## _sdn1511 — EXECUTIVE SUMMARY

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### I. Why care about water?
- Water resources are essential for human development and environmental sustainability and are coming under intense pressure due to rising water demand from urbanization and growth in income and population.
- Millions lack access to safe drinking water and sanitation; climate change is likely to exacerbate demand-supply imbalances.
- Acute local cases:
  - Yemen: near-crisis situation for a decade, with growing local conflicts over water rights.
  - Parts of the United States: some regions use as much as 80 percent of their available freshwater resources.
- Water characteristics and rights:
  - Water is both a private and public good; bulky and difficult to transport; can be used sequentially and recycled; heterogeneous.
  - The right to safe drinking water and sanitation is recognized as a human right.
- Empirical relationship:
  - Water use is negatively correlated with water cost (example: per capita water use in California has declined in recent decades as a result of pricing incentives).
- Consequences of poor pricing and management:
  - Underpricing → overuse and undersupply.
  - Underinvestment in infrastructure and maintenance.
  - Large network losses and low water access and quality.

### II. Charting water challenges — key findings and statistics
- Water supply and variability:
  - Groundwater (wells and aquifers) is the largest source of usable freshwater, accounting for 30 percent of the total.
  - Over 60 percent of the usable freshwater supply is found in just 10 countries.
  - China has roughly the same amount of freshwater as the United States but has four times the U.S. population.
  - Desalination remains costly; recycled water requires substantial upfront investment.
  - WRI indicators: out of 179 countries and territories, 119 have at least one aspect of high variability; 34 countries are vulnerable to high water variability in at least two aspects.
- Historical global withdrawals (Table 1, exact values):
  - Year 1700: Population 60 million; GDP 437; Withdrawals 100.
  - Year 1820: Population 201 million; GDP 1,042; Withdrawals 694.
  - Year 1900: Population 1,564 million; GDP 1,972; Withdrawals 579.
  - Year 1950: Population 2,526 million; GDP 5,336; Withdrawals 1,382.
  - Year 2010: Population 6,916 million; GDP 53,394; Withdrawals 4,104.
  - Global water withdrawals have risen by a factor of 40 since 1700; population rose 11-fold over the same period.
- Top 10 countries by freshwater withdrawal in 2010 (values preserved exactly):
  - India: Freshwater Withdrawal 760; Population 1,206; PPP GDP 4,130; Agricultural Land Area 3,287; Withdrawals per capita 631; Withdrawals per unit of GDP 182; Withdrawals per square kilometer 31.
  - China: Freshwater Withdrawal 627; Population 1,360; PPP GDP 10,040; Agricultural Land Area 9,597; Withdrawals per capita 461; Withdrawals per unit of GDP 665.
  - United States: Freshwater Withdrawal 441; Population 312; PPP GDP 14,958; Agricultural Land Area 9,629; Withdrawals per capita 1,413; Withdrawals per unit of GDP 346.
  - Pakistan: Freshwater Withdrawal 183; Population 179; PPP GDP 487; Agricultural Land Area 796; Withdrawals per capita 1,022; Withdrawals per unit of GDP 382; Withdrawals per square kilometer 30.
  - Indonesia: Freshwater Withdrawal 166; Population 241; PPP GDP 1,026; Agricultural Land Area 1,905; Withdrawals per capita 691; Withdrawals per unit of GDP 168; Withdrawals per square kilometer 7.
  - Iran: Freshwater Withdrawal 89; Population 74; PPP GDP 942; Agricultural Land Area 1,648; Withdrawals per capita 1,202; Withdrawals per unit of GDP 954.
  - Russia: Freshwater Withdrawal 80; Population 144; PPP GDP 2,222; Agricultural Land Area 17,075; Withdrawals per capita 558; Withdrawals per unit of GDP 45.
  - Mexico: Freshwater Withdrawal 80; Population 118; PPP GDP 1,603; Agricultural Land Area 1,958; Withdrawals per capita 676; Withdrawals per unit of GDP 541.
  - Philippines: Freshwater Withdrawal 79; Population 93; PPP GDP 365; Agricultural Land Area 300; Withdrawals per capita 848; Withdrawals per unit of GDP 222; Withdrawals per square kilometer 64.
  - Japan: Freshwater Withdrawal 76; Population 127; PPP GDP 4,351; Agricultural Land Area 378; Withdrawals per capita 596; Withdrawals per unit of GDP 220; Withdrawals per square kilometer 1.
  - World Total: Withdrawals 4,104; Population 6,837; GDP 73,658; Agricultural Land Area 131,077; Withdrawals per capita 600; Withdrawals per unit of GDP 631.
- Water use patterns:
  - Agriculture accounts for about 70 percent of total global water withdrawals.
  - Wealthier countries typically use less water per unit of GDP and more per person.
  - Water intensity (withdrawals per unit of GDP) is unrelated to the abundance of water in a given location according to data.
- Scarcity, access, and stress:
  - Almost 10 percent of the global population still lack access to safe drinking water sources.
  - More than 2.5 billion people lack access to sanitation facilities.
  - WRI’s Aqueduct: 36 countries face “extremely high” baseline water stress (>80 percent withdrawn annually); a country faces high water stress if >40 percent of available water resources is withdrawn annually.
  - Subnational variation can be large; among the 20 countries with highest regional variation, 15 (including China and the United States) do not face high country-level water stress.
- Infrastructure and investment gaps:
  - Financing requirement (developing countries) to increase water access and sanitation to 88 percent and 75 percent by 2015 respectively was US$18 billion per year; cost of maintaining water services was US$54 billion per year (WHO 2014).
  - Actual spending on the sector was only US$14–16 billion per year.
  - 75 percent of urban water networks in the United Kingdom are more than 100 years old.
  - Leakage losses can be as high as 45 percent in some OECD cities.

### III. Getting incentives right — findings and policy options
- Key finding on subsidies:
  - Water subsidies (difference between actual water charges and a reference price that covers all supply costs) are estimated at about US$456 billion or 0.6 percent of global GDP in 2012.
  - Across regions, subsidies average between 0.3 percent and 1.8 percent of GDP.
  - Developing Asia accounts for the largest absolute subsidies (US$196 billion), with China accounting for more than two-thirds of that amount.
  - Subsidies exceed 5 percent of GDP in seven countries: Azerbaijan, Honduras, Kyrgyz Republic, Mongolia, Tajikistan, Uzbekistan, and Zimbabwe (all except Honduras and Zimbabwe face high water stress).
- Distributional incidence:
  - Subsidies are inequitable; in developing economies the poor often have limited or no network access and capture less subsidy.
  - In three low-income economies with data, the poorest 20 percent received, on average, less than 11 percent of subsidies incurred by public water utilities; the richest 20 percent received over 30 percent.
  - In emerging market economies, the poorest received, on average, 22 percent of subsidies (country variation: poorest receive about 11 percent in India and 36 percent in Chile).
- Externalities and depletion costs:
  - Depletion externalities require extraction charges that reflect scarcity value and rise over time.
  - Kansas analysis: externalities modest, causing water use to exceed efficient levels by only 2½ percent.
  - Andhra Pradesh (India): externalities estimated about US$120–US$200 per rural household; crude extrapolation suggests externalities around 1½ percent of GDP in India.
- Pricing reform objectives and mechanisms:
  - Objectives: rationalize demand, improve service delivery, unlock additional supply, improve cost recovery, strengthen subnational fiscal balances, raise investment, promote efficiency, and incentivize technology development.
  - Pricing mechanisms and social protection:
    - Allowing for full cost recovery and a normal profit promotes maintenance, investment, and innovation.
    - Progressive tiered tariffs (dual tariff) can protect the poor when access is high.
    - Alternatives: subsidize public pumps (self-targeted), subsidize connections for the poor, targeted income assistance.
  - Complementary policies: reforms in agriculture, trade, and energy (for example, replacing energy subsidies that encourage groundwater pumping with targeted social assistance).
  - Establishing markets for water rights can help allocate limited water to highest-valued uses under the right institutional conditions.
- Institutional design and prerequisites:
  - Effective and autonomous water institutions enhance credibility and public support.
  - Public awareness and transparent use of funds mobilized by pricing (for investment and maintenance) are important.
  - Ensuring adequate maintenance spending is a priority for all countries.

