; The methodology consists of several phases: –– within each sub-sector, different government agencies at different levels may fund the sector; Scoping phase –– the role of Overseas Development Assistance • Consultation with country teams (ODA), including distinctions between develop- • Preliminary data collection (desk study) to deter- ment and humanitarian aid, geographical spread mine country characteristics and data availability. of ODA, and on/off budget status of aid flows. • Customization of ToRs, including data collection • Data analysis. and analysis methodology. Drafting and consultation phase • Identification of consultants • Launching of the study • Write up of first draft PER • WSS Stakeholders Final workshop; incorporating Data collection and analysis phase outcomes into final PER report • PER review meeting • Data collection including data quality control and data organization in a standard database with • Incorporation of peer review comments proper documentation of the sources of the data. • Editing and formatting of PERs Data collection will focus on secondary data col- lection from government and donor sources. Data Dissemination phase collection will include: • An overview of the rural WSS sector including • Publication of PERs access, performance, and institutional data to • Dissemination of PERs in countries, Bank and provide the context in which the Sector Public beyond Expenditure Review is being analyzed • A basic Sector Public Expenditure Review for the 4. DELIVERABLES last three years for which data are available on: Deliverables will include a PER for the rural water –– How much is spent—and how much the gov- supply and sanitation sector. ernment is spending? ANNEX 4B: SAMPLE TOR FOR RURAL WATER—AND SANITATION-RELATED PUBLIC EXPENDITURE REVIEWS 55 Deliverables for each phase include: –– an action plan that proposes a limited number • A scoping report that discusses the proposed (up to three) key measures that will be most scope of the PER, data gathering methods, the effective in helping those countries to meet the sampling methodology, sample size and/or survey MDG targets—with a specific time calendar and instruments for World Bank approval. responsibility chart. • A PER report with a maximum of 30 pages plus • A power point presentation presenting the main annexes. The report should summarize the quan- messages of the PER report (20 slides maximum) titative and qualitative data and discuss the impli- to be used for workshop dissemination. cations of the data analysis for public expenditure • Participation in at least one dissemination efforts analysis. The report should include: (possibly a workshops) that will ensure that the –– a concise executive summary. results of the study are transmitted –– a description of the methodology (including the process followed, survey instrument, clean 5.  QUALIFICATIONS OF CONSULTANTS dataset including a data code book and docu- mentation on the quality, reliability of data) Core competencies for this assignment are: –– full documentation of the analyses made and • Knowledge of and relevant experience of public conclusions sector management ∙∙ descriptive statistical analysis of the major • Knowledge of and relevant experience of the rural data areas in the questionnaires, including water and sanitation sector basic statistical data to understand averages, • Experience of quantitative research design, imple- medians and variability between different mentation and analysis; in particular survey design administrative areas, and between service and implementation in areas where data sources providers are not or only scarcely available as is the case ∙∙ detailed analysis which will explore the issue in many of the Bank’s client countries of the flow of funds and the level of service delivery, including background on the pro- • Excellent analytical and numerical skills able to cesses of budgeting, administration, institu- look behind the numbers tional context, etc. that affect the flow of funds • Excellent reporting writing skills ANNEX 4C: STANDARD OUTLINE OF A PUBLIC EXPENDITURE REVIEW—RURAL WATER SUPPLY AND SANITATION SECTOR 57 ANNEX 4C: Standard Outline of a Public Expenditure Review—Rural Water Supply and Sanitation Sector I.  SETTING OF THE RURAL WATER SUPPLY –– Allocation through central, provincial, local gov- AND SANITATION SECTOR ernments and/or other public agencies (state- owned enterprises, water boards, social funds) • Introduction and special funds: • Delimitation between Rural/Semi-Urban/Urban –– Allocation through different types of expenditures Areas ∙∙ Economic allocation across expenditure –– Definition of the Rural, Semi-urban/Urban Areas categories (detailed capital and recurrent –– Technology Options and Standards expenditure) • Sector Strategy and Institutional Framework ∙∙ Functional allocation : how are expenditures –– National Strategy for Water Supply and allocated over rural and urban water supply Sanitation, including finance and cost recov- and sanitation service delivery ery strategies –– An analysis of stated government priorities and –– The Legal Framework of the Sector WSS resource allocation over time –– Roles and Responsibilities of Different • Detailed data and analysis of budget forecasting Stakeholders and execution (or actual versus planned expen- diture to the sector), including For more details—see Checklist for the Sector –– efficiency of the expenditure program in terms Review. of availability and reliability II.  WATER AND SANITATION SECTOR –– reasons behind deviations between planned PERFORMANCE and actual expenditures with a special empha- sis on how budget and procurement systems • Use of Improved Water Supply and Sanitation and procedures affect budget preparation and Services (at national and regional level, distri- implementation bution over households, and over time)—using existing household surveys –– look into budget arrears and in what expendi- ture categories they occur and why they occur; • Access to Improved Water Supply Services (at and how they are dealt with national and regional level) and over time) as measured in terms of number of rural water and • An analysis of the source of government expen- sanitation facilities by technology and service level diture and the sustainability of the sources over time (donor funding, internal funding, etc.): • Sector Performance data as measured in other reports or monitoring systems –– What is the composition of how public fund- ing is provided • Water quality performance ∙∙ What is the size and allocation of national • Water resource management (basic issues in access (including local) funding in the sector? to water sources) ∙∙ What is the size and allocation of donor fund- ing in the sector? III.  ANALYSIS OF PUBLIC EXPENDITURES IN ∙∙ What is the structure of the funding (loan, THE WATER AND SANITATION SECTOR grant, debt relief assistance) • Detailed data and analysis on public expenditure –– What is the size and allocation of private fund- for the water and sanitation sector ing in the sector? 58 GUIDANCE NOTE: PUBLIC EXPENDITURE REVIEW FROM THE PERSPECTIVE OF THE WATER AND SANITATION SECTOR –– What is the scope for cost recovery in the rural –– How progressive or regressive is the state’s water and sanitation sector? financing of rural water supply and sanitation? • An analysis of how much public spending is • An analysis of public expenditure and the out- needed to achieve MDGs under different scenarios comes/performance indicators of the sector to determine the efficiency of the public expendi- ture program IV.  CONCLUSIONS AND RECOMMENDATIONS –– What is the ability in the country/state to judge V.  ACTION PLAN whether inputs are efficiently used? –– What criteria are being used to decide when • Determine a set of actions that will help to reduce to invest in rural water supply and sanitation? or eliminate the major impediments in using pub- lic funds more efficiently, including timetable and –– What standards, norms are used in the sector? responsibilities –– How are public works being procured and • Determine the key priorities in this set of actions implemented? (not more than three key actions) that will have –– How do rural unit costs compare against effi- the highest impact on improving expenditure cient benchmarks? efficiency ANNEX 4D: CHECKLIST FOR ASSESSING PUBLIC EXPENDITURE REVIEW OF THE WATER SUPPLY AND SANITATION SECTOR 59 ANNEX 4D: Checklist for Assessing Public Expenditure Review of the Water Supply and Sanitation Sector • A detailed analysis of the public expenditure pro- –– look into budget arrears and in what expendi- gram for the water and sanitation sector: ture categories they occur and why they occur; –– Allocation through central, provincial, local gov- and how they are dealt with ernments and/or other public agencies (state- • An analysis of the source of government expen- owned enterprises, water boards, social funds) diture and the sustainability of the sources over and special funds: time (donor funding, internal funding, etc.): ∙∙ Size and evolution compared to national –– What is the composition of how public fund- budget ing is provided ∙∙ Real and nominal expenditure ∙∙ What is the size and allocation of national ∙∙ Check for off-budget expenditures (including local) funding in the sector? ∙∙ If local government is important source ∙∙ What is the size and allocation of donor fund- of funding, describe also the mechanisms ing in the sector? through which this funding is provided ∙∙ What is the structure of the funding (loan, –– Allocation through different types of expenditures grant, debt relief assistance) ∙∙ Allocation across expenditure categories: –– What is the size and allocation of private fund- ing in the sector? ∙∙ operation, maintenance of services for rural water and sanitation services, –– What is the scope for cost recovery in the water and sanitation sector? ∙∙ capacity building, training, and hygiene education/awareness programs for water • An analysis of public expenditure and the out- and sanitation services comes/performance indicators of the sector to determine the efficiency of the public expendi- ∙∙ different types of investment for water sup- ture program ply and sanitation (expansion, rehabilitation) –– What is the ability in the country/state to judge ∙∙ Spatial allocation: whether inputs are efficiently used? Does the ∙∙ Regional allocation for the different types Government monitor inputs, outputs and out- of expenditures comes in the water and sanitation sector; and • An analysis of stated government priorities and what reporting systems are available? resource allocation over time –– What criteria are being used to decide when • An analysis of budget forecasting and execution to invest in rural water supply and sanitation? (or actual versus planned expenditure to the sec- Is there a mechanism to screen investment tor), including projects? Provide details on the administrative –– efficiency of the expenditure program in terms procedures being used of availability and reliability –– What standards, norms are used in the sector –– reasons behind deviations between planned (with regard to service levels, water quality, and actual expenditures with a special empha- etc.)