56819 FAST TRACK BRIEF December 16, 2009 The IEG report "Water and Development An Evaluation of World Bank Support, 1997-2007," was discussed by CODE on December16, 2009 Water and Development: World Bank Support, 1997-2007 Almost a third of all Bank projects approved since 1997 have been water related. Water lending grew 55 percent in commitment terms during the period evaluated, and project performance has improved steadily, led by a significant performance improvement in the Africa region. Water has been integrated into many other sectors. The Bank has contributed to improving access to clean water, especially in urban areas, and has developed a business plan for invest- ments in hydropower and dams, especially for Africa. The Bank is also starting to take the aq- uatic environment more into account during project design, and it has balanced investments in infrastructure with investments in improving the institutions that manage and allocate water. The Bank's strategy for the water sector has been broadly appropriate, but its application has underemphasized some of the most difficult challenges--such as ground water conservation, environmental restoration, and coastal zone management--in favor of less challenging activi- ties like infrastructure development and equipment purchase. The Bank's approach to water will face heightened challenges in the coming decades due to climate change, the migration to coastal zones, and the declining quality of the water resources available to most major cities and industry. This will require some shifts in emphasis. The Bank and its partners need to put more emphasis on vital and challenging areas such as groundwater conservation, pollution reduction, and effective demand management. New ways need to be found to help the most water-stressed countries make water sustainability a corner- stone of their development. The development community needs to help countries shift more at- tention to sanitation. More strategic development planning and more effective disaster risk re- duction is needed for low-lying coastal areas. Approaches to financing and cost recovery need to be strengthened. Finally, data collection and use need to be enhanced in a number of areas. O nly 3 percent of the world's water supply is freshwa- ter, and two-thirds of that is locked in glacier ice or buried in underground aquifers, leaving only 1 per- cent readily available for human use. Water is not only li- tific consensus that climate change will worsen these water- related challenges in the coming years. These changes are already disrupting rainfall patterns, feeding ever more power- ful windstorms, and creating droughts of unprecedented se- mited, it is unevenly distributed. In more arid regions, water verity and frequency. About 700 million people in 43 coun- shortages are always a threat. Add to this situation the scien- tries are under water stress. Development patterns, increasing population pressure, and The Water Portfolio the demand for better livelihoods in many parts of the globe all contribute to a steadily deepening global water crisis. De- A large part of what the Bank finances has something to do velopment redirects, consumes, and pollutes water. It also with water: 31 percent of all Bank projects approved since causes changes in the state of natural water reservoirs, directly 1997 are water-related. Between 1997 and 2007 the Bank ap- by draining aquifers and indirectly by melting glaciers and the proved or completed 1,864 projects with at least one water polar ice caps. Maintaining a sustainable relationship between activity. Together, these projects represented Bank financing water and development requires that current needs be ba- of about $118.46 billion, of which $54.3 billion was directed lanced against the needs of future generations. to water. The average loan was for $67 million (exclusive of grants and nonlending activities). Water-related lending in- The development community has transformed and broa- creased by 55 percent over the evaluation period. dened its approach to water since the 1980s. As stresses on the quality and availability of water have increased, donors Many of the Bank's water activities are integrated into have begun to move toward more comprehensive approaches projects doing other things, such as water supply in an urban that seek to integrate water into development in other sectors. services project or drafting of water policy within a larger environmental policy framework. The largest categories of This evaluation examines the full scope of the World Bank's projects deal with wastewater treatment and irrigation. The lending and grant support for water activities. More than 30 largest amounts of money have gone to projects with irriga- background papers prepared for the evaluation have analyzed tion and hydropower or dam activities. Bank lending by thematic area and by activity type. IDA and IBRD (the Bank) have supported countries in many water- The Bank has engaged 142 countries in lending for water. related sectors. The top 10 of those countries have accounted for 579 projects (31 percent), covering 56 percent of total Bank The evaluation, by definition, is retrospective, but it identifies commitments for projects with water activities (nearly 5 per- changes that will be necessary going forward, including those cent more than their percentage of Bank lending as a whole). related