### IV. Markets, regulation, and agriculture — empirical insights and constraints
- Regression and drivers (selected equations preserved exactly):
  - Withdrawals (log) vs Population (log): y = 1.15x + 1.43; R² = 0.75.
  - Withdrawals (log) vs Agricultural GDP (log): y = 1.07x - 0.88; R² = 0.76.
  - Withdrawals (log) vs GDP PPP (log): y = 0.96x - 0.89; R² = 0.67.
  - Withdrawals per unit of GDP (log) vs GDP PPP per capita (log): y = -0.60x + 9.04; R² = 0.34.
  - Withdrawals per capita (log) vs GDP PPP per capita (log): y = 0.40x + 2.13; R² = 0.19.
- Agriculture:
  - Agriculture uses about 70 percent of all water withdrawn (FAO 2014).
  - Regression result on diesel prices: after controlling for GDP per capita, a 1 percent increase in the price of diesel would reduce water withdrawal per capita by 0.7 percent.
- Formal water markets:
  - Existing in Australia, Chile, Mexico, and the western United States; empirical benefits include shifts to higher value-added agriculture and more efficient irrigation (Australia example).
  - U.S. example: some Arizona farmers paid US$27 per acre-foot while nearby urban customers paid US$479 to US$3,267 per acre-foot (Brewer and others 2008).
- Constraints on markets:
  - Legal complexities, infrastructure shortages, search costs; markets require strong legal, institutional, and accountability frameworks.
  - Informal markets can exacerbate inequities and depletion (example: South Asia groundwater sales).

### V. Role of the IMF and policy recommendations
- IMF roles (in line with mandate and expertise):
  - Assess impact of water challenges on growth and macro-stability in collaboration with water specialists.
  - Support policies to replace perverse subsidies with targeted social assistance under appropriate circumstances.
  - Ensure fiscal sustainability to support water infrastructure investment and financing.
  - Advise on strengthening public investment management systems to improve maintenance spending and prioritization of public investment.
- Specific policy-relevant recommendations:
  - Reform water pricing to rationalize use, promote investment, and protect the poor—design depends on access of the poor to networks and administrative capacity.
  - Complement pricing reforms with agriculture and energy reforms to address the lion’s share of water use.
  - Establish autonomous institutions for water management to enhance credibility and public support.
  - Mobilize fiscal space or catalyze financing for water-related investment where full cost recovery is insufficient to meet infrastructure needs.

### VI. Concluding remarks and caveats
- The paper summarizes water challenges, highlights macro-criticality, and examines economic (especially fiscal) instruments and institutions.
- Important caveats:
  - Analysis constrained by cross-country data availability.
  - Water issues are frequently location-specific; policies must be tailored to basin- and locality-specific conditions.
  - Policies in non-water sectors (agriculture, energy, industry, trade) have large impacts on water use and supply.
  - Shared basins create international policy cooperation needs beyond the scope of this paper.
- Sustainability projections:
  - If no action is taken, growing population, rapid urbanization, and economic growth are estimated to lead to global water demand exceeding the existing water supply by 40 percent in 2030.
  - Freshwater availability is expected to remain more or less fixed in coming decades; climate change will likely increase precipitation variability and evapotranspiration.

### VII. Data and methodology highlights (selected points)
- Data sources: FAO Aquastat and WRI Aqueduct for water supply and withdrawals; GWI for utility tariffs and revenues; WHO/UNICEF for water access.
- Subsidy estimation (price-gap approach):
  - Global reference cost-recovery price from GWI 2004: $1 US per m3 in 2004.
  - Inflation adjustment: ratio of GDP deflator in the USA in 2012 to GDP deflator in the USA in 2004 raises reference price about 18 percent to $1.18.
  - Labor adjustment: labor accounts for about 24 percent of water operating costs; 24 percent of the reference price is adjusted for differences in wages using ILO wage data.
  - Scarcity adjustment: stress adjustment = ratio of the country’s stress score to two (WRI scores).
  - Example calculation for a developing economy with stress score of 5:
    - (using equation (3) adjustments) (4) = ( $1.18 ) * [ (0.8 * 0.24) + 0.76 ] = $2.81.
  - Water subsidies estimated using a per-unit expression scaled up with national water supply; calculation performed for both drinking water and wastewater supplied by utilities.
- Revenue estimation:
  - National-level utility revenue series constructed using tariffs, water supply, and non-revenue water (non-revenue water represents distribution losses, theft, or inadequate collection).
  - Tariff observations correspond to 2012 from GWI; national tariff calculated as population-weighted average of utility observations using UN urban population data.
  - Where only 2007 national revenue data are available, the subsidy calculation uses 2007 data and assumes subsidies represent the same share of nominal GDP in 2012; reference price adjusted using the relevant GDP deflator.

*Source: EXECUTIVE SUMMARY, "_sdn1511 - EXECUTIVE SUMMARY ___________________________________________________________________________ 4" (IMF).*

### EXECUTIVE SUMMARY ___________________________________________________________________________ 4

### _sdn1511 - EXECUTIVE SUMMARY ___________________________________________________________________________ 4

### I. WHY CARE ABOUT WATER?
- Water resources are essential for human development and environmental sustainability and are coming under intense pressure. Rising water demand from urbanization and growth in income and population strains availability, sustainability, and quality of water.
- Millions lack access to safe drinking water and sanitation (water access). Climate change is likely to exacerbate demand-supply imbalances.
- Water challenges already manifest in acute local cases:
  - Yemen: near-crisis situation for a decade, with growing local conflicts over water rights.
  - Parts of the United States: some regions use as much as 80 percent of their available freshwater resources, making them vulnerable to even minor droughts.
- Water is a special economic good with unique features: both a private and public good; bulky and difficult to transport; can be used sequentially and recycled; heterogeneous. The right to safe drinking water and sanitation is recognized as a human right.
- Empirical relationship:
  - Water use is found to negatively correlate with water cost (Figure 1). Example: per capita water use in California has declined in recent decades as a result of pricing incentives.
- Poor pricing and management result in:
  - Underpricing leading to overuse and undersupply.
  - Underinvestment in infrastructure and maintenance.
  - Large network losses and low water access and quality.