? sis on how budget and procurement systems –– How are public works being procured and and procedures affect budget preparation and implemented? (see section on analysis of bud- implementation get planning and implementation) –– How do rural water and sanitation unit costs compare against efficient benchmarks? 60 GUIDANCE NOTE: PUBLIC EXPENDITURE REVIEW FROM THE PERSPECTIVE OF THE WATER AND SANITATION SECTOR –– How progressive or regressive is the state’s ∙∙ How can the government re-allocate its financing of water supply and sanitation? resources to use them more efficiently? • An analysis of whether public spending is ade- ∙∙ The costs of the Governments’ medium-term quate and sustainable? plans for the sector? –– Determine the investment needs for the water ∙∙ Arrears in the sector and sanitation sector with a detailed list of the ∙∙ The projected macro-economic framework assumptions made underlying the calculation? While undertaking the calculation, consider ANNEX 5: WATER AND SANITATION SECTOR PUBLIC EXPENDITURE REVIEWS—SELECTED CASE STUDIES 61 ANNEX 5: Water and Sanitation Sector Public Expenditure Reviews—Selected Case Studies Republic of Uganda Public Expenditure Review (FY03) Objective time in two years, from the sector’s 100 percent rate to 91 percent, and this was attributed to nonwage This Public Expenditure Review (PER) Report for releases at the center and underuse of resources by Uganda is the outcome of the budget related activities the Water for Production Project. carried out during the budget process for fiscal year In short, the water and sanitation sector could 2003/04. Specifically, this report captures the details be described as “having breadth but lacking depth.� of the budget reforms designed and implemented at Despite the apparent acceleration in coverage, reports the central and local government levels, analytical indicate that the water quality does not measure up work carried out on specific budget-related themes, and resource allocation is not efficiently targeted. and outcome of the consultations between the various There is a need for better analytical work to inform stakeholders during the budget process. the subsequent choices o f the sector and ensure that resources are targeted where they will generate Findings the most value. Operational efficiency in the water and sanita- In both the Poverty Status Report (PSR) 2003 and tion sector has been difficult to evaluate in the past, Uganda Participating Poverty Assessment Project mostly because o f the lack o f thorough analytical (UPPAP) 2002 reports, water and sanitation are noted work in the form of efficiency studies. A culture of with concern as essential for improving the quality of expenditure tracking and efficiency analysis is slowly life of the poor, especially given recent reports about developing in the water and sanitation sector. Although lack o f improvement in several important mortality the sector has frequently carried out financial audits indicators-infant, child, and maternal mortality. Access in the past, these were not always concerned with to safe water and sanitary conditions is a proximate value-for-money issues until recently. determinant of infant mortality and as such the water and sanitation sector is one o f three sectors (including Conclusion health and education) that are key to improving the performance of mortality indicators. Increasing poor The DWD has a responsibility to address these issues, communities’ access to safe water and their sanitary first, by increasing support to districts through the environment has positive linkages to the reduction of TSUs, to which a significant amount o f funding high infant and maternal mortality rates. has been committed. It is not yet clear how well There has been increased government investment the TSUs have been able to fulfil their functions. in the water and sanitation sector over the last three Second, the DWD can increase the effectiveness o f years. The sector’s share of the budget continued to the M&E structures in place, which should enable a rise in fiscal year 2001/02 to 2.59 percent o f total continuous assessment of district performance. Ad expenditures, up from 1.44 percent o f total expen- hoc M&E activities are currently taking place and ditures in fiscal year 1999/00. Despite this increase, need to become better systematized. budget expenditure outturns declined for the first 62 GUIDANCE NOTE: PUBLIC EXPENDITURE REVIEW FROM THE PERSPECTIVE OF THE WATER AND SANITATION SECTOR Benin Enhancing the Effectiveness of Public Spending (FY04) Background FIGURE 5.1: Evolution in the Access to Potable Water in Rural Areas Despite a long period of public investment in this sec- 6,500,000 tor, there has been no review of sectoral expenditures. 6,000,000 5,500,000 This first review of public expenditures on Benin’s 5,000,000 water sector examines the trends and composition 4,500,000 4,000,000 of public spending and suggests ways to improve 3,500,000 3,000,000 efficiency, equity and poverty targeting. It also pres- 2,500,000 2,000,000 ents options and mechanisms to complement public 1,500,000 1,000,000 funding, which may be insufficient to attain the MDG 1997 1998 1999 2000 2001 2002 in this sector. Total Rural Population Findings Population with Access to Potable Water Access to potable water constitutes one of the main priorities of the Government of Benin in its strategy for represents approximately 5 percent of the total cost poverty reduction. The objective of the Government, of construction. The level of contribution in the water consistent with achieving the MDGs is to halve by 2015 sector is relatively modest in comparison with other the share of the population that currently has no access sectors. The user contribution to the construction of to potable water. This constitutes a major challenge secondary roads, for instance, amounts to CFAF 0.9 for Benin and substantial financial resources will have million per kilometer, equivalent to 10 percent of the to be allocated to the priority sectors. Although drink- total investment cost. ing water and sanitation facilities are private goods, positive externalities on health outcomes associated Recommendations with consuming safe water and improved sanitation provide a strong rationale for public intervention. In order to achieve the MDGs, the pace of annual There can also be negative externalities with respect implementation will have to be more than doubled to environmental degradation, through pollution or compared to the period under review. About 17,500 excessive depletion of groundwater resources, although new water points need to be constructed in the course these do not appear important in Benin at this time. of the period 2003–2015. The annual investment Estimates of the population covered by potable water expenditure will have to increase by 2–3 times over supplies have undergone downward revision after the the present level. Based on the unit costs used in the 2002 census, which showed that the rural popula- DH’s Budget Program 2004–2006, it is estimated that tion had grown much faster than earlier projected. achieving the MDGs will require between CFAF 120 Hence, the revised indicators presented here are not and 140 billion or approximately 9to 14billion per consistent with data used until now, which were year for investments alone. Current political trends both based on the projection of population using are rather favourable towards the water sector. The the 1992 census. The Government finances virtually improvement of access to potable water constitutes a all sector investments. The financial contribution to priority for Benin as clearly stated in the Government’s initial investment costs made by the beneficiaries Poverty Reduction Strategy Document adopted in 2003. ANNEX 5: WATER AND SANITATION SECTOR PUBLIC EXPENDITURE REVIEWS—SELECTED CASE STUDIES 63 El Salvador Public Expenditure Review (FY04) Objective Investment grew by 0.1 percent of GDP in 1990 to a maximum of 0.4 percent of GOP in 2001, falling in The analysis of public expenditure on the water supply 2003 to 1990 levels. Seventy percent of investment and sanitation sector focuses on the National Admin- was used for rehabilitating, improving and building istration of Water Supply and Sewage Systems, ANDA, water systems (aqueducts and public water wells) the Social Investment Fund for Local Development, and the remaining 29 percent for sanitation (sewer- FISDL, and the Ministry of Public Health and Social age, septic tanks, and latrines). Assistance, MSPAS. These institutions execute water and sanitation projects in urban and rural areas. The Recommendations chapter contains a review of the sector organization and the analysis of the government’s strategic objec- The sector key challenge is to achieve universal tives and the process of resource allocation in the coverage of water supply and sanitation by 2015. sector, the trend and structure of expenditures and Coverage of water and sanitation services increased sector outcomes. It concludes with the identification significantly in the last several years, particularly in of the sector’s public expenditure principal challenges rural areas. Nonetheless, El Salvador coverage through and recommendations. piped water networks and sanitation is still low compared to its neighbours. New investment should Findings not be in detriment of the need to maintaining the existing infrastructure and improving the quality of The water supply and sanitation sector in El Salva- services. The qualitative aspects, such as improving dor comprises ANDA, self—supplied communities, water quality, continuity of service, and promoting municipalities, FISDL, MSPAS, non-governmental adequate use of latrines built are as important as organizations, licensed water systems, and private increasing the coverage of the services. The quality of water-bottling companies. ANDA is the main water ANDA services needs to improve substantially. There supplier. In 2002, it attended through its water supply is large disruption of ANDA water service, the quality systems 153 municipalities, 93 percent of the urban of water at the national level is poor, and sewage is population and 100 percent of the rural population dumped into rivers, creeks, and lakes without treat- with these services. Through its sanitation systems in ment. The pricing of water and sanitation services is 70 municipalities and latrines, it attended 96 percent inefficient and should be revised. Despite the tariff of the urban population and 100 percent of the rural adjustments in 1994 and the elimination of subsidy population with this service. Total public expenditure for all consumers, except those that consume up to (current and capital) for water supply and sanitation 20 m3 of water per month beginning January 2002, grew from 0.4 percent of GDP in 1990 to 1 percent there remains an implicit subsidy in the water tariff of GDP in 2001, falling thereafter in 2003 to 1992- of 43 percent. Balance the amount of resources dedi- 1995 levels (Table 