to strengthening country-level institutions and increas- China accounted for 16 percent of water lending, compared ing financial sustainability. to 7 percent of total Bank lending. Water and the World Bank Main Findings The Bank's 1993 Water Resources Management Policy Paper Increased Lending and Improving Project moved the institution away from its previous focus on infra- Performance structure development. The paper also shifted the Bank from a sector-based investment planning process to a multisectoral The Bank has increased its lending for water and the approach to planning, embracing the concept of Integrated number of countries it is serving during the period eva- Water Resource Management. IWRM promotes the coordi- luated. While the number of countries that borrow for water nated development and management of water, land, and re- has varied annually, 47 countries were served in 1997, com- lated resources in order to maximize the resultant economic pared to 79 borrowers in 2007. Lending for water increased and social welfare in an equitable manner without compro- by over 50 percent during the period. mising the sustainability of vital ecosystems. Under IWRM, each water activity in a project or program is considered care- The integration of water practice across Bank sectors fully in light of other competing uses, and social, economic, appears to be well underway. Integration of the water prac- and environmental consequences. tice was an important goal of the 2003 Water Strategy, and during the period evaluated, the majority of the water-focused In 2003, the Bank adopted a new water resources strategy projects were overseen by Sector Boards other than Water that looked at water management and the connections be- Supply and Sanitation. tween resource use and service delivery. It also reintroduced infrastructure investments as an important aspect of Bank Water projects have good success rates when measured support in the sector. The two strategy papers are comple- against objectives. IEG performance ratings show steady mentary, and together with the Bank's mandate to reduce improvement in sector performance measured against project poverty, they have helped inform issues of supply, and im- objectives. During the most recent five-year period, water was prove the performance of utilities and user associations. The the most improved major sector by this criterion, with a par- 2003 strategy committed the institution to face the most ticularly noteworthy 23 percentage point improvement in the pressing challenges that were constraining the achievement of share of satisfactory projects in the Africa region. Within the goals set in 1993. portfolio, 77 percent of the 857 completed projects had an 2 aggregate outcome rating of moderately satisfactory or better, In the area of water supply, reducing unaccounted-for water compared to the Bank-wide average of 75 percent. For 2008 (UfW) has been the main activity directed at improving water the trend continued, and water sector projects attained a 90 efficiency. About half of the projects that attempted to ad- percent satisfactory rate. dress UfW managed to reduce it by at least 1 percent. The focus of Bank activity has shifted over time. The Finding effective ways to improve water use efficiency and Bank has lent heavily for irrigation and water supply, and manage demand for water will be critical if the Bank wants to dams and hydropower have become more important in the maintain a leading role in this area. last few years. But some activities that are of growing impor- tance as water stress increases have become less prominent in Integrated water resource management, the focus of two the Bank's portfolio--notably, coastal zone management, consecutive water strategies, has had traction in the pollution control, and to a lesser degree groundwater conser- World Bank but has made limited progress in most vation. While the portfolio has performed well measured client countries. Within the Bank there has been considera- against projects' stated objectives, the Bank and the countries ble progress in integrating water into the work of other sec- have not yet sufficiently tackled several tough but vital issues, tors and in consolidating institutional structures to carry out among them sanitation, fighting pollution, restoring degraded water activities. However, outside the Bank, even in countries aquatic environments, monitoring and data collection, and where IWRM is now well integrated into the legal framework, cost recovery. Where it has lent for hydrological and meteo- it is known mainly just in the water sector. The information rological monitoring, the Bank has focused on providing necessary to inform decision-making is not easily available, technology for data collection and relatively less on gathering and perhaps more importantly, the economic implications of and interpreting information for which there is an identified water constraints are not widely appreciated. Meanwhile, demand. Such aggregate findings, however, mask regional and there are indications that the Bank is paying less attention to country-specific variations and needs. For example, East Asia data collection, an essential prerequisite for successful IWRM and Africa have responded more actively than other Regions implementation, as countries have less motivation to confront to the sanitation challenge. These issues