### II. CHARTING WATER CHALLENGES
- Macroeconomic and welfare impacts:
  - Water shortages and variability can lead to food insecurity, raise production costs, and constrain productivity growth.
  - In agriculture-dependent countries (e.g., Burkina Faso, Morocco, Mozambique), high correlation between GDP growth and average rainfall; activities highly affected by droughts and floods.
  - Lack of water access impedes development via disease, poor health, and reduced participation of women in education and income-generating activities.
  - Water quality degradation reduces activity in sectors dependent on environmental quality (e.g., tourism).
- Illustrative country cases:
  - Burkina Faso and Singapore: Examples showing sound policy can overcome natural water scarcity. Both adopted pricing policies allowing full or near-full cost recovery and invested aggressively in water infrastructure.
    - Burkina Faso innovation: Bagre “growth pole” reservoir supports fishing and irrigation.
    - Singapore strategy: “Four Taps”—water imports, local catchment water, recycled water, desalination.
  - Pakistan: Despite past abundance, underpricing (canal water recovering only one-quarter of annual operating and maintenance costs) and largely untaxed agriculture leads to overuse and prospects of scarcity.
  - DRC: Poor management, conflicting regulations, and low cost recovery lead to low drinking-water consumption and low irrigation coverage.
  - Colorado River Basin (western United States): Supplying 40 million people and irrigating 4 million acres of farmland, losing water at dramatic rates—mostly groundwater losses with insufficient regulation.
- Data and analysis constraints:
  - Country-level analysis constrained by availability of comparable data.
  - Water issues are often location-specific within countries; policy responses must be tailored.

### III. GETTING INCENTIVES RIGHT
Findings
- Reforming water pricing can help rationalize water use, promote investment, and protect the poor.
- Water subsidies (defined as the difference between actual water charges and a reference price that covers all supply costs) are estimated at about $456 billion or 0.6 percent of global GDP in 2012.
- Water subsidies are inequitable, disproportionately benefiting upper-income groups in developing economies. Examples: Cabo Verde, India, Nepal, and Nicaragua provide the richest households with $3 worth of subsidized water, on average, for every $1 worth provided to the poorest households.
- Public utilities in many countries set water prices below cost-recovery levels, creating incentives for overuse and underinvestment, leading to financial losses, underfunding of maintenance, low investment, low water access, low quality, and large network losses.

Policy approaches and considerations
- The most desirable approach to reform water pricing will vary by country depending on:
  - Access of the poor to the existing water network.
  - Administrative capacity.
- Institutional design:
  - Effective and autonomous institutions in charge of water management can provide credibility and synergize popular support for reforms.
- Developing-country priorities:
  - Strengthen finances of public water utilities to promote investment and expand access to water and sanitation for the poor.
  - Ensure adequate maintenance spending (priority for all countries).
- Pricing mechanisms and social protection:
  - Better pricing—especially allowing for full cost recovery and a normal profit—would help ensure maintenance, attract investment, and promote technological innovation.
  - Water pricing reforms should be carefully designed to provide affordable water access for the poor (for example, a progressive tiered tariff structure).
  - There need not be a conflict between proper water pricing and protecting the poor, because only small amounts of water are required to satisfy basic needs for safe drinking water and sanitation.
- Complementary policies:
  - Water pricing reforms should be complemented by policies that rationalize water use in agriculture, trade, and energy, while redirecting achieved gains toward protecting the poor.
  - Example: excessive groundwater pumping can be discouraged by improving regulations and replacing energy subsidies with targeted social assistance.
- Under the right circumstances, establishing markets for water rights can help allocate limited water to highest-valued uses.

### IV. ROLE OF THE IMF AND POLICY RECOMMENDATIONS
Key roles for the IMF in line with its mandate and expertise
- Assessing the impact of water challenges on growth and macro-stability in collaboration with institutions specializing in water.
- Supporting policies to replace perverse subsidies with targeted social assistance under the right circumstances.
- Ensuring fiscal sustainability to support water infrastructure investment and financing.

Specific policy-relevant findings and recommendations
- Getting incentives right (notably by reforming water pricing) can help rationalize water use, promote needed investment, and protect the poor.
- Reform design should account for country circumstances: access of the poor to networks and administrative capacity determine the appropriate pricing and support mechanisms.
- Autonomous institutions for water management can enhance credibility and public support.
- Complement water pricing reforms with reforms in agriculture and energy policy to address the lion’s share of water use.

### V. CONCLUDING REMARKS AND CAVEATS
- The paper complements existing literature by summarizing water challenges, highlighting macro-criticality, and examining economic (especially fiscal) instruments and institutions.
- Important caveats:
  - Analysis constrained by cross-country data availability.
  - Water issues are frequently location-specific; policies must be tailored accordingly.
  - Policies in non-water sectors (agriculture, energy, industry, trade) have large impacts on water use and supply.
  - International dimension: shared water basins and need for cross-border policy cooperation (some issues beyond the scope of this paper).
- The IMF can play a helpful role by ensuring macroeconomic policies are conducive to sound water management, supporting subsidy reform where appropriate, and ensuring fiscal space for water infrastructure.

*Source: EXECUTIVE SUMMARY, "_sdn1511 - EXECUTIVE SUMMARY ___________________________________________________________________________ 4" (IMF).*

### 13.      The rest of this paper is organized as follows. Section II analyzes cross-country data on

### _sdn1511 - 13.      The rest of this paper is organized as follows. Section II analyzes cross-country data on

### Organization of the paper
- The rest of the paper:
  - Section II analyzes cross-country data on water supply and use to determine where water challenges are more pressing and why.
  - Section III estimates country water price subsidies and discusses possible options for pricing reforms. It also reviews country experiences with markets for water rights.
  - Section IV presents conclusions.
- The companion note includes:
  - A summary of key water issues in the Middle East, Central Asia, and sub-Saharan Africa.
  - Five case studies: Burkina Faso, DRC, Pakistan, Singapore, and Yemen.

### Framework: Charting water challenges
- Paper adopts an economic perspective, focusing on challenges arising from:
  - water supply,
  - water use,
  - water access,
  - availability of water relative to use (today and in the future).
- Water quality and pollution are acknowledged as important but are not addressed in this paper.
- Water supply in this note refers to renewable freshwater resources comprising surface water and recharge of groundwater from precipitation.

### Water supply and variability
- Usable freshwater sources and shares:
  - Groundwater (wells and aquifers) is the largest source of usable freshwater, accounting for 30 percent of the total.
- Geographic concentration:
  - Over 60 percent of the usable freshwater supply is found in just 10 countries.
  - On a per capita basis, freshwater available in the Middle East and North Africa is only a tiny fraction of that in Latin America.
  - China has roughly the same amount of freshwater as the United States but has four times the U.S. population.
- Technology and alternative supplies:
  - Desalination remains costly because of high reliance on energy and placement of such plants is generally more feasible near coastlines.
  - Recycled water may be a viable long-term alternative but requires substantial upfront investment.
- Variability and vulnerability:
  - Four country-level indicators from the World Resources Institute (WRI) measure different aspects of water variability: interannual variability, seasonal variability, flood occurrence, and drought severity. Each indicator varies from 0 to 5, with 3 and above defined as “high variability.”
  - Out of 179 countries and territories, 119 have at least one aspect of high variability.
  - Thirty-four countries are vulnerable to high water variability in at least two aspects (all except South Korea are developing).
  - Transportation and storage can mitigate variability but require expensive infrastructure and sophisticated planning.
  - Many countries with high water variability have low storage capacity; low-income countries such as Eritrea and Niger are particularly affected.