5.3). Approximately 89 percent of cated to extend the coverage of service with the need total expenditure for period 1990–2003 belongs to to maintain and improve existing infrastructure and ANDA, 6 percent to FISDL, and 5 percent to MSPAS. increase service quality. TABLE 5.1: Water and Sanitation Coverage, by Institution, 2002 (% of population) Institution Piped Waste a/ Sanitation b/ Urban Rural Urban Rural ANDA 92.6 43.6 73.7 2.4 ANDA Ex-PLANSABAR 0.2 56.4 22.2 97.6 Self-supplied communities 4.9 0 4.1 0 Municipalities 2.3 0 0 20 Total 100 100 100 100 64 GUIDANCE NOTE: PUBLIC EXPENDITURE REVIEW FROM THE PERSPECTIVE OF THE WATER AND SANITATION SECTOR Jordan Public Expenditure Review (FY05) Background FIGURE 5.2: Public Expenditures of Water as % of GDP Jordan is one of the most water—stressed countries in the world. When compared to other countries with 6.5 Percentage of GDP similar GDP per capita and with its neighbours, Jordan 6 has lower availability of renewable fresh water per 5.5 capita than nearly all the others. The performance of 5 the water sector in Jordan is comparatively good, but 4.5 can still be improved. Despite the scarcity of water, Jordan provides a higher percentage of its population 4 1998 1999 2000 2001 2002 2003 with water than do comparator countries. For both Years of these reasons—scarcity and high rate of access to population—Jordan’s public spending on water is high reaching between 5–6% of GDP. Recommendations Findings Given the high cost of electricity in Jordan, the fea- The household survey indicates that richer deciles sibility of technical improvements to decrease the in Jordan have relatively better availability of water Water Authority’s electricity consumption should be compared to the poorer deciles (39% compared to investigated. Water for industry, commerce, tourism 32% ) Also, poorer deciles report a higher percentage and agriculture should be priced based on the actual of “rarely available� compared to the richer deciles. cost. Of course, any increase in tariffs would have to Although access to improved water sources is very be carefully designed to ensure affordability by the high in Jordan, there are seasonal problems, with poor of the water necessary to maintain their health households in some governorates such as Mafraq, status. Multi-tiered water tariffs, with higher income Zarqa and Ajloun receiving water less frequently groups subsidizing lower income groups, may be as is evidenced by their reporting “often available� useful if the administrative costs of this system can for only 3, 16 & 22% of households respectively. On be kept low. Consideration of this option, includ- the other hand, in Aqaba, Maan, and Balqa a much ing the performance of a willingness to pay study, higher percentage reporting that water is available. should be begun immediately. Reducing subsidies The efficiency of the system compares very poorly would also have a beneficial effect in increasing with most other lower middle-income countries. In water conservation. comparison with other countries in the region, Jordan On the technical side, the highest priority policy has the second highest rate water unaccounted for. issue for water is the sector’s high rate of inefficiency. Although the percentage of water lost has declined The extent to which losses are due to technical wast- in recent years, thanks to an increased emphasis on age (e.g. broken pipes) versus administrative wastage maintenance, at 46 percent in 2003, it is still very (illegal use of water, non-functioning water meters) high. For drinking water, 48% wastage was found needs to be clarified so the problem can be remedied for 2003. For irrigation water, the average is 32%. at its source. ANNEX 5: WATER AND SANITATION SECTOR PUBLIC EXPENDITURE REVIEWS—SELECTED CASE STUDIES 65 Egypt Public Expenditure Review, Cost Effectiveness and Equity in Egypt’s Water Sector (FY06) Objective FIGURE 5.3: Irrigation and WSAS Expenditures In 2003–2004, LE 4.087 billion was spent on water 3 Share of GDP (%) infrastructure by the irrigation and agriculture sub- sectors, and LE 6.697 billion by the water supply 2 and sanitation (WS&S) subsector from the Egyptian government budget. Of this, about 79 percent and 61 1 percent respectively were allocated for new invest- ments, with the balances for recurrent costs. The 0 outcomes of such significant public outlays have been FY01 FY02 FY03 FY04 FY05 mixed. This note assesses the recent trends of public Total irrigation expenditures expenditures in the water sector with a particular focus on the irrigation and WS&S subsectors, the Total WS&S expenditures two major recipients of public financing in the water Source: Mof annual data on expenditures of the two outcomes. sector. This note also investigates different sources of fiscal stress and finance, and explores efficiency and equity implications of the current arrangements. • Reallocating budget appropriations through differ- ent budget chapters of water agencies, departments Findings within agencies, and water user groups requires a • Most investment and operation and maintenance fundamental rearrangement from current practices (O&M) costs of water services in Egypt are funded of budget planning and management processes. from the national budget. However, cost recovery levels are still below international comparators. Recommendations • During the last two decades the com—position of water-related public expenditures has changed, • Focus on cost-effective public expenditure with a higher proportion being allocated to new interventions. investments at the expense of recur—rent expen- • Revisit national policies toward recurrent costs. ditures and debt repayments, thereby increasing • Use a part of recurrent cost savings to leverage the long-term contingent liabilities. investments focusing on low-income communities • Water service coverage (in relation to both drink- and urgent environmental expenditures. ing water and irrigation) is adequate in terms of • Establish criteria for ensuring that new public coverage in the Nile delta area and is generally investments are not substituting for the mainte- lacking in the rural or southern areas nance of existing hydraulic infra structure assets. • Operationalize national policies that en courage full cost recovery for irrigation infrastructure to support reclamation of new agricultural lands. 66 GUIDANCE NOTE: PUBLIC EXPENDITURE REVIEW FROM THE PERSPECTIVE OF THE WATER AND SANITATION SECTOR Mexico Water Public Expenditure Review (FY06) Objective • Water supply and sanitation service (WSS) is primarily a municipal issue, although federal, In 2004, Mexico passed a major modification to the state, and eventually basin-level policy also plays Water Law, calling for a new water financing system a role. Municipalities compete with other users (sistema financiero del agua) and the creation and for scarce water resources, and untreated urban empowerment of Basin Agencies (organismos de wastewater is a major source of pollution to the cuenca), but the government has not yet implemented nation’s water bodies. the law, including the issuance of regulations. The • Irrigation. The main challenge facing the agri- purpose of this AAA, therefore, as agreed with the culture sector is to increase its competitiveness in government, is to analyze the allocation of resources— the context of the 15-year phase out of tariffs and hydrologic and financial—in order to understand how quotas (ending in 2008) with the USA and Canada best to implement the new law. To do this, the report and the multiplication of Free Trade Agreements examines the sub-sectoral themes of water supply between the USA and regional competitors, which and sanitation and irrigation and drainage, as well erodes Mexico’s preferential treatment. as the overall water resource and fiscal management issues for the sector. Recommendations Key Observations • Making water rights marketable. There is a water • Household needs for water follow an equity ratio- rights registry in Mexico that covers 95 percent nale—access for everyone. Mexico has done well of all water users, which is an impressive accom- in getting at least minimal access for almost every- plishment. Eventually it could help address the one, but the quality of service, especially to the water use efficiency problem, letting the market poor, is usually well below the OECD average. rather than government fees push up the perceived • Overall expenditure in the water sector approached marginal value. MxP40 billion in 2004, or 0.5 percent of GDP. Of • Improving water governance will be important to this amount, the public sector spends over MxP33 achieve the nation’s objectives of economic devel- billion, which is close to 2.5 percent of Mexico’s opment and social justice. If there is no change in budget and the private sector about MxP 4 bil- the strategy of water management, Mexico may lion. About half of CONAGUA resources are spent expect worsening problems with over—exploita- on water supply and sanitation infrastructure, a tion of water, waste and pollution. quarter in the irrigation sub-sector and another • Decentralized and deconcentrated IWRM will quarter on central administration and overall water require intensive cooperative planning in the resources management, including flood control. areas of the basins and aquifers with the direct CONAGUA fiscal resources totaled MxP13.5 bil- participation of water users, local stakeholders lion in 2004. About 60 percent of this came from and government at all levels. fees and charges recovered from water users and polluters (channelled through SHCP), and the bal- ance, 40 per cent, came from the general federal tax resources (below 0.1 per cent of GDP). ANNEX 5: WATER AND SANITATION SECTOR PUBLIC EXPENDITURE REVIEWS—SELECTED CASE STUDIES 67 TABLE 5.2: CONAGUA Revenues by Sources (2004 MxP Million) 1994–96 1997–99 2000–02 2003 2004 Federal Revenue Total Fees for Water Use 5,417.6 5,279.0 5,941.8 6,637.3 6,286.6 Water Operators 265.6 400.4 634.0 1,535.4 1,502.9 Industry and Commerce 4,809.6 4,515.2 4,850.3 4,774.4 4,422.2 Hydroelectric Plants 308.9 335.0 414.9 292.2 330.1 Acuaculture 0.1 0.1 0.3 0.8 0.5 Leisure 33.4 28.3 42.3 34.5 30.8 Total Fees for other water related activities 1,538.2 1,369.3 1,162.1 1,289.9 1,221.7 Usage of water inf. For bulk water prov to 1,214.1 1,203.6 1,013.3 1,147.8 1,076.9 urban centers and firms Usage of water inf. For water districts 324.1 165.8 148.8 142.1 144.9 Other revenue 1,062.3 590.7 398.3 266.5 243.5 Total Federal Revenue 8,018.2 7,239.0 7,502.2 8,193.7 7,751.7 Source: CONAGUA 68 GUIDANCE NOTE: PUBLIC EXPENDITURE REVIEW FROM THE PERSPECTIVE OF THE WATER AND SANITATION SECTOR Panama Public Expenditure Review (FY06) Background • In need of remedial actions: (i) the lack of adequate sector planning and coordination, (ii) an inade- Panama is an upper middle-income developing coun- quate allocation of sector resources, which pays try with a per-capita gross national income (GNI) of insufficient attention to sanitation and infrastruc- US$4,450 in 2004. It has a population of around 3 ture maintenance in rural areas, (iii) the