Enhancing Fiscal Decentralisation in the Water Sector

The decentralisation of fiscal responsibilities in the water sector can play a transformative role in improving service delivery, sustainability, and efficiency. However, effective fiscal decentralization requires a well-structured framework that clarifies responsibilities, ensures adequate funding, and fosters coordination across different levels of government. By examining successful global models, we can identify key strategies to enhance fiscal decentralisation in the water sector.

Clarifying Responsibilities Across Government Levels. A fundamental issue in the water sector is the overlap of responsibilities among national, regional, and local governments. Clear delineation of roles is crucial to avoid inefficiencies, duplication of efforts, and accountability gaps. Establishing distinct responsibilities for infrastructure development, maintenance, and service delivery ensures that subnational governments effectively manage water resources. A successful example of this approach is South Africa’s Water Governance Model, established under the Water Services Act (1997). The national government sets regulations and policies, while municipalities are responsible for service delivery.

Ensuring Adequate and Sustainable Funding. Decentralization without proper funding leads to inefficiencies and failures in water service delivery. Subnational governments must have access to sufficient financial resources to maintain and improve water infrastructure. Funding mechanisms, including intergovernmental transfers, user fees, and public-private partnerships, should be designed to support long-term sustainability while ensuring affordability for end users. Brazil’s National Health Foundation (FUNASA) offers an effective model, providing federal funding to municipalities for water and sanitation projects, particularly in rural areas. By ensuring decentralized financial support, Brazil has expanded water coverage, especially for underserved communities, preventing regional disparities in service quality.

Strengthening Subnational Fiscal Autonomy for Greater Accountability. When local governments have greater control over their fiscal resources, they become more accountable to citizens. Strengthening fiscal autonomy in the water sector means allowing subnational entities to generate revenue through local taxes, service charges, or innovative financial models. Kenya provides a strong case for this approach. Following its 2010 Constitution, water management responsibilities were decentralized to county governments. Counties now raise funds through local taxation and water tariffs, allowing them to improve infrastructure and expand access to clean water, particularly in rural and peri-urban areas.

Building Capacity at the Subnational Level. Many local governments lack the technical expertise and financial management skills necessary to efficiently manage water resources. Capacity-building initiatives, such as training programs, knowledge-sharing platforms, and technical assistance, can enhance local governments' ability to implement effective water policies and manage budgets. A successful example is the Philippines' Local Water Utilities Administration (LWUA), which provides financial and technical assistance to local water districts. This support has helped local governments manage water utilities more efficiently, leading to improved service coverage and financial sustainability.

Fostering Coordination Mechanisms Across Government Levels. Water governance requires seamless collaboration between national, regional, and local authorities. Establishing clear coordination mechanisms—such as intergovernmental committees, regulatory frameworks, and shared databases—helps streamline decision-making and prevent conflicts over water resources. Australia’s Murray-Darling Basin Plan illustrates this principle well. The Murray-Darling Basin Authority ensures coordination between federal and state governments in managing one of the country’s most critical river systems. This structured cooperation prevents water conflicts and promotes sustainable water use across multiple jurisdictions.

Encouraging Cross-Jurisdictional Cooperation. Water resources do not adhere to administrative boundaries. Effective water management requires cooperation across jurisdictions, particularly in regions that share rivers, lakes, or groundwater sources. A leading example is the European Union’s Water Framework Directive, which mandates cross-border cooperation among member states for transboundary water bodies. This initiative has improved water quality and coordinated management efforts for shared rivers such as the Danube and Rhine, ensuring fair and sustainable resource distribution.

Promoting Innovation and Citizen Engagement. Innovative governance approaches, including digital monitoring systems, smart water infrastructure, and participatory budgeting, can enhance the efficiency of water service delivery. Encouraging citizen engagement through community consultations and feedback mechanisms ensures that water policies reflect local needs. India’s Jal Jeevan Mission exemplifies this approach. The initiative emphasizes community participation in rural water supply management by training local water user committees and encouraging public feedback. This has significantly expanded household tap connections and improved water quality in rural villages.

Utilising Asymmetric Decentralisation for Tailored Solutions. Different regions have varying water availability, consumption patterns, and infrastructure capacities. Asymmetric decentralization—allowing different levels of decentralization based on local conditions—provides tailored solutions that cater to specific regional needs. Spain’s River Basin Authorities effectively apply this approach. By managing water resources at the basin level, these authorities tailor strategies to regional conditions, leading to improved drought management and resource allocation.

Improving Transparency, Data Collection, and Performance Monitoring. A decentralised water sector must prioritise transparency and data-driven decision-making. Implementing digital tools for water quality monitoring, financial reporting, and performance tracking enhances accountability. The United States' Water Data Transparency Initiative, led by the US Geological Survey and Environmental Protection Agency, provides open access to water quality and usage data. This transparency has strengthened state and municipal water planning, ensuring data-driven policy decisions and public accountability.

Strengthening Fiscal Equalization and Regional Development Policies. Fiscal disparities between regions can lead to uneven water access and quality. Strengthening fiscal equalization mechanisms—where wealthier regions contribute to the development of underserved areas—ensures equitable water distribution. Germany’s Intergovernmental Transfers for Water Infrastructure model is a strong example. Wealthier states contribute to funding water projects in economically weaker regions, ensuring balanced water access across the country and improving nationwide water security.

Fiscal decentralization in the water sector holds the potential to improve service delivery, increase efficiency, and enhance sustainability. However, achieving this requires a comprehensive strategy that integrates clear responsibilities, adequate funding, strong governance mechanisms, and citizen participation. Successful global examples—from South Africa’s clear governance framework toAustralia’s coordinated river basin management—demonstrate that well-designed fiscal decentralisation leads to more effective and equitable water services. By embracing these principles, governments can create a water sector that is not only financially sustainable but also resilient and inclusive.