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Innovative Financing Mechanisms for the Water Sector

image of Innovative Financing Mechanisms for the Water Sector

This report examines innovative mechanisms that can help attract new financial resources into water and sanitation services. In particular, it focuses on mobilising market-based repayable financing (such as loans, bonds and equity) as a way of bridging the financial gap to meet the water-related Millennium Development Goals and other crucial sector objectives. The Camdessus and Gurría reports, published seven and four years ago, respectively, formulated a number of recommendations in this area. This report examines the extent to which these recommendations have been implemented. It looks at the rapidly evolving global context and to the ongoing financial and economic crisis, and considers how innovation in financing for the water sector may need to adapt.

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Pushing the boundaries of innovative finance

This chapter seeks to evaluate which innovative financial instruments have been used in the water sector to access market-based repayable financing over recent years and with which results. Each type of innovative financing instrument is examined in turn, starting with a short description of the instrument, an evaluation of its current use in the water and sanitation sector and an evaluation of the role that ODA can play in developing the use of such instruments. Indeed, as mentioned in the Camdessus report, “aid should be used to catalyse other financial flows by such means as funding initial overhead costs, providing equity for revolving funds, guarantees, and subsidies targeted to performance (such as output-based aid)”.

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