deterio- million inhabitants. Panama has been characterized rating balance sheet and low operating efficiency as a dual economy, consisting of a dynamic service of the water and sanitation utility (IDAAN), (iv) exports sector that is very competitive at the global a distorted pricing structure and inadequate cost level and a more rigid, domestically oriented sector recovery, (v) the mix of badly targeted and fis- with low productivity and a protected agricultural cally costly subsidies, and (vi) problems of envi- market. Concerns have emerged about the continued ronmental degradation and pollution. viability of the dual economy model as a basis for future development. An apparent failing of the dual Recommendations economy model in recent years has been its limited • Preparing a sector policy document that includes ability to combat poverty. a multi-year investment program, with clear per- formance targets and an effort to link sector out- Findings comes to the measures taken. • Panama made substantial progress in increasing • Allocating a higher share of sector resources its water and sanitation coverage between 1990 toward (i) investments in the sanitation sub—sec- and 1997. These total coverage indicators, more- tor, especially in rural areas, (ii) the maintenance over, compare favourably to the averages observed of rural water and sanitation infrastructure, and elsewhere in the region. Since the late 1990s, how- (iii) increased wastewater treatment. ever, the expansion in sector coverage appears • Reforming the sector pricing structure and improve to have decelerated and may even have declined cost recovery by: Adjusting the water tariff struc- slightly. Furthermore, the fairly favourable overall ture through (i) reductions in the minimum month- coverage indicators mask significant differences ly consumption level for which a flat rate is charged in access across rural and urban areas, as well as to under 10 cubic meters, and (ii) increases in the across income groups, especially in the case of nominal water tariff rates to compensate for the sanitation. To address the problems of stagnation inflationary erosion that has taken place over the in sector indicators and to improve the distribu- last two decades. tion of access to sector services will require more resources devoted to the sector, better targeting • Reducing the number and amount of subsidies of those resources and a more efficient manage- granted in the sector, and target the remaining ones ment of those resources. on the poor and marginalized members of society. • The first of these remedial actions is already being taken, as investments in the water and sanitation sector have increased sharply as of 2004, from an average annual spending level of under B./ 20 mil- lion during 1995–2003, to around B./ 50 million in 2004–05 and projected for the medium term. Nevertheless, there still remains much to be done to improve the targeting of these resources and manage them more efficiently. ANNEX 5: WATER AND SANITATION SECTOR PUBLIC EXPENDITURE REVIEWS—SELECTED CASE STUDIES 69 Aceh Public Expenditure Analysis (FY07) Background Aceh had limited sludge collection, no waste water treatment, and no urban sewerage in Aceh. This Since 1999, Aceh’s fiscal resources have increased is consistent with the rest of Indonesia, in which dramatically. After decentralization and the Special only an estimated 1 percent of the population is Autonomy Status, the amount managed directly by the connected to a sewerage system. Acehnese province and local governments increased • Aceh’s already inadequate water and sanitation several-fold. In addition, following the December 2004 network, including treatment installations, the tsunami, Aceh received an unprecedented amount piping network, water tankers, and water wells of assistance from the Indonesian government and were extensively damaged by the tsunami and the international community. In 2006 total funds earthquake. The tsunami alone destroyed almost flowing into Aceh are estimated at Rp. 28.5 trillion 17,000 of the 28,000 pipe connections available (US$3.1 billion). Most of these resources come from in Banda Aceh district. The only sludge treatment the reconstruction program (Rp. 16.4 trillion). Regular plant of Banda Aceh was destroyed. The local financing also is increasing rapidly and is expected level drainage was rendered ineffective because of to reach Rp. 12.2 trillion in 2006. earthquake-induced land settlement. The major- ity of the shallow wells and aquifers which were Findings the main source of water to the local population • Prior to the tsunami, Aceh had approximately became contaminated and saline. 465,000 ha of arable land62 of which almost • Following decentralization and special autonomy, 267,000 ha (60 percent) was incorporated in regional development spending on infrastructure irrigation schemes. Seventy percent of irrigation increased substantially to almost Rp. 1.5 trillion projects are medium to large scale. Only 25 per- in 2002 but has decreased in the last few years. cent are covered by small to medium schemes Infrastructure spending increased in constant (150–500 ha), and five percent small to very small prices from an average of Rp. 596 billion before schemes (<150 ha). The ratio of irrigated land 1999 to a post-decentralization average of almost to arable land in Aceh is slightly higher than the Rp. 1,150 billion. Development spending on public nation-wide average. Irrigation networks and water works (water and irrigation, roads) accounts for sources were destroyed by the fighting. three-fourths of total infrastructure development • Local governments play a major role in infra- spending, worth over Rp. 700 billion in 2005. structure spending in Aceh. After decentralization • Provincial and local governments seem not to be and the special autonomy, responsibility for most prioritizing infrastructure spending based on local public infrastructure services was transferred to needs. Capacity varies between local government local government. Nevertheless, total infrastruc- units. Staff numbers were generally adequate, but ture spending by regional government has been skills mix and motivation were inadequate. Lack decreasing. of technical expertise to perform project planning, • Prior to the tsunami, access to formal water and implementation, supervision, and maintenance sanitation services in Aceh was low. Only 9 per- needs to be addressed. cent of households were connected to PDAM’s (local water supply enterprise) piped water supply, Recommendations compared to the national average of 17 percent. • The different government levels (central, provincial Most people obtained water from wells constructed and local) should promote a favourable invest- either with their own funds, or by communities/ ment climate to attract private sector investments villages with access to project financing. During in infrastructure. the conflict years, many households obtained water from military tankers. All urban and rural • Local governments’ technical and institutional sanitation in Aceh is on-site, mainly in the form absorptive capacity constraints must be improved. of septic tanks and pit latrines, which often are • Maintenance of existing infrastructure assets and constructed adjacent to wells. Prior to the tsunami, those under construction must be guaranteed 70 GUIDANCE NOTE: PUBLIC EXPENDITURE REVIEW FROM THE PERSPECTIVE OF THE WATER AND SANITATION SECTOR People’s Democratic Republic of Algeria: A Public Expenditure Review (FY07) Background FIGURE 5.4: Cost of Environmental Degradation of Water Algeria faces critical challenges in dealing with one of its most vital natural resources. Though the arithme- 3 tic of water might not seem so bleak in the country 2.5 Share of GDP context, the situation is nevertheless serious and 2 worrisome. The cause for concern is reported in 1.5 several strategic assessments on the future of water, 1 including the National Economic and Social Council 0.5 (2000) and the World Bank (2003c). Algeria is a 0 country with relatively adequate renewable water an n n co ria a ria t yp isi Ira no rd oc Sy ge n Eg at the national level, but extreme geographic and ba Jo Tu or Al Le M year-on-year variations. It depends heavily on non- renewable groundwater and augments its supplies Source: World Bank (2005c) for Iran and Sarraf (2004) for other MENA countries. by seawater desalination. Findings Recommendations • With groundwater over-exploited in many areas, • Improve its investment strategy, not only in how water quality is deteriorating and serious envi- much new water supply to develop but in which ronmental problems related to water are a drain strategic problems to prioritize through a well- on the economy. Current extraction level from defined, long-term sequence of investments. Mitidja aquifer doubless the sustainable yield. • Develop policies that affect incentives to use water Overexploitation of groundwater, such as is hap- more efficiently and productively, while achieving pening in the Mitidja Aquifer, results in decreased sustainable and effective O&M. water levels. • Slow down investing in new large-scale irrigation • Many water infrastructures are in poor repair or infrastructure until an irrigation strategy is adopted is unusable. Because of age, faulty initial design, by all stakeholders in the near term. or limited maintenance, much of the mobiliza- • When rehabilitating or constructing new irriga- tion and conveyance infrastructure needs to be tion schemes, go straight to pressurized systems rehabilitated. suitable for high-efficiency irrigation. • A large share of the Algerian population has now access to improved water and basic sanitation services, but rural coverage continues to lag far behind. Ninety-two percent of the urban popula- tion now has access to improved water sources, and almost everyone in the country has access to improved sanitation. ANNEX 5: WATER AND SANITATION SECTOR PUBLIC EXPENDITURE REVIEWS—SELECTED CASE STUDIES 71 Armenia: Programmatic Public Expenditure Review (FY07) RAISING EFFICIENCY IN INFRASTRUCTURE Over the medium term, pricing for full cost recov- SERVICES ery, again, is key and the main institution in this respect is, again, the PSRC which sets the main Objective drinking water charges. A range of service provision options exist or are evolving in Armenia including A multi-year programmatic public expenditure review private participation, for example, Yerevan Water and (PER) is being prepared for Armenia with an initial Sanitation where a ten year lease arrangement has focus on health and infrastructure, within the frame- been negotiated following an initial period of opera- work of an integrated public sector financial manage- tion under a management contract. Price adjustment ment reform program. Consistent with implementation provisions are incorporated in the lease agreement of the Government’s growth and poverty alleviation with the PSRC having been given responsibility for strategy and related policy settings supportive of the managing the lease on behalf of the government. This continuation of rapid economic growth