Kalpana Kochhar, Catherine Pattillo, and Yan Sun
We never know the worth of water till the well is dry.
The largest reservoir system serving São Paulo, Brazil, is nearing depletion. A combination of population growth, deforestation, polluted rivers, and the worst drought in southeast Brazil in nearly a century has forced many residents to endure sporadic service interruptions. Some have gone days without water. Residents have resorted to drilling private wells or hoarding water to wash clothes and flush toilets.
Thousands of miles to the north, parts of the United States are also experiencing severe water shortages, driven by decades of unsustainable consumption combined with drought conditions. A “bathtub ring” lines Lake Mead, the largest reservoir in the United States, marking the level water once reached. In April 2015, California state regulators passed significant mandatory cuts to water use, beyond the already strict limits on watering and landscaping, with heavy fines imposed on violators. Farmers foresee leaving up to 1 million acres of farmland uncultivated, almost twice as much as last year.
In January 2015, the most devastating floods in living memory ravaged Malawi, a densely populated low-income country whose people survive on subsistence farming. The floods displaced nearly a quarter of a million people and destroyed crops, villages, and livestock. Malawian President Peter Mutharika declared half the country a disaster zone.
These are just some of the water challenges plaguing countries across the globe. People throughout the world face rising constraints on their ability to obtain water in a usable form, when and where it is needed. Globally, 1.2 billion people, or one in six, live in areas with an inadequate water supply, approximately one in nine lacks access to safe drinking water, and every minute a child dies of a water-related disease.
Water challenges can have large adverse economic, social, and environmental consequences. Since water is a crucial input for agriculture and a host of other industries, shortages and supply variability can lead to food insecurity, push up production costs, and constrain productivity growth. For example, water-related shocks may have reduced Mozambique’s GDP growth by as much as 1.1 percentage points a year during 1981–2004, according to the World Bank (2007).
Lack of access to safe drinking water and improved sanitation inhibits development in a variety of other ways too, including by raising the prevalence of disease, worsening health and nutrition outcomes, and lowering the participation of women—who are typically tasked with collecting and hauling water for household use—in education and income-generating activities. Degradation of water can also dry up activity in sectors such as tourism that depend on environmental quality.
But sound policies and institutions have helped even countries with low endowments of water successfully manage this scarce natural resource, according to a new IMF study. Underpricing often leads to overuse and undersupply, the study finds. By setting the right incentives, governments can effectively cope with these challenges and, at the same time, provide for the water needs of the poor.
The things which have the greatest value in use have frequently little or no value in exchange; on the contrary, those which have the greatest value in exchange have frequently little or no value in use.
Bjornlund, Henning, and Jennifer McKay, 2002, “Aspects of Water Markets for Developing Countries: Experiences from Australia, Chile, and the US,” Environment and Development Economics, No. 4, pp. 769–95.
Gassert, Francis, Matt Landis, Matt Luck, Paul Reig, and Tien Shiao, 2013, “Aqueduct Global Maps 2.0,” World Resources Institute Working Paper (Washington).
Kingdom, Bill, Roland Liemberger, and Philippe Marin, 2006, “The Challenge of Reducing Non-Revenue Water (NRW) in Developing Countries,” Water Supply and Sanitation Sector Board Discussion Paper No. 8 (Washington: World Bank).
World Bank, 2007, “Mozambique Country Water Resources Assistance Strategy: Making Water Work for Sustainable Growth and Poverty Reduction,” Strategy Paper (Washington).