_Note:_ CAPEX = capital expenditure; OPEX = operating expenditure. The full model approach estimates CAPEX, OPEX, and inefficiencies using our model, which complements utility-specific data with estimates of the long-term incremental costs of efficient model utilities. The hybrid direct expenditure/ model approach, meanwhile, substitutes direct expenditure data in the place of the CAPEX model estimates, while maintaining the model’s estimates for OPEX and inefficiencies.

Finally, it is worth mentioning that these estimates are global, and therefore represent regional and global average levels of subsidies in the WSS sector. Estimates at the country level may differ significantly from these ranges due to the many contextual factors that vary across countries. The estimation of subsidies at the country level would therefore require additional data and a refined methodology.

# **6. Conclusion**

Subsidies are pervasive across countries, irrespective of region or income level. This is despite the fact that, as of 2015, about 29 percent of the world’s population lacks safely managed drinking water, and about 61 percent lacks access to a safely managed sanitation service (WHO and UNICEF, 2017). Subsidies are particularly prevalent among networked and sewered WSS services, as illustrated by the IBNET database. Only 14 percent of the 1,549 listed utilities generate enough revenue to cover the total economic costs of service provision, while only 35 percent are able to cover, at a minimum, the operation and maintenance costs of service provision.

The cost of subsidies associated with the operations, maintenance, and major repair and replacement of existing WSS infrastructure in much of the world (excluding, notably, China and India) is an estimated $289 billion to $353 billion per year, or 0.46–0.56 percent of these countries’ combined gross domestic product (GDP). This figure rises, shockingly, up to 1.59–1.95 percent if only low- and middle-income economies are considered, an amount largely due to the capital subsidies captured in our estimation. Subsidies of operating costs account for approximately 22 percent of the total subsidy amount both in the full sample and for low-income economies separately. At $101 billion to $124 billion per year, the region of Latin America and the Caribbean has the largest amount of subsidies (including both operating and capital subsidies), in absolute terms and as a percentage of GDP. Annual subsidy amounts by region range from 0.05 percent to 2.40 percent of GDP, and low-income economies are generally at the high end of this range. It is important to note that our estimation does not include either capital expenditure for infrastructure expansion—which tends to be fully subsidized—or environmental costs. Therefore, the actual global magnitude of networked water and sanitation subsidies is much greater than our estimation.

The SDGs for water supply and sanitation set out a transformational vision for the future whose achievement will require substantial financial resources. Given the scarcity of public resources globally, it is more important than ever to ensure that those public resources already allocated to the sector are used efficiently to achieve universal delivery of water supply and sanitation services. Yet while subsidies of WSS service provision are generally implemented in pursuit of worthwhile objectives, poor design often undermines these objectives, rendering subsidies pervasive, expensive, poorly targeted, nontransparent, and distortionary (Andres et al, 2019). Recognition of the large amount of both implicit and explicit subsidies currently flowing into the sector should motivate governments and policy makers to ensure that these funds effectively advance the goal of equitable access to affordable, sustainable, and quality WSS services, while maximizing the targeting of the poor, promoting transparency, and minimizing distortion.

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