including high has and is generating useful experience with private rates of private investment, we suggest that the over- sector governance norms and the effect/importance arching objective in respect of physical infrastructure of incentives. is the delivery of cost-effective infrastructure services Our analysis suggests that the incentives on that users and/or customers value, now and in the the other water and sanitation system managers to future. This is inherently a national strategic economic improve performance are not strong and corporate objective. Government infrastructure policy including governance is weak relative to the levels achieved in market structure, fiscal, ownership and regulatory Yerevan. Generally, performance indicators such as aspects should be seen within a broad national eco- leakage rates indicate poor performance with only nomic framework. slow improvement achieved and expected. Findings Conclusion In respect of drinking water and sanitation the criti- Longer term ultimate ownership of the assets lies cal issues are improving the efficiency of current with the government and/or communities. Managing systems, pre-dominantly urban, their rehabilitation the significant government “ownership� interest in and the challenge of improving services to poorly these areas to ensure efficient and effective operation covered areas. Yerevan Water and Sanitation supplies and development of infrastructure assets over the water to Yerevan and some 30 adjacent communities. medium to long term is the challenge. Of particular Armenian Water and concern with concessions/leases is ensuring that the Sanitation supplies services to some 300 commu- concessionaire/lease is appropriately incentivized to nities in total. These two entities have been subject take a long term view. Privatization or devolution of of World Bank projects. The underlying assets are the systems to the relevant communities is an option. owned by JSCs, the shares in each owned on behalf This would allow government focus and resources to of the government by the SWC. shift to the less well served areas. 72 GUIDANCE NOTE: PUBLIC EXPENDITURE REVIEW FROM THE PERSPECTIVE OF THE WATER AND SANITATION SECTOR Indonesia Public Expenditure Review (FY07) Objective TABLE 5.3: Access to Piped Water (2003) Nationwide Capital This Public Expenditure Review (PER) 2007 examines Country Urban (%) Rural (%) Total (%) City only (%) and explains the constraints facing the government in public resource management, especially in alloca- Malaysia 95 64 84 100 tive and operational efficiency. This PER was first Philippines 60 22 44 58 launched in Jakarta in February 2007. This new version Thailand 80 12 34 83 includes additional budget data for national and sub- Vietnam 51 1 14 84 national expenditures, which have helped to validate Indonesia 31 5 17 51 the initial findings and projections. The PER offers Indonesia 32 8 19 47 recommendations for improvements in six critical (2005) areas: fiscal space, education, health, infrastructure, Cambodia 31 1 6 84 public financial management and decentralization. Source: UNDP: 2004, ADB, 2004. Findings Access to piped water is very limited and water utili- sufficiently credit-worthy to borrow. Central govern- ties (PDAMs) are in crisis. Piped water provided by ment spending by the Ministry of Public Works was utilities is the most sustainable, safest and, in the historically the main source of new investment but, long term, least costly solution for the provision of since decentralization in 2001, local governments water in urban centers. Despite this, only 31 percent have been expected to take responsibility for water of the urban population and 17 percent of the total supply investment. Previously, long-term lending population have access to piped water—both very provided by international financial institutions such low levels by regional standards. Water quality and as the World Bank and the ADB was also an important regularity of service delivery are declining, and few source of investment. However, not a single such loan if any utilities supply potable water. Water losses, has been approved by the Ministry of Finance since both physical and administrative, account for 50 and 2000, with the result that there has been virtually no sometimes up to 60 percent of PDAM production. PDAM investment in the past seven years. Indonesia lacks adequate sanitation and wastewater treatment systems. Official statistics suggest that 71 Recommendations percent of the urban population and 38 percent of the rural population have access to “improved sanita- Private sector investment will be slow to mobilize, tion�, but these statistics include a high proportion implying that greater attention should be paid to of connections to septic tanks. In practice, these are increasing public sector investment in order to meet almost never pumped and simply leak untreated Indonesia’s immediate infrastructure needs. Given the sewage into the surrounding soil and groundwater. difficulties inherent in designing private infrastructure Just 1.3 percent of the population is connected to a transactions, it makes sense for the government to sewerage system—a small system operating in Jakarta. focus its efforts on the careful preparation of a few Expenditure data for the water and sanitation “model� transactions across different infrastructure sector are scarce and unreliable. Nonetheless, there sectors. Even where private investment is mobilized, is virtually no PDAM investment, and operations substantial public support will be required. In addition and maintenance expenditure is inconsistent with to increasing the volume of infrastructure investment, service quality. With tariffs typically well below full improving the effectiveness of spending is a key issue. cost, PDAMs are unable to finance new investment Greater efforts should be made to tackle corruption from their own revenues, and most PDAMs are not in public infrastructure projects. ANNEX 5: WATER AND SANITATION SECTOR PUBLIC EXPENDITURE REVIEWS—SELECTED CASE STUDIES 73 Madagascar Public Expenditure Review (FY07) Background vis-a-vis the funding needs of the MAP. Financing for the water and sanitation sector grew five-fold The drinking water and sanitation sector is facing between 2000 and 2006, amounting to US$18 mil- serious challenges in achieving the Madagascar Action lion in 2006. The budgetary envelope in 2007 is Plan (MAP) goals. Over the last six years, water ser- only US$14 million, although, beginning in 2007, vices provided to rural populations in Madagascar have MAP activities would need an annual allocation of improved, and government interventions have begun US$34 million. to reduce the disparities among the six provinces. Very low level of financing of the sanitation sec- Moreover, promotion of hygiene education through tor. Based on DEPA estimates, the budgetary enve- the “Water, Sanitation and Hygiene� (WASH) initia- lope for financing activities in the sanitation sector tive has substantially increased the impact of access increased to around two percent of the total DEPA to drinking water on the health sector. Owing to a budget (approximately US$360,000) in 2006, while number of problems that persist to this day, Mada- the financing outlined in the MAP required to achieve gascar still ranks among African countries with the the goals of the sector is estimated at US$3.7 million lowest access rate to drinking water. annually between 2007 and 2011. Private sector involvement is an asset for the sec- Findings tor but requires capacity-building. The MAP focuses on the promotion of the private-public partnership Achieving the MAP goals requires significant invest- (PPP). The involvement of private operators in the ments in infrastructure and institutional capacity- management of drinking water systems has already building. While these goals pose a formidable chal- proved to be effective and is one of the solutions to lenge, they also present an excellent opportunity to the problem of limited maintenance actions, owing build capacity through institutional reforms, and to to the low level of cost recovery. develop new types of partnerships. To move closer toward achieving the MAP goals, the drinking water Conclusion and sanitation sector should: (i) improve program- ming; (ii) increase its absorptive capacity; (iii) increase The Public Expenditure Review has analyzed a public expenditure efficiency; and (iv) secure sufficient small but essential part of the challenges the Gov- resources for the sector. ernment faces to implement its new development In 2005, 70 percent of people living in rural areas strategy, the MAP, in particular in the areas of mac- still did not have access to drinking water. The chal- ro-economic management, public finance and ser- lenge for the MAP is to significantly increase access vice delivery in selected sectors. It confirms that to drinking water and improve hygiene. According to the MAP is very ambitious and that the achieve- the MAP, by 2012, 53 percent of the rural population ment of its objectives requires a “quantum leap� will have access to drinking water. mobilization of both public and private sectors. The Limited access to sanitation. In 2005, more than findings of this Public Expenditure Review expand 50 percent of the rural population still did not have and further deepen existing knowledge about the access to basic sanitation facilities, and were exposed public finance system in Madagascar and its con- to illnesses (i.e, diarrhea) associated with poor sani- tribution to the delivery of services in specific sec- tation. This is why the MAP has set the target of a tors. The findings acknowledge government efforts 68.5 percent access rate in the rural areas by 2012, to improve the system of public finance, but at the which requires the construction of 27,000 latrines. same time confirm significant weaknesses in allo- Despite increased government budgetary com- cating and executing public resources at the sectoral mitment since 2004, a financing shortfall exists and cross-sectoral levels. 