### Water use and intensity
- Definitions and measurement:
  - Withdrawals of water—total water diverted for human use—are used as a proxy for reliance of human activity on water.
  - Withdrawals do not fully capture recycling intensity or impacts on water quality.
- Historical changes and magnitudes (Table 1):
  - Year 1700: Population 60 million; GDP 437 (in billions of international dollars, base 1990); Withdrawals 100 (in billions of cubic meters).
  - Year 1820: Population 201 million; GDP 1,042; Withdrawals 694.
  - Year 1900: Population 1,564 million; GDP 1,972; Withdrawals 579.
  - Year 1950: Population 2,526 million; GDP 5,336; Withdrawals 1,382.
  - Year 2010: Population 6,916 million; GDP 53,394; Withdrawals 4,104.
  - Global water withdrawals have risen by a factor of 40 since 1700, far exceeding the 11-fold increase in population over the same period.
- Correlates of withdrawals:
  - A country’s water withdrawals are highly correlated with population size, economy, and agricultural land.
  - The 10 countries withdrawing the most water include seven of the 10 most populous countries, six of the world’s 10 largest economies, and five of the 10 countries with the most land cultivated for agriculture.
  - Withdrawals in India, China, and the United States dwarf those of other countries.
- Top 10 countries by freshwater withdrawal in 2010 (from Table 2; values preserved exactly):
  - India: Freshwater Withdrawal 760 (in billions of cubic meters); Population 1,206 (in millions); PPP GDP 4,130 (in billions of international dollars); Agricultural Land Area 3,287 (in thousands of square kilometers); Withdrawals per capita 631 (cubic meters per capita); Withdrawals per unit of GDP 182 (cubic meters per unit of GDP); Withdrawals per square kilometer 31 (cubic meters per square kilometer).
  - China: Freshwater Withdrawal 627; Population 1,360; PPP GDP 10,040; Agricultural Land Area 9,597; Withdrawals per capita 461; Withdrawals per unit of GDP 665.
  - United States: Freshwater Withdrawal 441; Population 312; PPP GDP 14,958; Agricultural Land Area 9,629; Withdrawals per capita 1,413; Withdrawals per unit of GDP 346.
  - Pakistan: Freshwater Withdrawal 183; Population 179; PPP GDP 487; Agricultural Land Area 796; Withdrawals per capita 1,022; Withdrawals per unit of GDP 382; Withdrawals per square kilometer 30.
  - Indonesia: Freshwater Withdrawal 166; Population 241; PPP GDP 1,026; Agricultural Land Area 1,905; Withdrawals per capita 691; Withdrawals per unit of GDP 168; Withdrawals per square kilometer 7.
  - Iran: Freshwater Withdrawal 89; Population 74; PPP GDP 942; Agricultural Land Area 1,648; Withdrawals per capita 1,202; Withdrawals per unit of GDP 954.
  - Russia: Freshwater Withdrawal 80; Population 144; PPP GDP 2,222; Agricultural Land Area 17,075; Withdrawals per capita 558; Withdrawals per unit of GDP 45.
  - Mexico: Freshwater Withdrawal 80; Population 118; PPP GDP 1,603; Agricultural Land Area 1,958; Withdrawals per capita 676; Withdrawals per unit of GDP 541.
  - Philippines: Freshwater Withdrawal 79; Population 93; PPP GDP 365; Agricultural Land Area 300; Withdrawals per capita 848; Withdrawals per unit of GDP 222; Withdrawals per square kilometer 64.
  - Japan: Freshwater Withdrawal 76; Population 127; PPP GDP 4,351; Agricultural Land Area 378; Withdrawals per capita 596; Withdrawals per unit of GDP 220; Withdrawals per square kilometer 1.
  - World Total: Withdrawals 4,104; Population 6,837; GDP 73,658; Agricultural Land Area 131,077; Withdrawals per capita 600; Withdrawals per unit of GDP 631.
- Income, per capita use, and intensity:
  - Wealthier countries typically use less water per unit of GDP and more per person.
  - Rising per capita income is associated with increasing water use per person (e.g., more meat-intensive diets and higher consumption of manufactured goods).
  - Agriculture accounts for about 70 percent of total global water withdrawals; as income rises and agriculture’s role shrinks, water use per unit of income tends to decline.
  - Water withdrawals in Europe and North America have declined in recent decades.
- Water intensity and supply:
  - Water intensity (withdrawals per unit of GDP) is unrelated to the abundance of water in a given location according to data.
  - Lack of correlation suggests either inefficient use of water resources or a nonlinear relationship whereby intensity is unrelated to availability below a threshold and strongly related once supply constraints bind.

### Water scarcity: access and stress
- Definitions:
  - Economic water scarcity: lack of access to or unequal distribution of water; can be caused by lack of infrastructure investment or poor institutions. Can be measured by the proportion of the population with water access.
  - Physical water scarcity: insufficient availability of water relative to demand. Assessed by water stress = ratio of water withdrawals over total renewable water supply.
- Access statistics:
  - Almost 10 percent of the global population still lack access to safe drinking water sources (WHO/UNICEF estimates).
  - More than 2.5 billion people (one out of every three) lack access to sanitation facilities.
  - Sub-Saharan Africa has the lowest coverage of safe drinking water; Africa and South Asia have the lowest access to water sanitation.
- Water stress prevalence:
  - With relatively high population density and low water endowments, regions commonly facing high water stress include the Middle East, the Caribbean, Pacific island countries, and select African and Asian countries (for example, Libya, Morocco, and Singapore).
  - WRI’s Aqueduct project found that 36 countries already face “extremely high” levels of baseline water stress—defined as more than 80 percent of available water resources withdrawn annually.
  - A country faces high water stress if more than 40 percent of available water resources is withdrawn annually.
- Subnational variation:
  - National-level benign stress indicators can mask considerable within-country variation across basins.
  - Among the 20 countries with the highest regional variation, 15 (including China and the United States) do not face high water stress at the country level.
- Behavior under stress:
  - High water stress does not necessarily lead to economizing on water use.
  - Several countries in Central and South Asia are among the most water-intensive economies despite high water stress.
  - Groundwater pumping to supplement surface water has led to rapid depletion of aquifers in some cases.
  - Policy distortions (examples in text):
    - Pricing structure of major crops in Pakistan impeded adoption of more efficient technology and less-water-intensive crops.
    - Fuel subsidies in Yemen (reduced in 2014) contributed to rapid depletion of groundwater and distorted production costs that favored water-intensive crops (for example, qat).

### Infrastructure, investment, and consequences
- Underinvestment:
  - Financing requirement for developing countries to increase water access and sanitation to 88 percent and 75 percent by 2015 respectively was US$18 billion per year; cost of maintaining water services was US$54 billion per year (WHO 2014).
  - Actual spending on the sector was only US$14–16 billion per year.
- Aging infrastructure in developed countries:
  - 75 percent of urban water networks in the United Kingdom are more than 100 years old.
  - Leakage losses can be as high as 45 percent in some OECD cities (Gurría 2014).
- Consequences:
  - Underinvestment exacerbates water scarcity and leads to inefficient infrastructure and high losses.

