IMF wants global change in price of water

A recent IMF study examined whether Governments worldwide should price water like other goods; whether this is the right choice and whether governments can succeed in protecting their citizens by providing cheap water. The study suggested that there is a role for price incentives because when you do not get prices right for water, you end up with ‘misallocation of water today’ and ‘misallocation tomorrow’. Misallocation today can take the form of thirst, low agricultural productivity, or worse, poor sanitation, disease, and malnourishment. Misallocation tomorrow can take the forms of inadequate investment in infrastructure and the technologies to meet future water needs and ensure water security.

 

The report stated, all these are important enough to lead to macroeconomic and growth underperformance in economies.  The need to “get prices right” can be seen from country experiences around the globe. For instance, in India, under pricing of water and inputs is contributing to scarcity today and long-term problems that will be hard to solve. Water related subsidies, through lower prices of diesel and free electricity for irrigation pumps, have led to widespread overuse of underground aquifers and increased salinity of soils, nearly undoing all the productivity gains from the green revolution of the 1960s.

 

The report said that these experiences drive home the fact there is a strong role for price incentives in the rationalisation of water use. In many countries, public water authorities charge households a price that is just a fraction of what it costs to deliver water, let alone maintain or expand water infrastructure. IMF economists calculated, in 2012, this under-pricing resulted in water subsidies totaling about $456 billion worldwide, or about 0.6 per cent of the global GDP. In some countries subsidies amount to as much as five per cent of GDP. And this is just a tip of the iceberg, as these estimates exclude agriculture uses of water, which in developing countries constitute the bulk of water consumption.

 

The report concluded that governments could put in place regulations that strengthen rights to water access and promote its efficient use, build strong and independent institutions in charge of water management, and conduct public awareness campaigns that help build support for these reforms. The International Monetary Fund says this issue is of paramount importance to them because it is clear that water challenges can have economic consequences, and failure to manage these can impede a country’s economic prospects. They hope by studying the economic dimension of the issue, they can shine a light on this important topic. As noted, postponing action is a luxury the world can hardly afford. (KW)