Key global shifts in development finance
The water and sanitation sector is at a crossroads. Traditional funding models are collapsing, geopolitical priorities are shifting, and multilateral institutions are stepping into the breach—but not without challenges. Simultaneously, we are witnessing water’s rising prominence on the global agenda.
Recent major disruptions and trends impacting development funding include significant funding withdrawals:
- The Gates Foundation largely ceased funding non-sewered sanitation.
- USAID was shut down – with a total loss of funding estimated at $60 billion.
- The UK government (FCDO) abruptly ended its WASH work at short notice – while reducing overall ODA to 0.3% of GDP.
- Although the Dutch government has cut overall aid, it stands out as having increased its allocation to the water and sanitation sector.
There have also been changes in the thematic focus of where funding is flowing. There's a perceived decline in traditional INGO-led water and sanitation initiatives (e.g., community management, hand pumps in rural or peri-urban settings), whereas there is an emerging emphasis on "Water with a capital W" which prioritises water resources, irrigation, climate resilience and professional utility-provided services. Water is increasingly framed as an economic driver - vital for national development, alongside its importance as a human right and social good.
Not all is gloom – the rise of new players and initiatives
Among the most ambitious new programmes in the sector is the European Union's "Global Gateway" initiative which anticipates doubling water investment outside the EU, particularly in middle-income countries. The World Bank's "Water Forward" initiative backed by the UN Secretary-General, aims to double global water investments over the next five years, also focusing on middle-income countries. It also signals high-level commitment to water access from multilateral development banks, though it largely consolidates existing capital expenditure commitments rather than introducing new technical assistance.
There are also new philanthropic players like the Children's Investment Fund Foundation entering the sector, potentially filling funding gaps, but the influence of traditional northern/western philanthropy and INGOs is seen as overstated compared to that of Multilateral Development Banks (MDBs), China, and many new players from the Middle East (mostly from United Arab Emirates and Saudi Arabia).
Strategic opportunities for engagement with Multilateral Development Banks
MDBs primarily focus on large-scale (typically urban) CapEx, which can lead to unsustainable infrastructure if not balanced with sufficient technical assistance (TA) and systems strengthening. Lack of funding for TA is a significant concern across all the new initiatives.
MDBs often prioritise the speed of loan disbursements over results-based funding, viewing the latter as a potential impediment to quick expenditure. This is bad news for sustainability. Regional development banks are generally easier to engage and can offer opportunities for strategic discussions on sustainability funding, as country offices tend to focus more on loan implementation.
Rural and decentralised water and sanitation—long the domain of INGOs—are conspicuously sidelined in these high-level strategies.
The required organisational adaptations
Organisations like Water For People are finding opportunities to act as consultants for MDBs, providing services related to systems strengthening and capacity building, though this is viewed as an entry point rather than an ultimate objective. IRC, while seeking to partner with MDBs, is also decentralising and shifting away from an INGO brand to become a partner that supports and is embedded within governments.
Organisations must adapt their programme design and delivery to prioritise measurable impact and outcomes. There's an opportunity to focus on ’efficiency’, such as improving public expenditure, reducing non-revenue water, and strengthening capacity. However, significant internal change management is required within diverse organisations to align central strategic shifts with on-the-ground realities and balance decentralisation with new impact-focused models.
Key take aways from the discussion
While water is gaining political traction, the systems-strengthening work that some INGOs excel at—policy reform, capacity building, and sustainability—risks being overlooked in favour of CapEx-heavy projects that MDBs prefer. Yet even MDBs cannot get projects off the ground without investing in technical assistance; the soft, systems-oriented work that INGOs deliver is often precisely what turns capital commitments into functioning, durable infrastructure. In this sense, the two approaches are not competing but complementary ones—the systems work that is at risk of being overlooked is precisely what makes the large-scale investments viable in the first place.
INGOs can support national governments in developing robust enabling environments, policies, and regulatory frameworks to de-risk investment and attract local capital, they can also help aggregate pipelines of smaller projects and secure co-financing.
Philanthropic funders might be able to leverage their relationships with MDBs to support their trust funds (flexible TA money), which are currently facing shortfalls due to cuts in bilateral aid.
Overall, in a fragmenting multilateral world order, national governments are increasingly critical players (as they always should have been). As a result, engagement with MDBs and other donors is most effective at the country level, aligning with and supporting national initiatives and sector reforms. At the same time, MDBs need to explicitly recognise the role of other actors. Otherwise, their funding risks undermining—rather than strengthening—the sector.
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About Finance Connect:
As part of an ongoing effort to deepen expertise and elevate the global conversation around WASH Finance, Water For People and IRC through the One For All Alliance have developed a series called Finance Connect. It brings together a range of perspectives and experiences and creates a space where WASH professionals present and discuss targeted topics to do with how water, sanitation, and hygiene work is funded. Each session produces a blog with insights from the discussion, which we hope can serve as a resource for the entire sector to learn and, ultimately, channel more resources and attention to the critical topic of universal and sustainable water, sanitation, and hygiene services for the billions of people whose needs are not currently being met.