### Synthesis: causes of water stress and policy focus
- No country is spared water challenges.
- Understanding causes of water stress (demand factors, supply factors, or both) and examining water access are important because policy responses differ.
- Per capita annual water use and supply data are used to investigate causes of stress and access.
- Countries facing high water stress need to rationalize water use and/or identify other water resources.
  - Examples by underlying factor:
    - High water stress due to extensive water use: Australia, Mexico, Tajikistan, Timor-Leste.
    - High water stress due to resource constraints: India, Singapore, Yemen.
    - High water stress due to both supply and demand: Azerbaijan, Pakistan, Saudi Arabia, Uzbekistan.
- Given the difficulty and cost of developing alternative sources of water supply for many countries, the focus should be on policies to better rationalize water use.
- Some countries with high water stress also face economic water scarcity, indicating demand pressures may increase as they try to improve water access.

*International Monetary Fund — IS THE GLASS HALF EMPTY OR HALF FULL? (excerpts from Section II: Charting Water Challenges)*

### 33.      Low water stress does not imply an absence of challenges in water management.

### 33.      Low water stress does not imply an absence of challenges in water management.

### Low water stress and divergent challenges
- Low water stress can mask important management challenges:
  - Some countries (for example, the United States) have high per capita water use but low stress due to abundant water endowment, indicating scope to rationalize use.
  - Many low-income countries with low water stress have low per capita water use and need to improve water access (for example, Bolivia, Burkina Faso, DRC, and Lao P.D.R.); improving access, urbanization, and growing income are expected to increase water use and may raise future water stress.
  - Some countries (for example, Denmark) have rationalized water use, achieved universal water access, and maintained low water stress despite resource constraints.

### Transboundary and within-country management complications
- Policy boundaries are often political/administrative (nations, states), complicating basin-wide sustainable management:
  - “Tragedy of the commons” and overexploitation can arise when shared basins lack holistic policies across countries/states.
  - Different basins within one country may warrant distinct policies; enforcing “equal treatment” across basins can disincentivize efficient water use.

### Water sustainability: projected gaps and drivers
- Long-term scenarios and consensus findings:
  - Future global water use will far exceed today’s level given expected population and economic growth.
  - Freshwater availability is expected to remain more or less fixed in the coming decades.
  - Even substantial technological advances and investment would be insufficient to close projected future gaps between water supply and water use.
  - Footnote projection: if no action is taken, growing population, rapid urbanization, and economic growth are estimated to lead to global water demand exceeding the existing water supply by 40 percent in 2030.
  - Climate change is expected to exacerbate water sustainability through higher precipitation variability and increased evapotranspiration in areas where temperatures increase.

### Implications
- Closing future water supply–use gaps requires policy adjustments to rationalize water use because:
  - Water is bulky and costly to transport—local abundance does not easily alleviate shortages elsewhere.
  - Uncertainty exists around the ability of international trade in agricultural products to substitute for domestic water scarcity.
  - Climate change will likely aggravate variability and evapotranspiration.

---

### III. GETTING INCENTIVES RIGHT

### Policies to signal scarcity and pricing rationale
- Signaling scarcity through policy (notably pricing) is a key part of solutions.
- Analysis focuses on drinking water and wastewater provided by public utilities; limited data prevent inclusion of agricultural water use.

A. Issues in Water Pricing by Public Utilities

- Prevalence and consequences of subsidies via public utilities:
  - Subsidies exist whenever the price charged is below a reference price that covers all supply costs, including depreciation and maintenance.
  - Subsidies are rarely reported or funded properly; they manifest as underfunded maintenance, infrastructure deterioration, and financial losses for public utilities.
  - Fiscal costs of water subsidies are often borne by subnational authorities, constraining their ability to provide other public services.

- Price-gap approach and estimated global subsidies:
  - The paper uses a price gap approach, adjusting the reference price upward for countries suffering from water scarcity.
  - Water subsidies are estimated at about US$456 billion, or about 0.6 percent of global GDP in 2012.
  - Across regions, subsidies average between 0.3 percent and 1.8 percent of GDP.
  - Developing Asia accounts for the largest absolute subsidies (US$196 billion), with China accounting for more than two-thirds of that amount.
  - Subsidies are substantial at country level, reaching above 5 percent of GDP in seven countries: Azerbaijan, Honduras, Kyrgyz Republic, Mongolia, Tajikistan, Uzbekistan, and Zimbabwe. All except Honduras and Zimbabwe face high water stress.

- Advanced economies and underpricing externalities:
  - On average, household and industry water prices in advanced economies tend to be at or close to cost recovery.
  - Some advanced economies provide subsidized water for agriculture and electricity generation; a few OECD countries apply no charges to irrigation water abstraction (these subsidies are not captured due to data limitations).
  - Prices do not necessarily reflect externalities even in advanced economies.

- Distributional incidence of subsidies:
  - Water subsidies are inequitable: in developing economies the poor often have limited or no water access and thus capture less of subsidies.
  - In three low-income economies with data, the poorest 20 percent received, on average, less than 11 percent of subsidies incurred by public water utilities; the richest 20 percent received over 30 percent of benefits.
  - In emerging market economies, the poorest received, on average, 22 percent of subsidies, though country variation is large (poorest receive about 11 percent in India and 36 percent in Chile).

- Externalities and depletion costs:
  - Externalities include depletion of nonrenewable groundwater and impacts of pollution on watersheds and deltas.
  - Addressing depletion externality requires extraction charges that reflect scarcity value and rise over time (Hotelling-type logic).
  - Empirical evidence is limited:
    - Analysis for Kansas suggests externalities are modest, causing water use to exceed efficient levels by only 2½ percent.
    - In Andhra Pradesh (India), externalities estimated at about US$120–US$200 per rural household; a crude extrapolation suggests externalities around 1½ percent of GDP in India.
    - A broader extrapolation indicates annualized depletion externality is generally less costly than for India in many other economies.

B. Water Pricing Reforms

- Objectives and benefits of pricing reforms:
  - Rationalize demand, improve service delivery, unlock additional supply, improve cost recovery, strengthen subnational fiscal balances, raise investment in water infrastructure, promote efficiency, and incentivize technology development.
  - Pricing reforms plus stronger utility management can reduce large commercial and physical water losses.

- Complementary policy needs:
  - Pricing reforms must be accompanied by reforms affecting agriculture, trade, and energy.
  - Affordability considerations are essential to ensure water access for the poor.

- Distributional observations and targeting:
  - The poor spend a larger part of their income on water than the rich in developing economies due to high expenditures on private vendors.
  - Surveys indicate the poor are willing to pay higher prices than current levels, though not enough to fully recover costs.
  - Targeted income assistance can ensure the poor are no worse off after reforms.

- Pricing structure options to protect the poor:
  - Dual tariff: provide a basic quantity at subsidized price for everyone and charge higher tariff beyond that level (requires high access of the poor to public networks).
  - Subsidize public pumps: self-targeted if pumps are in low-income neighborhoods.
  - Subsidize water connections for the poor to enable access at prices below private vendors.
  - Empirical evidence on incidence is limited; Komives and others (2005) suggest subsidizing public pumps could reach a higher share of the poor.

- Country-dependent design:
  - Choice of approach depends on access of the poor to networks and administrative capacity.
  - Examples:
    - Burkina Faso: progressive tariff grid where higher tiers subsidize lowest tier and part of sanitation activities.
    - Singapore: no subsidized “basic” consumption; targeted help for low-income families; strong autonomous utility; full cost recovery emphasis plus targeted social assistance.
  - Full cost recovery can be politically and socially difficult; financing needs for infrastructure may overwhelm some developing countries even with full cost recovery—mobilizing external financial assistance may be necessary.

