Opinion – Pablo Acosta: Challenges for universal access to water and sanitation

A new phase to develop and consolidate the water and sanitation sector in Brazil has become a reality. The legal framework approved in 2020 represents an important regulatory change that can bring economic and operational benefits to the sector. In this sense, last week the Brazilian Association of Sanitary and Environmental Engineering held the Brazilian Water Week 2022. The event is planned to bring together government institutions, professionals in the field, the private sector, academics and international organizations.

On the agenda, issues and opportunities for planning and private concessions, regulations, creation of efficient rural and urban water and sanitation infrastructure, and innovative financial mechanisms. Encouraging all parties that support this important sector is a very important step towards identifying solutions and bottlenecks related to the implementation of the legal framework. Although the country is on the right track, there are still many challenges in terms of public policy reforms to achieve the goals of universal access to water and sanitation.

Since the last Water Week held in 2020, the world has experienced the global Covid-19 pandemic that has resulted in enormous economic, health and human life losses. In Brazil alone, the lockdowns caused losses to companies providing water and sanitation services ranging from US$1 billion to US$1.3 billion. In the North and Northeast regions of Brazil, which have the biggest deficits in the coverage and quality of water and sanitation services, the impacts of Covid-19 were more costly for the poorest population than in the rest of the country. These conditions, together with the fragile fiscal and financial capacities of states and municipalities, create constant financial and investment gaps.

An important innovation of the new legal framework is the attribution of a more robust role to the National Water Agency (ANA), which starts to define national normative guidelines for water and sanitation services. In this way, it is expected that the country will be able to coordinate and strengthen the capacities of regulatory agencies to implement updated standards in the sector. In addition, there are economic instruments and public policy mechanisms that need to be modified or reformulated (such as tariff subsidies) in order to maximize the availability of the necessary financial resources at the three levels of government (federal, state, municipal) in order to satisfy the growing demand for the services.

For the water and sanitation legal framework to be effectively implemented in Brazil, favorable conditions and solid policies must prevail. Specifically, improving the finances of water and sanitation providers in Brazil proves to build resilience against economic and financial turmoil. In 2021, the World Bank conducted a detailed study of the financial vulnerabilities of public and private water and sanitation service providers across Latin America and found that financially-planned service providers weathered financial shocks better.

Another solid policy took place during the Covid-19 pandemic and deep fiscal crisis. The country was one of the few in the region to implement ambitious measures to mitigate these impacts on the operational sustainability of service providers. The main measures were: extending the expiration of water and sewage bills, prohibiting the suspension of services, exempting especially vulnerable groups from payment, freezing tariffs, promoting bill payment and remote customer service.

For the new legal framework to be effective, the federal government must participate assertively in articulating with subnational units and in creating incentives so that service owners and municipalities can be aligned with national guidelines. However, the Brazilian government should also make better use of public resources allocated to the sector, and mobilize and leverage additional funding through innovative financial mechanisms that can reduce the risks of private sector participation and public sector finance.

Among the main challenges facing Brazil are volatile public budget allocations to the sector and low spending efficiency by local governments. Public budget allocations for water and sanitation services represent a smaller share of GDP. Brazil has been investing less than half of what is needed for universalization by 2033. The sector has also suffered from high under-execution of the federal budget, a slow tariff reform to increase revenues and a weak targeting of the cross-subsidy policy in the last decade.

For this, however, institutions in the water and sanitation sector should have solid technical capacities and sufficient financial resources. This is especially important for the success of public-private partnerships and the new legal framework approved in 2020. The new legislation opens up opportunities for federal incentive programs or special programs to support municipalities.

Promoting improved institutions, regulations, spending and the resilience of the water and sanitation sector still depends on relevant information to assess progress and benchmarks of performance. Recent analytical tools have been developed by the World Bank’s Global Water Practice as a benchmark for all Latin American and Caribbean countries in terms of water security and risks and the recovery of water and sanitation services for utilities in the post-Covid-19 era. 19.

Considering that the government alone is unlikely to be able to meet the challenge of universal access to water and sanitation in the country by 2033, infrastructure and asset replacement of water and sanitation services must be at the forefront of strategic national development policies and locations.

This column was written in collaboration with World Bank colleagues Luis Alberto Andres, leader of the Infrastructure sector in Brazil, and Christian Borja-Vega, senior economist.