are covered in greater a situation with unknown parameters. detail below. When IWRM is successful, it most often happens in a Water Resources Management particular location at a time of necessity. Some countries have made progress with water resource management after Effective demand management is one of several critical natural disasters, for example. Shocks often do not affect challenges worldwide in the face of increasing water entire countries, however, nor are they a desirable route to scarcity. Demand for water can be affected by three broad IWRM. The way to open the window of opportunity without sets of measures--pricing, quotas, and measures to improve waiting for a shock is to support monitoring processes that water use efficiency. deliver information to relevant public and private stakehold- ers. The example of Brazil shows that making water data pub- Efforts to improve the efficiency of water use and limit de- licly available over the Internet helps increase stakeholder mand in the agriculture sector, the largest consumer of water, concern, which helps to mobilize the political will necessary have had limited success. Efficiency-enhancing technologies to confront entrenched water problems. alone do not necessarily reduce on-farm water use, and ef- forts to manage demand with water charges in agriculture The number of projects dealing with groundwater issues have encountered limited success, partly due to the low price has been declining, though within that problematic elasticity of agricultural water. Fixing and enforcing quotas trend the portfolio has also witnessed a positive shift for water use is a relatively recent approach and deserves away from a focus on extraction. This shift is important careful evaluation when there are more completed projects given falling water levels in critical aquifers in many Bank featuring this approach. More generally, cost recovery in borrowers. Bank-supported projects has rarely been successful. Only 15 percent of the projects that attempted full cost recovery ac- Within the groundwater portfolio, activities aiming to in- tually achieved this goal. Projects that have succeeded have crease water supply were most successful, while activities re- generally improved the efficiency of water institutions to col- lated to reducing pressure on groundwater and conservation lect fees. The limited success has caused the Bank to mod- generally proved more challenging. Yet such activities will erate its approach without clearly identifying sources to need to become more prominent in the portfolio, if the Bank finance the recovery shortfall, threatening the sustainability of is to effectively help the growing number of water-stressed investments. countries address increasing groundwater scarcity. In Yemen, for example, rapidly growing demand for irrigation water 3 caused by improved tube well technology and highly subsi- Water Use and Service Delivery dized diesel fuel has resulted in irrigation extracting over 150 percent of the country's renewable water resources. The Bank has increasingly focused on water service de- livery, but there has been declining emphasis on moni- Watershed management projects that take a livelihood- toring economic returns, water quality, and health out- focused approach perform better than those that do not. comes. Only a third of wastewater treatment and sanitation Projects combining livelihood interventions with environ- projects calculate economic benefits. mental restoration enjoyed high success rates, even though effects on downstream communities (such as reduced flood- Sanitation needs greater attention. Population growth in ing and improved water availability) and social benefits in developing countries has been rapid, as has urbanization. An upstream and downstream communities were often not expansion of piped water services and higher household wa- measured. Hydrological monitoring (with or without remote ter use will lead to an accelerating demand for adequate sani- sensing) and watershed modeling could help improve impact tation. The evaluation recognizes that even if the Millennium assessment and thus make it easier to capture the cost-benefit Development Goals for clean water supply are achieved, 800 ratio of such interventions. million people will still lack access to safe drinking water in 2015, but at the same time 1.8 billion people will still not have access to basic sanitation. Within sanitation, more emphasis is Environment and Water needed on household connections. Connection targets in Environmental restoration is underemphasized, possibly projects are generally not met, and IEG has seen a number of because its immediate and long-term financial impor- treatment plants functioning below design capacity because tance is unclear. More attention to cost/benefit calculations households have not connected to the systems, in part be- could help the Bank and its clients evaluate trade-offs and get cause willingness to pay has been over-estimated and facilities better results. have been over-designed. This report highlights the particular weakness of sanitation institutions, which will continue to Most Bank projects focus on infrastructure, while in constrain progress until their capacities improve. some cases environmental restoration is more strategi- cally important. It is not always necessary to restore the wa- Hydropower projects have performed