- Institutional and awareness preconditions for successful reform:
  - Reforms succeed more when there is greater public awareness of water challenges and when water management is assigned to strong, independent institutions.
  - Reforms should ensure funds mobilized by pricing are used for investment and maintenance spending to boost access and sustain supply.
  - Ensuring adequate maintenance spending is a priority in all countries.

### Country case studies: policy lessons (summary)
- Burkina Faso:
  - Restricted access/high costs can spur homegrown efficiency solutions.
  - Public utility (ONEA) achieved improvements with independent management, performance-based contracts, donor-financed infrastructure, and cost recovery tariffs.
  - Remaining challenges: large infrastructure gap, low access to sanitation, high vulnerability to shocks; need more aggressive policies.

- Singapore:
  - High-level political support, strong institutions (autonomous Public Utilities Board), rigorous demand management, cost recovery with targeted social assistance, continued investment in technology, and broad societal involvement in conservation.

- Democratic Republic of the Congo (DRC):
  - Less than half of the population has access to safe drinking water compared with an average of 73 percent in sub-Saharan Africa.
  - Urban public utility performance has declined since the 1990s due to high operating costs, inadequate tariffs, and low collection rates.
  - Weak water institutions reflect broader governance weaknesses; cross-subsidized systems are not working given low collection rates.
  - More equitable distribution of investment funds could reduce urban-rural access gaps.

- Pakistan:
  - Natural endowment and extensive irrigation system require a paradigm shift toward demand-side measures, conservation, and control of groundwater exploitation.
  - Reforms needed to improve water-use efficiency in agriculture, greater stakeholder engagement locally, capacity building of water institutions, and reform of provincial agriculture taxation. Nexus with electricity subsidy reform also important.

- Yemen:
  - Urgent need to improve water resource management through a broad reform agenda and well-coordinated donor support.
  - Priority reforms: price-based reforms and changing legal/social understanding of water rights to reflect true cost and minimize inefficient use.

- General lesson:
  - Reform priorities differ by country: low-access developing economies should expand distribution networks and raise capital spending (which may require additional fiscal resources); countries with good access need capital spending to repair aging infrastructure and sustain supply.

*Source: IMF staff summary of chapter "Low water stress does not imply an absence of challenges in water management."*

### 49.      Regulatory reforms are also important to rationalize demand for water and address

### 49.      Regulatory reforms are also important to rationalize demand for water and address

### Regulatory reforms and externalities
- The externalities associated with the overuse of water can only partly be addressed by higher tariffs and taxes that raise the price of water; in many cases, improvements in regulations governing the water sector will also be needed, since water is mostly extracted directly by users from the ground, rather than purchased from public water utilities.
- Both property rights and regulations will have to be strengthened to help promote the efficient use of water.
- Regulatory reforms can help promote:
  - greater use of clean technologies,
  - better water management,
  - allocation of water to its most productive uses.
- Examples of fiscal and regulatory instruments used in some developed countries (OECD 2010):
  - Germany: introduced water extraction charges with dual objectives of decreasing extraction and raising revenue for environmental protection.
  - Belgium (Flanders region): groundwater charges increase with the total amount of groundwater pumped.
  - Canada: most provinces levy license fees to major water users.

### Agriculture, policy drivers of water use, and price signals
- Agriculture uses about 70 percent of all water withdrawn from the ecosystem (FAO 2014).
- Inefficient use of water in agriculture stems from a range of nonwater policies that:
  - restrict economic diversification,
  - reduce opportunities for employment outside agriculture,
  - discourage farmers from diversifying into higher-value crops.
- Examples of policies that encourage wasteful water use in agriculture:
  - trade restrictions,
  - rigidities in land, real estate, and financial markets,
  - price supports and subsidized credit,
  - subsidized energy prices that reduce the price of pumping groundwater.
- Empirical evidence noted:
  - Data suggest that countries with low prices for diesel fuel tend to have greater withdrawal of water for agricultural use (Figure 12).
  - Regression analysis conducted by staff suggests that, after controlling for GDP per capita, a 1 percent increase in the price of diesel would reduce water withdrawal per capita by 0.7 percent.

### Markets for water rights: rationale and forms
- If water pricing mechanisms do not exist or inaccurately reflect the economic value of water, allocation across sectors is likely inefficient.
- Development of markets (permitting voluntary, mutually beneficial trades) could result in water moving to its highest-valued uses (Olmstead 2010).
- Formal water markets exist in some countries and regions:
  - Australia, Chile, Mexico, and the western United States have established formal mechanisms of water trading.
- Informal water markets are common in South Asia and existed in Mexico before formal mechanisms.

### Benefits and empirical examples of formal water markets
- Key benefits of formal markets:
  - Redirecting water toward more productive uses,
  - Reducing price differentials.
- Empirical examples:
  - Australia: establishment of markets for water rights led to a shift toward higher value-added agricultural production and adoption of more efficient irrigation technologies (Bjornlund and McKay 2002).
  - United States: multifold differences in prices paid for water by different agents in neighboring areas indicate potential gains from water trading. Brewer and others (2008) found that some farmers in Arizona paid US$27 per acre-foot while nearby urban customers paid from US$479 to US$3,267 per acre-foot.
  - Colorado River system (2014 drought): seven states starting a pilot program to explore a market between farmers and urban water authorities to help maintain water volumes in Lake Powell and Lake Mead.

### Constraints on development of formal water markets
- Factors holding back development:
  - legal complexities (definition of water rights, distribution mechanisms, monitoring and enforcing contracts),
  - shortage of necessary infrastructure (when distances between potential counterparts are large),
  - search costs (identifying buyers and sellers, especially in sparsely populated areas).
- Requirements for proper setup:
  - strong legal, institutional, and accountability frameworks.
- Warning: If these conditions are not met, markets for water rights may do more harm than good, exacerbating water challenges.

### Distortions from informal water markets
- Example in South Asia:
  - Wealthier farmers who can afford large groundwater wells with pumps sell water to smaller farmers at high “monopoly” prices with payment in cash, labor, or share farming (Bjornlund and McKay 2002).
  - Such sales, enabled by low energy costs (energy subsidies), lead to lower agricultural production, widening of income gaps, and faster depletion of underground aquifers.
- Governments often tolerate informal arrangements despite legal imperfections.

### Principles for successful water rights markets
- Water rights need to be defined in a clear, socially accepted, environmentally sustainable, and enforceable manner.
- Introduction of formal systems should address preexisting practices, since extractors often regard historical allocations as established rights.
- Markets require a sufficiently large number of potential buyers and sellers in proximity, a relatively stable water supply, transparent and accepted measurement systems, administrative systems that register and enforce deliveries, well-maintained delivery infrastructure, and judicial systems capable of resolving conflicts and enforcing environmental legislation.
- Water markets need to be sufficiently flexible to accommodate changes in demand (new crops, new agents) and supply (for example, drought).

### Limits of water markets
- Water markets are unlikely to eliminate, or sometimes even significantly reduce, price differentials because:
  - water is a multidimensional (legally and hydrologically) commodity,
  - markets are often linked to specific water basins and limited by infrastructure,
  - markets tend to have a small number of potential traders of disparate size, with insufficient information flows and links.

