Meeting the financial challenge for water supply and sanitation: incentives to promote reforms, leverage resources, and improve targeting

Achieving the water supply and sanitation targets enshrined in the MDG will require a dramatic increase in funding. But mobilizing additional investment is only part of the slotion. Developing financing mechanisms that make most of these resources is equality important.These financing mechanisms must address three problems: the prevalence of institutions and financing policies tha result in ineffective and inefficient use of resources; the inability of available public resources to meet the costs of sustaied coverege; and the fact taht existing services, even if broadened, often fail to benefit the poor.The solution to the firs problem lies in adopting mechanisms that promote sector reforms. These include decentralization linked fiscal mechanisms, special fund mechanisms, and programatic approaches. The solution to the second problem require the development of methods that leverege additional resources. These may focus on attracting private sector participation, promoting local investment through the development of local credit markets, or enhancing household community resources. Finaly, the solutioan to the third problem calls for the useof appropriate pro-poor subsidies.The initial focus in any financing approach needs to be on promoting reforms essential for improving sector performance. But the choice of specific mechanisms will depend on factors defining both the macro and sector contexts.