74 GUIDANCE NOTE: PUBLIC EXPENDITURE REVIEW FROM THE PERSPECTIVE OF THE WATER AND SANITATION SECTOR Romania Public Expenditure and Institutional Review (FY07) Background Between 2007 and 2013, Romania is expected to receive € 3.96 billion in grants from the EU, but this is not Since the late 1990s Romania has instituted a suc- nearly enough to cover the total estimated costs of cessful stabilization policy and an active program compliance. The implementation plan drawn up for of structural reforms. On the stabilization side the meeting the terms of the environmental directives has authorities tightened fiscal policies, largely through a cost of approximately €17 billion. Some of the costs a succession of expenditure cuts amounting to more of compliance will fall on the private sector but a large than 5 percentage points of GDP starting in 2001 and portion will fall on public sector budgets—particularly continuing to present. Monetary policy has shifted those of local governments. The SOP spending has from exchange rate targeting to inflation targeting, not been adequately factored into the MTEF. The EU and inflation has declined steadily from more than 50 grants require co financing from national sources percent at the end of the 1990s to around 9 percent as and these amounts are not currently visible in the of end 2005. Structural reforms have included exten- MTEF. In summary the cost of the implementation sive privatizations, termination of directed lending, a plan exceeds what is included in the SOP, and the steady withdrawal of the government from banking national component of what is in the SOP exceeds sector, and a general shift towards use of market what has been provided for in the MTEF. prices. There remain some structural issues such as those related to remaining subsidies and arrears. But Recommendations there has been progress in bringing these down to more manageable levels, and firm transitional plans In view of the financial and implementation con- for them and for restructuring in energy, rail, district straints the government should construct a sequence heating and mining have been put in place. for environmental project implementation based on economic merit. More comprehensive analysis Findings of utility tariff regulation and subsidization cost consequences for the budget and MTEF is needed, In concluding accession negotiations for the environ- especially with respect to water and district heating. ment chapter of the acquis in 2004, the Government of Appropriate tariff adjustments and assistance to vul- Romania made commitments for substantial increases nerable groups should help with private participation in environment investments. Despite the relatively (including privatization) and minimization of delays long implementation period, these commitments will in the implementation of the program agreed with the strain the financial capacity of the country. Other EU. The Ministry of Water and Environment budget acceding countries having income levels below those framework should be further improved to introduce of the pre-existing EU member states, have also found a clearer budget structure linked to performance and it challenging to meet EU environmental standards. key program functions. ANNEX 5: WATER AND SANITATION SECTOR PUBLIC EXPENDITURE REVIEWS—SELECTED CASE STUDIES 75 Burkina Faso Public Expenditures Review Rural Water and Sanitation Sector (FY08) Objective FIGURE 5.5: Population served annually in potable water 2001–2006 The present review aims at supporting efforts of the government in water and sanitation sector in rural 800,000 and semi-urban areas. It carries out analysis of sector 700,000 expenditures evolution during the period 2001–2006 600,000 and proposes recommendations likely to help better cope with the current and future challenges. 500,000 400,000 Findings 300,000 • The review of public expenditure in RWSS shows that RWSS sector has experienced dramatic devel- 200,000 opment and that performance in terms of creation 100,000 of water points is relatively satisfactory during the 0 2001–2006 periods in Burkina Faso. 2001 2002 2003 2004 2005 2006 • Objectives of the Strategic Framework of Fight Source: Data generated on the basis of national inventory of water against Poverty (CSPL-Cadre Stratégique contre points. 2005. la Pauvreté) and of the Millennium Development Goals (MDGs) aim at passing from an access rate to potable water of 60% to a rate of 80% in 2015. Recommendations These objectives seem to be realistic. • It is desirable that the DRGE be given the respon- • A gradual Implementation of an approach-program sibility of centralizing periodic collection (for indicates the possibility of achieving expected example, quarterly or semi-annually) of data nec- objectives. The roadmap of the DGRE (Direction essary to analysis of the physical and financial Générale des Ressources en Eau) constitutes an evolution of AEPA (Approvisionnement en Eau important stage towards this approach. Many potable et Assainissement) sector. tools are being improved, notably in the realm of planning, follow-up and activities evaluation. • A fiercer competition between suppliers of goods and services in Burkina Faso should contribute • Sanitation has become a priority of the govern- to a reduction, if not a stabilization of unit costs. ment but much has to be done in order to reach the MDGs. The coverage rate in improved latrines • The government should reinforce human capaci- varies from 1 to 20%, according to some sources. ties of the DGRE and the MAHRH with regard to RWS sector has been for long time marginalized. sectoral and budgetary programming. It is only in 2007 that the government has inte- grated sanitation in the PN-AEPA (Programme National d’Approvisionnement en Eau Potable et d’Assainissement) and adopted a National Policy and Strategy of Sanitation (PSNA—Politique et Stratégie Nationale d’Aissinissement). 76 GUIDANCE NOTE: PUBLIC EXPENDITURE REVIEW FROM THE PERSPECTIVE OF THE WATER AND SANITATION SECTOR Cape Verde: Enhancing Planning to Increase Efficiency of Public Spending Public Expenditure Review (FY08) Findings FIGURE 5.6: Sanitation Services Tariffs for electricity and water in Cape Verde are 70% among the highest for African countries. According to 60% the Investment Climate Survey (2006), firms in Cape 50% Verde perceive the poor performance of the power 40% sector as the greatest constraint on their operations and growth.72 Over 60 percent of firms say that the 30% power sector is a major or very severe obstacle to 20% operate and grow. Furthermore, the number of power 10% outages and losses due to power outages in Cape 0% Verde are high compared with its peers. Rural (2004) Urban (2004) Total (2004) Total (2000) Water production and access (connections) Access increased in the recent years. In total, from 2001 to 2006, connections increased approximately 50 per- Source: World Bank Indicators. cent. The increase in connections has contributed to raise the percentage of population with access to with improved sanitation facilities is higher than improved water sources to 80 percent (World Bank Sub-Saharan Africa’s (36.5 percent), but lower than Indicators 2006). However, the increase of production those of Senegal (57 percent) and all the other com- and connections was accompanied by an increase parator countries. The difference between the rural in network losses. As with electricity, prices are the and urban is very acute. Approximately three times same across all islands, regardless of the provider, more population in the urban areas has access to ELECTRA, or municipalities. improved sanitation facilities. These indicators are Overall sanitation services increased only from 41 expected to have improved in the recent past due to percent in 2000 to 43 percent in 2004 (World Bank the recent investments in treatment plants and solid Indicators). Cape Verde’s percentage of population waste treatments. TABLE 5.4: Water Supply in Cape Verde Capacity M3/day Production x000 M3 Losses Connections Island 2002 2006 2002 2006 2002 2006 2002 2006 S. Vicente 3,500 6,320 1,145 1,379 23.0% 32.8% nd nd Prata 11,532 6,913 1,908 2,124 33.5% 31.1% nd nd Electra Sal Palmeria 1,477 2,880 519 744 19.5% 21.0% nd nd Sal Rel Boaviata 320 230 67 63 1.9% 35.0% nd nd Total 16,929 16,343 3,699 4,310 27.6% 30.0% 19,585 29,038 Municipalities Fogo and Brava nd nd 848 nd nd nd 3,534 nd Maio nd nd 73 nd nd nd 900 nd San Antão nd nd 189 nd nd nd 3,029 nd Total nd nd 1,037 nd nd nd 6,563 nd Source: Electra—Relatorio e Contas and municipality studies. ANNEX 5: WATER AND SANITATION SECTOR PUBLIC EXPENDITURE REVIEWS—SELECTED CASE STUDIES 77 Ghana Public Expenditure Review Rural Water and Sanitation Sector (FY08) Objective • Achieving the objectives for the sub-sector requires that organizational strengthening and capacity The Public Sector Review aims at supporting the building be implemented within sector institu- Government of Ghana in enhancing effectiveness tions (e.g. the Water Directorate and CWSA), but and efficiency in the rural and semi-urban water and especially at the District Assembly level. sanitation sub-sectors on the basis of an analysis of trends in sector development over the period 2001 Recommendations to 2006. It aims at supporting the government of • Meeting the sector objectives set out in the GPRS Ghana in meeting its objectives laid down within the and the MDGs by 2015 will require a substantial Strategic Framework of Fight against Poverty and the effort in terms of mobilizing additional funding. Millennium Development Goals by 2015. However, the study also clearly points to current institutional and structural weaknesses which need Key Observations to be addressed in order to enhance the ability to • Access to potable water in rural and semi-urban consume existing available funding and to absorb areas in Ghana has evolved at a pace of approxi- additional ones. mately 2% by year over the period 2001–2006. • Strengthen the Water Directorate: An institutional Coverage at the end of 2006 is estimated at 53%. assessment of staffing profiles needed in the WD Ghana is relatively well endowed with water should be carried out as soon as possible and resources except in the coastal zone. recruitment of staff positions should start immedi- • To achieve the MDGs by 2015 for the water sector ately. Furthermore, GOG should provide adequate (76% coverage), the effectiveness of the sub-sector operational resources that will enable the WD to has to be improved substantially. The Strategic function adequately. Investment Plan developed by the Community • Increase the Government’s Support to the Sector: Water and Sanitation Agency (CWSA) implies that In view of the agency’s urgent need to increase the yield of the sub-sector (expressed in terms of its supervision and control activities while fac- facilities delivered) has to be increased by 70% ing inadequate funding of its budget, it would compared to the period 2001 to 2006. The aver- be important for the Government to increase the age number of people being annually provided appropriations for administrative expenditures with safe water will thus have to increase from and to ensure its timely releases. 