### Concluding remarks: policy implications and IMF role
- Given water’s vital role and rising demand, sound water management is necessary to rationalize use and ensure availability, particularly access by the poor and vulnerable.
- Mismanagement—especially underpricing of water and subsidies to water-intensive sectors—often drives shortages.
- Some countries have successfully managed challenges by:
  - adopting appropriate pricing mechanisms,
  - strengthening water management institutions,
  - investing in infrastructure, maintenance, and new water-saving technologies.
- The IMF can help by:
  - assessing the impact of water challenges on growth and macro-stability,
  - encouraging macroeconomic policies to “get the incentives right” (for example, replacing perverse energy and water subsidies with targeted social support under the right circumstances),
  - designing macroeconomic policies that create fiscal space or catalyze financing for water-related investment,
  - advising on strengthening public investment management systems to improve maintenance spending and prioritization of public investment.

### Annex I — Data and definitions (selected definitions)
- Water withdrawals: includes water that is “consumed,” “recycled,” or “discharged.” The measure of water withdrawals includes all three categories.
- Data sources: water supply and withdrawals data from the Food and Agriculture Organization’s Aquastat and WRI’s Aqueduct database.
- Water intensity: defined as water withdrawals per unit of GDP; serves as a proxy for efficiency of water use but does not account for recycling and sequential use.
- High water stress: WRI (2013) classification of “extremely high water stress” or “high water stress”; rate of water withdrawals to supply is equal to or more than 40 percent or WRI’s water stress indicator is equal to or higher than 3.
- Low water access: less than 75 percent of the population has access to either safe drinking water or improved water sanitation (WHO/UNICEF estimates).
- High water supply: per capita renewable freshwater availability exceeds 1,700 cubic meters per person per year (UN Water threshold).
- High water use: per capita water withdrawals exceed 680 cubic meters per person per year (i.e., 40 percent of the water supply threshold).

*Source: Excerpt from _sdn1511 — "Is the Glass Half Empty or Half Full?" (selected paragraphs 49–57 and Annex I provided in the source content).*

### ANNEX II. FIGURES AND TABLES

### _sdn1511 - ANNEX II. FIGURES AND TABLES

### Drivers of Water Use (Figures A1–A3)
- Figure A1 regression results:
  - y = 1.15x + 1.43; R² = 0.75 (Withdrawals (log) vs Population (log))
  - y = 1.07x - 0.88; R² = 0.76 (Withdrawals (log) vs Agricultural GDP (log))
  - y = 0.96x - 0.89; R² = 0.67 (Withdrawals (log) vs GDP PPP (log))
- Figure A3 regression results:
  - y = -0.60x + 9.04; R² = 0.34 (Withdrawals per unit of GDP (log) vs GDP PPP per capita (log))
  - y = 0.40x + 2.13; R² = 0.19 (Withdrawals per capita (log) vs GDP PPP per capita (log))
- Water Withdrawals by Region shown as index (1900=100) and U.S. Water Usage and Underlying Determinants shown as index (1950=100) (figures present historical indexed series by region and by determinant).

### Water Use per Unit of GDP, Per Capita, and Intensity (Figures A2–A4)
- Figure A2: Water use per unit of GDP and per capita (sources: World Resources Institute, Aqueduct; World Bank, World Development Indicators; and United Nations, World Population Prospects).
- Figure A4 statement: "Water intensity across countries is not found to be related to water supply or its variability."
- Figure A4 regression results (selected):
  - y = 0.16x + 3.57; R² = 0.01 (Withdrawals per unit of GDP (log) vs Inter-Annual Variability)
  - y = 0.62x + 2.44; R² = 0.26 (Withdrawals per unit of GDP (log) vs Seasonal Variability)
  - y = 0.02x + 3.63; R² = 0.00 (Withdrawals per unit of GDP (log) vs Available fresh water per capita (log))
  - y = -0.03x + 6.26; R² = 0.12 (Withdrawals per unit of GDP (log) vs Access to improved water source)
  - y = 0.62x + 2.55; R² = 0.37 (Withdrawals per unit of GDP (log) vs Agricultural GDP as percent of total (log))

### Supply, Demand, Water Stress, and Regional Variability (Figures A5–A7)
- Figure A5 summary: "Higher supply tends to reduce water stress and higher incomes tend to raise it, but the relationships are not strong."
  - Note: Supply is Internal Renewable Water Resources.
- Figure A6: "Water stress at the country level can mask considerable regional variations within the country."
  - Note: WRI’s water stress for a country is an aggregated estimate based on water stress at the water basin level. If a country has only one water basin, its regional variability is set at zero.
  - Top 20 countries in regional variability (values in parentheses):
    - Namibia (2.4), Djibouti (2.3), Gabón (2.3), Angola (2.1), Argentina (2.1), Belize (2.0), Ireland (2.0), Mongolia (2.0), Venezuela (1.9), Malaysia (1.9), China (1.8), Indonesia (1.8), Peru (1.8), Estonia (1.8), Botswana (1.8), Ukraine (1.8), Guyana (1.8), USA (1.7), New Zealand (1.6), Swaziland (1.6).
- Figure A7 classification: Country groups based on water stress and access; "Sixteen emerging markets and developing countries face the dual challenges of improving water access and managing already high water stress."
  - Note: Numbers in parentheses refer to the number of countries for each group. A country is said to experience "high" regional variability if its level of regional variability is higher than the global average.

### Water Subsidies and Stress (Figure A8)
- Figure A8 presents water subsidies in relation to water stress (source: World Resources Institute, Aqueduct and IMF staff calculations). (Figure grid and comparisons are displayed in the source.)

### WRI Water Variability Indicators (Table T1)
- Table T1 provides country-level indicators: Interannual, Seasonal, Flood, Droughts, and "No. of High Variability" for 179 countries (WRI database).
- Example rows (exact values preserved as in source):
  - Afghanistan 2.54 2.53 3.71 2.48 1
  - Albania 1.24 2.41 2.73 1.07
  - Algeria 2.31 1.93 2.79 2.26
  - ... (table continues through Zimbabwe 3.06 3.65 2.77 2.05)
- Summary lines (verbatim from source):
  - Countries with High water variability724421Countries with High water variability1124387
- Notes:
  - Source: WRI database
  - i) There are 179 countries for water variability indicators
  - ii) Red highlighted cells designate high water variability, while the green ones refer to low water variability
  - iii) The cutoff score for "high" variability is 3

### Water Stress and Water Access (Table T2)
- Table T2 lists country water stress scores (range 0 to 5) and the minimum of the proportion of population with access to safe drinking water and access to sanitation (WHO/UNICEF, 2014).
- Excerpts preserving exact formatting and numeric values:
  - Myanmar 0.377
  - Paraguay 0.080
  - Honduras 0.180
  - Suriname 0.380
  - Colombia 0.380
  - Guatemala 1.080
  - Brazil 0.981
  - North Korea 2.182
  - Ecuador 1.983
  - Guyana 1.884
  - Moldova 1.587
  - Montenegro 0.390
  - Belize 1.391
  - Albania 1.991
  - Macedonia, FYR 2.691
  - Georgia 1.593
  - Thailand 1.793
  - Belarus 0.694
  - Lithuania 1.294
  - Costa Rica 1.994
  - Ukraine 2.194
  - Bosnia & Herzegovina 0.095
  - Estonia 2.895
  - Uruguay 0.996
  - Egypt 1.396
  - Malaysia 2.196
  - Serbia 0.697
  - Argentina 2.597
  - Croatia 0.098
  - Bulgaria 1.399
  - United States 2.999
  - Ireland 2.999
  - Slovenia 0.0    100
  - Iceland 0.1    100
  - Slovak Republic 0.2    100
  - Austria 0.3   100
  - Norway 0.4    100
  - Hungary 0.5   100
  - Denmark 1.0    100
  - Finland 1.0   100
  - Switzerland 1.1   100
  - Czech Republic 1.1   100
  - Canada 1.2    100
  - Sweden 1.3    100
  - Netherlands 1.7   100
  - France 1.8    100
  - Germany 1.9   100
  - Luxembourg 2.5    100
  - United Kingdom 2.6   100
  - Monaco 2.7    100
  - Vietnam 1.0   75
- Group counts and labels (verbatim):
  - Group I50 Group II39 Group III                                                  51 Group IV16
  - Group I (Low Stress, High Access)
  - Group II (High stress, High access)
  - Group III (Low stress, Low access)
  - Group IV (High stress, Low access)