well, and signifi- ter-related environment to a pristine state in order to obtain cant untapped potential remains for appropriate devel- major social, economic, and environmental benefits and re- opment, particularly in Africa. After a peak in the mid- duce vulnerability. Priority improvements to degraded envi- 1990s dam construction slowed. The Bank has recently in- ronments, even when small, can have big impacts. A coastal creased its financing for dam construction, in many cases for wetlands protection project in Vietnam, for example, success- multipurpose dams that provide hydropower and often also fully balanced reforestation with livelihood needs. The project support irrigation, flood protection, or industrial use. Almost successfully reforested critical areas and led to substantial a third (66) of the 211 Bank-financed dam/hydro projects reduction in coastal zone erosion. covered in the evaluation rightly focused on dam rehabilita- tion, as many dams have experienced gradual deterioration Countries and donors need a stronger focus on coastal due to lack of maintenance, and a number have been shut management going forward, as some 75 percent of the down due to salinity, sedimentation, and other problems. A world's population will soon be living near the coast, new hydropower development business plan, Directions in Hy- putting them at heightened risk to the consequences of dropower, was completed in 2009 and supports feasibility stu- climate change. Approvals of Bank projects in this area dies so that projects will be technically, economically, and have dwindled over time, and the reasons for this should be environmentally appropriate. Indeed, it will be vital to take on considered in the Mid-Cycle Implementation Report. board the experience with hydropower projects, including their scale, socioeconomic, and environmental impacts. Many projects contain funding for water quality man- agement, but few countries measure water quality. The Institutions and Water number of projects that actually measure water quality is de- clining. Evidence of improved water quality is rare, as are indi- Water services are delivered by public providers in most cations of the improved health of project beneficiaries. The countries, although private sector participation has data that are generated need better quality control. Water quali- made some progress. Where international private firms ty in the top five borrowing countries is declining, and less than have been successful in urban areas, they have contributed half of projects that set out to monitor water quality could significant investments to infrastructure and in some cities show whether an improvement had taken place. they have managed to increase the efficiency of water utilities' operations. In some Bank-financed projects in rural areas, the local private sector manages the operation of water systems, 4 but it has invested little and shared little of the financial risk. to meet human needs for water and sanitation has its roots in Where governments want private involvement, a well- political, economic, social, and environmental issues. These functioning, well-maintained regulatory system is necessary are becoming more entwined and cannot be solved unless a for its sustainable participation in utility operations. In many broader range of actors get involved. cases this has remained elusive, and this has limited private sector involvement. The most water-stressed group consists of 45 countries (35 of them in Africa) that are not only water poor but also eco- Projects operating in a decentralized environment have nomically poor. Country Water Assistance Strategies have had difficulty meeting expectations, but when the budg- helped to place water resource discussions more firmly in the et and authority accorded to the lower level of govern- context of economic development in the countries where ment have matched the responsibility assigned to it, the they have been done. Including Ministries of Planning and projects had positive achievements. Half of the projects Finance in the dialogue is another critical step, as is expand- that aimed to strengthen local capacity and two-fifths of ing the calculation of economic benefits to increase countries' projects that supported institutional reforms were successful. understanding of the economic importance of water. Other positive outcomes usually associated with decentraliza- tion--increase in accountability, ownership, empowerment, Collaboration with other partners is particularly impor- and social cohesion--were achieved in a minority of cases. tant, and it is likely to increase in importance as the Bank helps countries to tackle water crises. This is true Support for institutional reform and capacity building not only for water supply and sanitation but also for water has had limited success in the water sector. Institutional resources management in national and transboundary basins. reform, institutional strengthening, and capacity building have Many of the problems described in this report are far too big been the most frequent activities in Bank water-related lend- for the Bank to tackle on its own. ing. Yet these interventions have often been less than fully effective, and weak institutions have often been responsible Successful implementation of the Bank's Water Re- for project shortcomings. sources Sector Strategy requires a great