South Asia: Economics of Sanitation Initiative
The Economics of Sanitation Initiative (ESI) is a multi-country initiative of the Water and Sanitation Program (WSP). ESI was launched in 2007 as a response by the Water and Sanitation Program (www.wsp.org) to address major gaps in evidence among developing countries on the economic aspects of sanitation. The study aims to provide evidence that supports sanitation advocacy, elevates the profile of sanitation, and acts as an effective tool to convince governments to take action. The first study completed in Southeast Asia found that the economic costs of poor sanitation and hygiene amounted to over US$9.2 billion a year (2005 prices) in Cambodia, Indonesia, Lao PDR, the Philippines, and Vietnam. Its second phase analyzes the cost-benefit of alternative sanitation interventions and will enable stakeholders to make decisions on how to spend funds allocated to sanitation more efficiently. Due to that study’s successful traction, WSP has now carried out ESI studies in India, Bangladesh and Pakistan. ESI studies are also underway countries in Africa, Latin America, and the Caribbean.
The study estimates economic impacts by examining three major components: health impact, water-related impact, and user preference impact.
Health-related impacts include premature deaths and morbidity as well as the burden of disease due to inadequate sanitation. To estimate the cost of premature deaths, the human capital approach and the value of statistical life approach is followed, while the cost estimation of episodes of illness considers the treatment cost, and welfare and productivity losses. Water-related impacts include the household cost of treatment of drinking water, the cost of piped drinking and non-drinking domestic water production, and the cost of fetching cleaner water.
User preference, time loss, and welfare-related impacts consider the extra time needed for open defecation and for use of a shared toilet as well as the time lost due to absence of girl of school-age from schools and of women from workplaces.
The estimation includes both financial and nonmonetary costs to portray a complete picture of the economic losses caused by poor sanitation.
- Financial costs are the direct expenses paid in financial terms by a person or institution, such as changes in household and government spending, real income losses for households, and so on; and
- Nonmonetary costs consist of resource use, such as the time spent on taking care of patients, fetching water or using unimproved latrines; they can also be expressed in financial units using ‘shadow prices.
The study also calculates the economic gains that improvements in sanitation and hygiene can bring by reduced relative risk of diarrhea. A sensitivity analysis is conducted to capture the low and high values of parameters to indicate potential variation.
- The total economic impacts of inadequate sanitation in Bangladesh amount to a loss of US$ 4.2 billion each year.
- This is equivalent to 6.3% of gross national product (GDP) in 2007.
- The total economic impacts of inadequate sanitation in India amounts to a loss of $ 53.8 billion in 2006.
- These economic impacts were the equivalent of about 6.4% of India’s gross domestic product (GDP) in 2006.
- The total economic impacts of inadequate sanitation in Pakistan amounts to a loss of $5.7 billion.
- These economic impacts were the equivalent of about 3.9% of Pakistan’s gross domestic product (GDP).