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Effective subsidies in developing countries
1National Water Agency, Agência Nacional de Aguas-ANA, Setor Policial Sul, Area 5, Quadra 3, Bloco B, Brasília, DF-70.610-200, Brazil. kelman@ana.gov.br
Summary
Government subsidies for water and sewerage services in developing nations often fail to reach the poor. Implementing output-based aid, like Brazil's program, improves sanitation expenditure effectiveness by paying for results.
Area of Science:
- Environmental policy
- Development economics
- Public utility management
Background:
- Developing countries allocate substantial subsidies to state-owned water and sewerage enterprises.
- Despite subsidies, water and sewerage coverage remains inadequate, disproportionately affecting the poor.
- Inefficient allocation of funds often benefits construction firms and wealthier populations, neglecting the poor in informal settlements.
Purpose of the Study:
- To evaluate the effectiveness of government subsidies for water and sewerage services in developing countries.
- To explore the potential of economic incentives to improve government effectiveness in service delivery.
- To highlight successful models for improving sanitation expenditure quality.
Main Methods:
- Analysis of subsidy allocation and service coverage trends in developing countries.
- Case study of the Brazilian River Basin Pollution Abatement Program.
- Examination of the "output-based aid" concept in environmental and sanitation projects.
Main Results:
- Subsidies have not consistently improved water and sewerage coverage, especially for the poor.
- The Brazilian program, utilizing output-based aid, demonstrated improved expenditure quality.
- Paying for results, rather than infrastructure promises, enhances government effectiveness.
Conclusions:
- Rethinking subsidy allocation and prioritizing results-based payments is crucial for effective sanitation service delivery.
- Output-based aid offers a viable mechanism for developing countries to improve the impact of their investments in water and sewerage infrastructure.
- Governments should shift from contracting infrastructure works to incentivizing measurable outcomes to better serve all populations, particularly the poor.