deal of data on water resources, and going forward implementation The Bank has been actively engaged in addressing needs to prioritize data-gathering more forcefully. Data transboundary issues. Projects have prioritized international on all aspects of water and relevant socioeconomic conditions waterways shared by a large number of countries. The Bank need to be more systematically collected and monitored. Data has been more successful in helping to address disputes than needs to be used better within projects. For example, the col- in strengthening transboundary institutions. Its achievements lection and analysis of up-to-date groundwater data is more working with its borrowers on transboundary aquifers are in important now than ever, and it needs to be taken on board their early stages. more commonly than it has been. Strategic Issues Recommendations The Bank's complementary strategies for the water sector · Work with clients and partners to ensure that critical have been broadly appropriate. However, implementation water issues are adequately addressed. thus far has underemphasized some of the most difficult chal- o Seek ways to support those countries that face lenges set by the 2003 strategy, and this has left some needs the greatest water stress. The mid-term strategy unmet. The Bank's approach to water will face heightened implementation review should suggest a way to challenges due to climate change, the migration to coastal package tailored measures to help the Bank and zones, and the declining quality of the water resources available other donors work with these clients to address to most major cities and industry in the coming decades. These the most urgent needs, which will be far more will require some shifts in emphasis going forward. challenging as water supply becomes increasing- ly constrained in arid areas. Water stress needs to be confronted systematically. At o Ensure that projects pay adequate attention to present there is no relationship between Bank water lending conserving groundwater and ensuring that the and country water stress. The issue for the Bank is finding an quantity extracted is sustainable. entry point and helping the most water stressed countries put o Find effective ways to help countries address the pieces together so that water needs can become more coastal management issues. central to their development strategy. This is not to say that o Help countries strengthen attention to sanita- the Bank should stop providing support to water-rich coun- tion. tries--and increasing lending to water stressed countries is not the only or even necessarily the best solution. The failure 5 · Strengthen the supply and use of data on water to better understand the linkages between water, eco- nomic development, and project achievement. About Fast Track Briefs o In project appraisal documents, routinely quan- Fast Track Briefs help inform the World Bank Group (WBG) tify the benefits of wastewater treatment, health managers and staff about new evaluation findings and recom- improvements, and environmental restoration. mendations. The views expressed here are those of IEG and o Support more frequent and more thorough wa- should not be attributed to the WBG or its affiliated organiza- ter monitoring of all sorts in client countries-- tions. Management's Response to IEG is included in the pub- particularly the most vulnerable ones, and help lished IEG report. The findings here do not support any general ensure that countries treat monitoring data as a inferences beyond the scope of the evaluation, including any infe- public good and make it broadly available. rences about the WBG's past, current or prospective overall o In the design of water resource management performance. projects that support hydrological and meteoro- logical monitoring systems, pay close attention to stakeholder participation, maintenance, and The Fast Track Brief, which summarizes major IEG evalua- the appropriate choice of monitoring equipment tions, will be distributed to selected World Bank Group staff. If and facilities. you would like to be added to the subscription list, please email o Systematically analyze if environmental restora- us at ieg@worldbank.org, with "FTB subscription" in the tion will be essential for water-related objectives subject line and your mail-stop number. If you would like to to be met in a particular setting. stop receiving FTBs, please email us at ieg@worldbank.org, · Monitor demand management approaches to identi- with "FTB unsubscribe" in the subject line. fy the aspects that are working or not working and build on these lessons of experience. o Clarify how to cover the cost of water service delivery in the absence of full cost recovery. To the extent that borrowers must cover the cost of Contact IEG: water services out of general revenues, share the Director-General, Evaluation: Vinod Thomas lessons of international experience with them so Director: Cheryl Gray (IEG-WB) they can allocate partial costs most effectively. Manager: Monika Huppi (IEGSE) o Identify ways to more effectively use fees and Task Manager: Ronald S. Parker (IEGSE) tariffs to reduce water consumption. o Carefully monitor and evaluate the experience with quotas as a means to modulate agricultural Copies of the report are available at: water use. http://www.worldbank.org/ieg/water IEG Help Desk: (202) 458-4497 E-mail: ieg@worldbank.org 6