437,000 to 850,000. • Align Sector Approaches to the Decentralization • The total cost of achieving the targets of the Sector Process: With a view to mainstreaming sector investment Plan by 2015 is estimated at approxi- activities into the decentralization process, the mately 400 million US$. The funding gap of the development of District Water and Sanitation Plans SIP amounts to approximately 233 million US$ in all districts should be given high priority and (140 million US$ in a 2012 perspective). these plans should form the basis on which all facility investments are approved. FIGURE 5.7: Water Supply Coverage in Rural and Semi-urban Areas (2006) 80% 70% 67.2 63.1 58.1 60% 52.0 51.3 52.9 51.0 51.0 50% 46.4 47.1 41.5 40% 30% 20% 10% 0% Ashanti Brong Central Eastern Greater Northern Volta Upper Upper Western National Ahafo Accra East West 78 GUIDANCE NOTE: PUBLIC EXPENDITURE REVIEW FROM THE PERSPECTIVE OF THE WATER AND SANITATION SECTOR Mali Public Expenditure Review Rural Water and Sanitation Sector (FY08) Objective Mobilization of the resources beyond the State is essential to an accelerated growth of RWSS sec- The present review of public expenditure in the tor development. The State alone will not be able sector of potable water and sanitation in rural and to handle the challenge of development and sustain- semi urban areas aims at supporting the government ability of the sector. It must mobilize and stimulate of Mali in meeting its objectives laid down within the participation of other actors, such as private the Strategic Framework of Fight against Poverty individuals, communes, the civil society, ONGs and and the Millennium Development Goals by 2015. the local private sector. The review analyzes the sector evolution during the period 2001–2006 with the aim of highlighting Recommendations the institutional and financial framework in which investments of the sector were made. On the basis of Reinforcement of RWSS key institutions: A training this analysis and an estimate of challenges in terms plan should be put in place specifically with regard of meeting sector’s objectives, the review will have to the development and post-construction agenda of to suggest in a participatory way, actions likely to the DNH’s budget programs. This plan should include increase the absorptive capacity of investments and not only executives of the DNH at the national and make the sector more efficient. regional level but also the DAF and the CPS of the MMEE. Key Observations Reinforcement of the management tools for a greater effectiveness in the sector: Developing a The estimated objectives of the Government to pass budget programming tool of the DNH’s activities at from a rate 50 to 82% of access to potable water the national level with a view to reinforce the DNH will be difficult but remains probable. That requires in the budgeting of resources necessary for opera- increasing the volume of water facilities constructed tions (in particular the post-construction activities). from 750 water points to 2.200 per year on average Reflections should engage with aim of stimulat- from now to 2015; that is to say an increase in the ing other partners to invest in the RWSS sector. For output of the sector of approximately 250%. the effective implementation of the PN-AEPA and the The development of the sector is limited by a achievement of sectoral objectives, it was proposed weak budget performance and not by a lack of to create an agency of drinking water and sanitation financing. The rate of total implementation of the (this intention is supported by a political declaration sector budget was 63% on average over the period of December 31, 2004). This proposal still remains in 2001–2006. While the execution of expenditures on study and it is not possible to come to a conclusion own resources saw a very positive evolution, prob- about the coherence of such a structure. lems remain in the execution of external resources. FIGURE 5.8: Access Rate to Drink Water by Area (2006) 70% 59 60% 56 55 53 48 50 50% 42 39 40% 29 30% 20% Kayes Koulikoro Sikasso Ségou Mopti Tombouctou Gao Kidal Taux national ANNEX 5: WATER AND SANITATION SECTOR PUBLIC EXPENDITURE REVIEWS—SELECTED CASE STUDIES 79 Cross River State Public Expenditure Review Rural Water and Sanitation Sector (FY09) Objectives • During the period 2002–2007, the Cross River State Government budgeted a total of approxi- The need to assess the present progress in the im- mately N104 million for capital and N135 million provement of rural water supply in Nigeria has be- for recurrent expenses, and of that, expended come increasingly necessary, especially with regard to N67 million and N90 million, respectively. Total public expenditure patterns, as we draw closer to the State capital expenditures for the period represent Millennium Development Goals’ (MDG) target year only 43 percent of State funding while recurrent (2015). This is especially so because data on the current expenditures were 57 percent. state of Rural Water Supply and Sanitation (RWSS) in most states is either limited or completely unknown. Recommendations • The State Government needs to declare the water Findings sector an emergency sector and drastically increase • The state has eight surface urban water sup- its present low level of funding in water supply ply schemes with a total installed capacity of and sanitation. 172,570m3/day operating at 19,500m3/day, reflect- • Budget and expenditure profiles should be pre- ing capacity utilization of only 12 percent. The pared and implemented, and in accordance with population served by the schemes is estimated to the Government establish strategies, priorities, be 804,200 people. Total customer connections and action plans as set out in the Cross River number 5,110, of which 4,543 are house connec- State Economic Empowerment and Development tions and 356 are public standpipes or kiosks. Strategy (CR SEEDS). • It is estimated that to meet the MDG for rural water • CRS needs to create a Ministry for Water Resources supply in the Cross River State, there will a need and Rural Development to be fully in charge of to provide 10,098 hand pump boreholes and 2,525 water supply development and other related mat- motorised boreholes across the state at the cost ters in the state. of N8.58 billion and N2.27 billion, respectively, • Of the main State Water Agencies (SWA), CRSWBL from now to the year 2015. should have more autonomy over urban and semi- • Improved and safe sanitation services currently urban service, while RUWASSA should be vested cover only 31.5 percent of the state population. with the implementation of all rural water supply A budget of N356, 408,703 is required to meet and sanitation services, and they should both be the MDG target, serving the state’s 1.97 million well-funded. people currently without access to improved safe sanitation. FIGURE 5.9: CRS Functional Expenditure Trend, 2002–2007 25 C. Exp. Recurrent Pers O. Heads Others 22.36 19.42 20 16.75 18.68 14.30 Naira (bn) 15 14.6 11.07 10 6.6 9.51 7.06 6.63 8.05 5.31 6.9 6.67 5.71 6.06 5 4.2 6.2 5.23 3.47 2.2 2.65 3.32 3.71 0.65 0 0.76 2002 2003 2004 2005 2006 2007 Years 80 GUIDANCE NOTE: PUBLIC EXPENDITURE REVIEW FROM THE PERSPECTIVE OF THE WATER AND SANITATION SECTOR Ethiopia Public Finance Review (FY09) Introduction FIGURE 5.10: Recurrent Water Sector Budget for Regions and Woredas Rural water supply in Ethiopia is about setting up thousands of community run and managed schemes. 100 Identifying where they are needed, designing an 90 appropriate water scheme for the local economic 80 70 Birr (millions) and hydro-geological context, supervising the con- 60 struction, building community capacity, and giving 50 communities backstopping support on maintenance 40 are all functions that lend themselves to a highly 30 decentralized form of government service delivery. 20 The challenge for Ethiopia has been to develop that 10 decentralized service delivery capacity. The challenge 0 FY04/05 FY04/05 FY04/05 FY04/05 for Ethiopia‘s development partners is to externally finance and strengthen that decentralized service Year delivery capacity. Salaries Woreda Level Salaries Bureau Level Objective Operational costs Woreda Level Operational costs Bureau Level The objective of the study is to identify procedural factors that promote or inhibit the efficacy of financ- ing modalities for rural water supply development and its sustainability. The trade-offs between proce- their main source of drinking water. This progress has dural oversight and sustainability of resulting water been driven by a combination of Government, donor schemes is of particular interest. Very little procedural and NGO interventions. Initial post-war rehabilita- oversight may enable rapid implementation but, it is tion in the north of Ethiopia was carried out by the contended, is likely to end in poor quality output. Too multi-donor funded Ethiopia Relief and Rehabilitation much procedural oversight may slow implementation Program. This was replaced by the Ethiopia Social to a point that the procedures themselves are a break Rehabilitation and Development Fund (ESRDF), a on the financing modality. nationwide program which ran from 1996–2004. In the late 1990s and early 2000s the ESRDF program Findings built up capacity in regional offices which were largely responsible for the construction of the 2,492 Ethiopia has made steady progress in improving water supply sub-projects built through the program, rural water supply access albeit from a very low benefiting over 3 million people. base of just under 15 percent in 1994.31 According to Both as result of increasing the numbers of woreda the FY08 PASDEP progress report—based on sector and the number of staff deployed on the water desks administrative data—water supply coverage in rural in the second wave of decentralization the allocation areas has increased to 53.9%. Estimates based on to salaries at woreda level has increased 10-fold in household surveys report more modest gains. The nominal terms between FY05 and FY08. During the most recent issue of the WHO/UNICEF Joint Monitor- same time period operational costs have increased ing Programme (2008) reports that 31 percent of the 6-fold in nominal terms but have dropped as a per- rural population use water from improved sources centage of water desk spend from 33% to 22% of (protected wells and springs or piped systems) as recurrent budget. ANNEX 5: WATER AND SANITATION SECTOR PUBLIC EXPENDITURE REVIEWS—SELECTED CASE STUDIES 81 Socialist People’s Libyan Arab Jamahiriya, Public Expenditure Review (FY09) annually of which only 40 MCM are being pres- Background ently treated for reuse on fodder crops, ornamen- tal trees, and lawns. Libya’s water infrastructure is at the beginning of a transformation. The sector is emerging from a period • Total water use has risen rapidly in recent years— characterized by low performance in urban service by more than 1,000 MCM from 1998 to 2005, with delivery, poor quality, and limited ability to valorize domestic use increasing by more than 150 MCM the large Great Man Made River (GMMR) investment during this period. As shown in Table 1, total water that was intended for irrigation. Utility revenues are use is high—an estimated 4,922 MCM (2005). Of low owing to low tariffs, poor collection, and high this amount, 79 percent is used for local agriculture, operating costs. Losses are increasing because of 14.9 percent is for local domestic and industrial inefficient management and poor demand manage- use, and 6.1 percent is used for GMMR transfer ment. The water sector absorbed approximately 1.4 to the Eastern and Western regions. percent of GDP in subsidies in 2006. About 90 percent • The average coverage rate for water supply is of these subsidies went to urban water supply and 63 percent. The total water volume allocated to sanitation. These subsidies are likely to expand as urban water supply reached about 593 MCM in access to urban water and sanitation grows and as 2006, distributed between 282 MCM withdrawn substantially more water is made available to farmers. from local wells, 