In 2010, the United Nations (UN) declared clean drinking water and sanitation to be human rights. At the time, the UN’s Millennium Development Goals focused on halving the number of people living without access to improved water and sanitation services by 2015. Then, in the fall of 2015, the UN adopted the Sustainable Development Goals (SDGs). These raised the global ambition by aiming to “achieve universal and equitable access to safe and affordable drinking water” and to “achieve access to adequate and equitable sanitation and hygiene for all” by 2030.

As of 2015, about 29 percent of the world’s population was without safely managed drinking water, and about 61 percent without access to a safely managed sanitation service (WHO and UNICEF 2017). The World Bank estimates that to realize the SDGs by extending safely managed services to these people would cost $114 billion a year over the period 2015–30 (Hutton and Varughese 2016).

The water supply and sanitation (WSS) sector remains heavily subsidized around the world, as it has been for decades. Despite the prevalence of subsidies and the critical role that effective pricing plays in providers’ ability to deliver high-quality services, scant attention has been paid to how current WSS pricing structures and subsidies impede progress toward the SDGs. Although most subsidies are intended to ensure that WSS services are affordable to the poor, they often end up benefiting relatively well-to-do households already connected to networked WSS services. The poorest of the poor, who generally lack access to networked services, are left without their basic human rights to clean drinking water and sanitation. And, most often, the poorest communities are located in regions and countries with limited capacity for public spending. Given that most subsidies are expensive, poorly targeted, nontransparent, and distortionary, it is urgent that policy makers reconsider how current spending is working, and carefully target available resources to achieve the greatest impact.

In this report, the authors explore the question of how scarce public resources can be used most effectively to achieve universal delivery of WSS services. To inform their discussion, the authros analyze subsidies in the sector, including their magnitude, their efficacy in achieving their policy objectives, and the implications of poor design. The authors then provide guidance to policy makers on how subsidies can be better designed to improve their efficacy and efficiency in attaining their objectives. Finally, the authors discuss how to design a subsidy reform package that will have the best chances of success.