The Changing Face of Water Infrastructure Financing in Developing Countries

For decades the financing of water-related infrastructure was a sleepy backwater: the financing of hydro-powerplants, water supply and irrigation systems all depended heavily on government financing. All infrastructure financing-for telecommunications, power, transport and water accounts for about one-half of all government spending and about 20% of all investment in developing countries. The results are now broadly perceived as unsatisfactory: these put a heavy strain on public finance; there is too little investment; investments are not efficient; performance of the investments is unsatisfactory both in terms of outputs and in terms of impact on the environment; and the poor often do not benefit from these investments. In recent years, the sweeping changes affecting most economies in the world-changingroles of government, increasing involvement of the private sector, globalization-havehad a profound effect on how infrastructure is provided and financed. During the 1990s, while official development assistance actually declined slightly in real terms, private investment increased from about half of official assistance to about five times the volume of official assistance. Some 15% of infrastructure investment in developing countries now comes from the private sector. This paper provides an overview of the changing face of infrastructure financing in developing countries. A companion paper to be published in this journal examines the situation in water-related infrastructure in greater detail.