The Water and Sanitation sector (WSS) is an important focus in the Millennium Development Goals (MDGs) established by the United Nations. In the last two decades, foreign aid in the form of official development assistance (ODA) has witnessed a significant increase; it accounted for over three-quarters of total ODA flow in 2012. This amount was estimated at over US$10 trillion.
With such large amounts of investments, one might assume these are based on the past effectiveness of aid flow in WSS. Surprisingly, the effectiveness of aid flow in this sector has been largely uninvestigated. This raises questions such as if a large quantum of global capital has been moving borders wastefully. To find this out, Ramkishen Rajan, Visiting Professor at Lee Kuan Yew School of Public Policy, along with Sasidaran Gopalan, Post Doctoral Research Fellow at the Hong Kong University, investigated the impact of aid disbursements on access to WSS in 139 middle and low income countries.
While aid disbursements are directed more towards urban area projects, the effectiveness of aid or improved access to water and sanitation facilities, according to this study, is felt more in rural areas. This challenges the current practice of focusing more on urban area intervention.
Their study found that disbursements of aid have led to a significant and improved access to water and sanitation facilities. Most importantly, empirical results of their study challenge commonly adopted notions and current practices implemented in this sector. In studying the disaggregated impact of aid in rural vs. urban areas and sanitation vs. water sector, their findings provide food for thought.
While aid disbursements are directed more towards urban area projects, the effectiveness of aid or improved access to water and sanitation facilities, according to this study, is felt more in rural areas. This challenges the current practice of focusing more on urban area intervention. Similarly, majority of aid in WSS is directed towards water instead of sanitation, yet the effectiveness of aid is realised more in the sanitation sector instead.
Another important conclusion drawn by their research was that government expenditure, especially the sanitation sector, must complement aid disbursements. The empirical analysis reveals that an injection of aid in these sectors has been accompanied by reduction of government expenditures, leading to a reduction in the net impact of aid on access to water and sanitation.
The study also concludes that a recipient country’s absorptive and institutional capacity plays a role in determining the effectiveness of aid inflows. As a result, aid flows have led to better outcomes in middle income countries rather than low income countries.
These findings provide something to think about. In meeting the MDG goals, ODA is an important tool of financing interventions in developing countries. The findings of this research indicate that going forward, any discussion on the effectiveness of aid must focus on whether it is so in sector specific areas such as WSS. Consensus may hold that aid must be provided for better outcomes, but a discussion is necessitated on how aid must be channelled for its best use.
On 23 November 2015, Prof Ramkishen Rajan, Visiting Professor and Adjunct Senior Research Fellow, Institute of Water Policy, LKY Shool presented the results from the paper on the effectiveness of foreign aid in general. For upcoming events by the LKY School, please visit our website.
Karishma Mutreja is an MPP Student at the LKY School. Her email is decb64_a2FyaXNobWFtdXRyZWphQGdtYWlsLmNvbQ==_decb64