### Demand and Supply Factors Behind Water Stress (Table T3)
- Sources: FAO, Aquastat; World Resources Institute, Aqueduct; and IMF staff calculation.
- Methodological note: "Inconclusiveness reflects the data discrepancies between WRI and FAO. For example, Egypt is classified as 'low stress' according to the WRI classification. However, when using FAO data, it is categorized as 'high stress' because it has relatively high water use but low supply."
- Classification categories in table:
  - Low demand outweighs low supply "Demand Effect"
  - High supply outweighs high demand "Supply Effect"
  - Low demand and High supply "Combined Effect"
  - Inconclusive 1/ (High demand and Low supply)
  - High demand outweighs high supply "Demand Effect"
  - Low Supply outweighs low demand "Supply Effect"
  - High demand and low supply "Combined Effect"
  - Inconclusive 1/ (Low demand and High supply)
- Table lists countries under these categories with paired numeric tuples in parentheses representing "(annual per capita water use, annual per capita water supply in cubic meters)" for many entries (examples preserved as in source):
  - Czech Republic (163,1263)
  - Argentina (802,7180)
  - Albania (410,8486)
  - Egypt (809,21)
  - ... (table continues across multiple columns and category totals)
- Totals (verbatim excerpts):
  - Total countrie s : 8
  - Total countrie s : 12
  - Total countrie s : 27
  - Total countrie s : 1
  - Total countrie s : 11
  - Total countrie s : 14
  - Total countrie s : 6
  - Total countrie s : 6
  - Total countrie s : 19
  - Total countrie s : 2
  - Total countrie s : 29
  - Total countrie s : 0
  - Total countrie s : 4
  - Total countrie s : 5
  - Total countrie s : 3
  - Total countrie s : 4

### Annex III — Methodology for Estimating Water Subsidies (selected points)
- Approach: Methodology broadly similar to the IMF price gap calculation used to estimate energy subsidies.
- Definition of subsidies:
  - Subsidies are calculated as:
    - (1) ݏ݁ݑ݊݁ݒ݁ݎ	݈ܽݑݐܿܣ	െݏݐݏ݋ܿ	݀݁ݐܽ݉݅ݐݏܧൌ ݕ݀݅ݏܾݑܵ
  - Per-unit expression scaled up with national water supply:
    - (1b) ൌ ݕ݀݅ݏܾݑܵ ሺ݁ݐܽݎ	݊݋݅ݐ݈݈ܿ݁݋ܥ∗݂݂݅ݎܽݐ	݁݃ܽݎ݁ݒܣെݐ݅݊ݑ	ݎ݁݌	ݐݏ݋ܥሻ ݕ݈݌݌ݑݏ	ݎ݁ݐܽݹ∗
  - Calculation performed for both drinking water and wastewater supplied by utilities.
- Costs estimation:
  - Reference cost-recovery price taken from Global Water Intelligence (GWI) 2004: $1 US per m3 in 2004 necessary to recover costs in most high-income cities.
  - Adjustments applied for:
    - (i) general price inflation between 2004 and 2012,
    - (ii) lower labor costs in developing countries,
    - (iii) varying levels of water scarcity (WRI stress score).
  - Inflation adjustment: ratio of GDP deflator in the USA in 2012 to GDP deflator in the USA in 2004; raises reference price about 18 percent to $1.18.
  - Labor cost adjustment: labor accounts for about 24 percent of water operating costs (GWI 2014); 24 percent of the reference price is adjusted for differences in wages using ILO wage data converted to US dollars with WEO exchange rates.
  - Scarcity adjustment: stress adjustment = ratio of the country’s stress score to two (WRI scores; scores below two are low to medium stress).
- Example calculation:
  - Using equation (3) adjustments for a developing economy with a high stress score of 5:
    - (4) ൌሺ$1.18ሻ∗ቀ݁ܿ݅ݎ݌	݁ܿ݊݁ݎ݂ܴ݁݁ ଶ ଁ∗ሺ0.8∗0.24൅0.76ሻൌ$2.81
- Additional notes:
  - The cost is assumed to be the same for drinking water and wastewater.
  - The scarcity multiplier increases the cost-recovery price where water is scarce.

*Source: _sdn1511 - ANNEX II. FIGURES AND TABLES*

### 4.      Revenues. Data on utility revenues are also estimated for this paper. While the GWI did

### 4.      Revenues.

### Data sources and scope
- Data on utility revenues are estimated for this paper using Global Water Intelligence (GWI) data and other sources as described.
- GWI estimated total national utility revenues in 2008 (GWI 2008); this calculation has not been updated since then by the GWI or other organizations.
- Data on utility drinking water and wastewater tariffs in 2012 are available for a large sample of over 80 countries in 2012 from the GWI.
- Data on non-revenue water are taken from GWI (2014).
- Tariff observations are taken at a utility level from GWI (2014), and correspond to 2012.
- National tariff is calculated as the population-weighted average of utility observations using UN urban population data.
- For some countries with total national revenues reported in 2007 (GWI 2008) but lacking 2012 price data, the subsidy calculation uses 2007 data and assumes subsidies represent the same share of nominal GDP in 2012.

### Revenue estimation methodology
- A national-level utility revenue series is constructed using tariffs, water supply, and non-revenue water according to the following equation as shown in the source:
  - (5) ሻݎ݁ݐܽݓ	݁ݑ݊݁ݒ݁ݎ	݊݋ܰ∗ሺ100%െݕ݈݌݌ݑݏ	ݎ݁ݐܹܽ∗݂݂݅ݎܽݐ	݁݃ܽݎ݁ݒܣൌݏ݁ݑ݊݁ݒܴ݁
- In the equation, non-revenue water represents the share of water on which utilities do not receive revenue, either because of distribution losses, theft, or inadequate collection of revenue.

### Tariff treatment and consumption assumption
- Tariffs are frequently differentiated by household consumption level (block tariffing); however, household-level consumption data are not available for this exercise.
- An average tariff is used, taken as the average cost for a household consuming 15 m3 per month.

### Use of historical data and price adjustment
- Where only 2007 national revenue data are available, the subsidy calculation:
  - uses 2007 data directly, and
  - assumes subsidies represent the same share of nominal GDP in 2012.
- For cost calculations in those cases, the reference price is adjusted using the GDP deflator in 2007 rather than 2012.

### Water supply data and scaling
- Water supply data for these calculations are taken from the GWI 2008 report, the last year it is available.
- These 2008 water supply data are scaled up to 2012 by assuming a growth rate equal to that of real GDP.

*Source: Excerpt from "_sdn1511" (section 4, Revenues) as provided.*

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