technical experts panel on the impact of the financial crisis on the water sector jamal saghir...
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Technical Experts Panel on the Impact of the Financial Crisis on the Water Sector
Jamal Saghir
Director
Energy, Transport and Water
The World Bank
Istanbul
March 17, 2009
5th World Water ForumIstanbul, March 16 – 22, 2009
We are facing a global crisis of an unprecedented nature A credit crunch with far reaching ripple effects in a globalized
economy
A crisis of major proportion: Industrial production down 15%, largest world trade decline in 80 years
This is largely unchartered territory…
Developing countries will be seriously affected
Although the crisis was originated in rich countries, the effect in developing countries will be profound
Large public debt issuances by rich countries for stimulus packages are crowding out developing countries borrowers – both public and private
Financial crisis in emerging markets: spreads increasing sharply
EMBIG over US Treasuries(January 1, 2006 - February 5, 2009)
0
100
200
300
400
500
600
700
800
900
1000
Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09
bp
s
Source :
World Bank, P=
projected
The financial crisis is now becoming an economic crisis
Source: World Bank
0
1
2
3
4
5
6
7
8
9
2007 2008 2009
%
Source:
ILO,
Trends
Eco
nometric M
odels, D
ecem
ber
2008
%
Economic Growth
o
f Developing
Countries
An increased dependence on ODA
The World Bank has been witnessing an increase in funding requests from the most advanced MICs: not a good news!
For many developing countries, IFIs are becoming the main source of funding
Will rich country maintain ODA flows in a time of budget crisis?
Food, Water, Energy, Finance, and Climate: The Perfect Storm?
FOOD CRISIS
CLIMATE CHANGE
ENERGY CRISIS
FINANCIAL CRISIS
MORE POVERTYLOWER GROWTH
Water Crisis
What will be the specific impact(s) on the water sector?
The water sector is underfunded… and this could become worse
Public funding for infrastructure is expected to be constrained in many countries
The water sector has not a good track record of advocating its case with finance ministers
0
50
100
150
200
250
in $ b
illion
Bond issuance
Bank lending2007 2008
51.4
12.0Germany
100.4
1.0Italy
4.8
2.0India
1.3
11.2
1.4Spain
210
8.0
35.5
EU
464
2.2 9.5
Japan
11.8
26.3
SouthKorea
685.1
0.914.0USA
143.7
239.9
197.6
China
1.1
26.5
2.1
UK
11.6
18.7
2.6France
100%
75%
50%
25%
0%
Infrastructure
Green Infrastructure
Other Measures
The water sector is not sufficiently present in stimulus packages
What about the private sector?
The situation with private investment flows is even worse.
Risk of new projects being cancelled, and current projects coming under stress
Water was never a significant portion of private infrastructure investment, but amount raised via BOTs (for bulk facilities in MICs) were still significant
An increasing role for improving efficiency?
The financial viability of water utilities could be seriously affected
What will be the impact of the recession on the capacity/willingness of populations to pay their water bills?
The financial viability of water utilities would be directly impacted by
– Increase in rate of non-payment
– Delays in tariff adjustments (inflation)
Degradation of financial situation would be major set back for reforms
Increased poverty will reduce capacity to pay of households: collection rates and revenues will come under pressure
Return of “vicious circle” of poor service, low willingness to pay, low investment… Upward pressure on operating costs (energy,…) Could set us back a decade of reforming services providers to foster long term
financial sustainability
2000 2001 2002 2003 2004 2005 2006 2007
YEAR
0.00
0.50
1.00
1.50
2.00
OM
M3S
OL
D
2000 2001 2002 2003 2004 2005 2006 2007
YEAR
1.00
2.00
3.00
The crisis call for a renewed emphasis on efficiency
Better efficiency in both investment and operation: we need to do more with the same (or less…)
This is the best way to make our case with finance ministers
Private sector has a role to play, not as direct financiers, but to help improve operational efficiency (leases and MCs)
Thank you