284 from GMMR, and 27 MCM A comprehensive strategy and action plan is needed provided by desalination plants. for irrigation, water supply and sanitation, and water • The Government of Libya plans to raise the water management to population coverage ratio from 62 percent (2006) to 72 percent (2012) under its new development Findings plan for water and wastewater services. The final • Libya is a water-stressed country. With no peren- aim is to reach 95 percent coverage by 2025. nial rivers, it is among the driest and most water • The overall water expenditure (capital invest- scarce regions in the world. Overall, the country ment + O&M) would nearly double under the obtains its water from four sources—surface water new water development plan from about LD 8.7 that flows intermittently along wadis, groundwa- billion in 2002–06 to about LD 15.0 billion pro- ter from shallow deposits, groundwater from deep jected for 2008–12. aquifers, and desalinated seawater. The first two of these sources yield about 600 million cubic Recommendations meters (MCM) of renewable water out of 5 bil- lion cubic meters overall. • Given the scarcity of water resources and the • Increasing domestic and industrial demand for much higher value of water in domestic use than water has given rise to major investments since the in agriculture, the priority should go to meeting early 1980s. The Great Man-Made River (GMMR) the needs for potable water for the whole popu- Project has been designed to deliver fossil ground- lation, Libya cannot reach food self-sufficiency water from areas of abundance in the south to in the foreseeable future and the pursuit of this areas in need in the north. Water pumped from the objective will only result in increasing waste of deep reserves in the Sahara and made available valuable resources. through GMMR is the largest and most exploited • Increase collection rates (currently at 20 percent). source (around 53 percent of total supply); how- Introduce universal metering (currently at 14 per- ever, Libya‘s groundwater resources, like petro- cent of residential customers). leum, cannot be replenished. Desalination now • Raise tariffs for water—from LD 0.22 per cubic accounts for less than 1 percent of water supply. meter to at least LD 0.65 per cubic meter—to An additional 600 MCM of wastewater is available recover at least O&M costs 82 GUIDANCE NOTE: PUBLIC EXPENDITURE REVIEW FROM THE PERSPECTIVE OF THE WATER AND SANITATION SECTOR Mozambique Public Expenditure Review (FY09) Background TABLE 5.5: Water Supply and Sanitation Spending in Relation to the Budget Water supply and sanitation are of prime importance Percentage of in the PER because of their complementary role� in Government budget preventing disease. Access to improved water supply Mozambique (1999–01) 2.4 and sanitation, accompanied by effective hygiene Tanzania 2.5 education, can be expected to improve both health Uganda 5.0 and productivity, reduce drudgery, improve quality Zambia 2.6 of life and provide increased opportunities for edu- cation and employment, especially for women and Note: The denominator is Government-funded spending only. Donor spending numbers were not available for the countries other than girls. As o f 1992, around ten percent o f rural dwell- Mozambique. ers had regular access to safe water. In 1997 about 12 percent of rural people had safe water according to the household survey. Although the PER o f 1992 expenditure (though not o f Government—funded enunciated the ambitious goal o f raising access to expenditure) in 2000 and 2001 on account o f the 35 percent by 1995, this target was in fact reached floods: in 2001 total expenditure on water rose to only in 2001, when there were 12,490 water points, of $24.5 million, of which donors contributed $19.7 mil- which 8,098 were functioning, serving a rural popula- lion. Nearly 90 percent o f water sector expenditures tion of 12.6 million. Mozambique’s coverage still lags in Mozambique go to water supply and sanitation, behind Malawi (44 percent), Zambia (48 percent), and the remainder to water resource management. Tanzania (42 percent) and Uganda (46 percent). Recommendations Findings A key requirement is full-cost pricing for urban piped The most urgent sector issue is the inadequacy of rural water, coupled with a major improvement in the and urban water supplies, in terms o f both coverage present low service standards which should arise and quality of service, despite the decade o f economic from improved management in the context of the growth since the end of the war in 1992. The lack of contracting-out procedures presently under way. regular supplies of safe water is particularly acute in The authorities should forge ahead with the urban areas, on account of the health risks involved. Demand-responsive Approach to rural water so as Water supply expenditures are mostly donor- to reduce the 35 percent water point breakdown rate. funded. In the last “normal� year for which data More attention needs to be given to urban sanita- were available, 1999, total expenditures in the water tion. The present approach by DNA, based o n the sector, including both water resource management Low-Cost Sanitation Program in the peri-urban and and water supply, were some $15 million, o f which urban areas and health promotion and other ‘soft’ the Government funded $4.9 million and donors the measures in both urban and rural areas, is sound and remainder. There was a large increase in donor-funded should be continued. ANNEX 5: WATER AND SANITATION SECTOR PUBLIC EXPENDITURE REVIEWS—SELECTED CASE STUDIES 83 Tanzania Public Expenditure Review of the Water Sector (FY09) Objective FIGURE 5.11: Access to Improved Water Sources The objective of the PER is to assess the quantity and 100% quality of the transfers of public funds to the water 90% and sanitation sector from the top of the chain (central 80% government) to the bottom of the chain (water users) 70% and the quality and quantity of service delivery with 60% a basis hypothesis being that the finance link may be 50% sub-optimal. The current study aims to gain insight 40% into how budgeted allocations for the water sector 30% translate into actual water and sanitation service 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 delivery, and to understand what impacts the links between the two. It has a bias towards water supply and sewerage that are mostly funded through the water sec—tor agencies. Yet, basic sanitation has not Total Rural Urban been given much emphasis mostly because it does not receive much attention in the budgets of the dif- Source: DHS and AIS surveys, various years. ferent water agencies. budget allocated for operating support, maintenance Findings and rehabilitation. Reform is under way in the Tanzania water sector. Recommendations Many developments see the sector moving into a positive direction. The Government of Tanzania has Improve Sector Investment Planning. The slow pace of embarked on a major reform process and made sig- project preparation contrasts with the resource enve- nificant strides in its water sector policy environment lope allocated through the sector, especially with the over the last decade. As a result of this transformation, SWAP in place. In the absence of a project pipeline. the role of MoWI is changing. Because of the govern- Improve the predictability of release of funds in terms ment’s policy of decentralization and devolvement, an of timeliness and amounts. The lack of predictability increasingly larger share of the government’s budget of funds is a serious obstacle for implementation in is now channelled through local and regional gov- the sector. This lack of predictability is a major cause ernments The increase in funding is starting to have of delays in implementation and results in additional an impact on the access to improved water sources. costs. A sharper focus on including incentives in the Preliminary data from household surveys conducted allocation of funding. In the design of infrastructure in FY2007/08 show that the access to improved water programs, the Government could put more focus sources has been increasing since FY2004/05. Nev- on how to improve the efficiency of its investment ertheless, the recent progress shows that increasing programs through: (i) performance based transfers; resources in itself is not enough. Progress has been (ii) better poverty targeting in water allocation for- slow. Water utility operators are still heavily dependent mulas; and (ii) better poverty targeting in water on budgetary sup—port with a significant part of the allocation formulas. 84 GUIDANCE NOTE: PUBLIC EXPENDITURE REVIEW FROM THE PERSPECTIVE OF THE WATER AND SANITATION SECTOR Republic of Lebanon, Water Sector Public Expenditure Review (FY10) Background The cost of inaction in the water sector is estimated at about 1.8 percent of GDP or 2.8 percent of GDP The state of the water supply and sanitation (WSS) if the cost of environmental degradation is added. sector in Lebanon is not in line with the level of eco- Households bear most of the costs. The opportunity nomic development reached by the country. Despite costs of inadequate public water supply provision the relatively high coverage rate in the water sector amount to 1.3 percent of GDP. (78 percent), continuity of supply is extremely low. Improving continuity of water supply to achieve The Beirut Mount Lebanon (BML) region, which 24/7 provision across the country should be the top accounts for 60 percent of total connected house- priority for the water sector, alongside increased levels holds, receives only three hours of daily water supply of waste water collection and treatment. during the summer season. Tripoli is the only urban Improving efficiency in the water sector can gener- area which benefits from 24 hours of water supply. ate sufficient resources to close the investment gaps in the sector, within a framework of fiscal responsibility. Findings Recommendations The Regional Water Authorities suffer from inadequate technical, financial and commercial performance. Improving continuity of water supply to achieve 24/7 Despite its relative good endowment of water resourc- provision across the country is the priority for the water es, Lebanon is poised to face chronic water shortages sector. In parallel to the increase in water supply, it is by 2020 unless actions are taken to reform the sector. crucial to increase volumes of wastewater collected Lebanon’s water public expenditure has been and treated. The costs of environmental degradation inadequate to meet the development needs of the caused by the discharge of non treated wastewater are sector. In Lebanon, public investment in the water estimated of 1 percent of GDP. Improving efficiency and wastewater sector amounts to about 0.5 percent in the water sector can generate sufficient resources of GDP, below the optimal level. to close the investment gaps in the WSS sector. REFERENCES 85 References Achieving the Millennium Development Goals: The Nepal Department of Water Supply and Sanitation, Role of Infrastructure. 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